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FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 2950
RUEHOO/CHINA POSTS COLLECTIVE
RUEHUL/AMEMBASSY SEOUL 3745
RUEHKO/AMEMBASSY TOKYO 3399
RUEHMO/AMEMBASSY MOSCOW 2574
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 05 ULAANBAATAR 000208 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: OREP AMGT ASEC AFIN MG
SUBJECT: MONGOLIA SCENESETTER FOR CODEL BOEHNER 
 
ULAANBAATA 00000208  001.2 OF 005 
 
 
Sensitive but Unclassified - Not for Internet Distribution 
 
Ref: State 75283 
 
¶1. (SBU) Post has prepared the following scenesetter for the 
Congressional Delegation, led by Rep. John Boehner of Ohio and 
scheduled to visit Mongolia from August 9 to 10. 
 
¶2. (SBU) Below is a breakdown by paragraph of the organization of 
this scenesetter: 
 
3-5: Context of the Visit 
6-8: Political Overview 
9-10: Economic Overview 
11-12: Bilateral Trade 
13-15: Mining Overview 
16-17: Foreign Assistance Overview 
18-21: Defense Overview 
22-24: Mongolian Troops Abroad 
25: Attitudes Toward the U.S. 
26: Educational Exchanges 
 
-------------------- 
CONTEXT OF THE VISIT 
-------------------- 
 
¶3. (SBU) We are pleased to welcome you to Mongolia.  Your visit 
follows the successful transition of power to Ts. Elbegdorj as 
president last June, which underscores the progress this country has 
made in developing its democratic institutions.   The U.S.-Mongolia 
relationship is robust and continues to grow, and your visit will do 
much to cement our relations.  Wedged between Russia and China, 
Mongolia refers to its key partners not sharing a border as "Third 
Neighbors," and our relationship is paramount among these.  Mongolia 
has been a steadfast partner in Iraq and Afghanistan, sending ten 
rotations to Iraq, artillery training teams to Afghanistan, and will 
soon send a new mission to Afghanistan.  Mongolia is engaged in 
political and market-based economic reforms, and the United States 
seeks opportunities to assist the country's transformation.  Visits 
by Members of the House play a key role in this transformation and 
have won us many friends in Mongolia. 
 
¶4. (SBU) Although post-election violence on July 1, 2008 
overshadowed parliamentary elections last summer, Mongolia overcame 
those tragic events to form a coalition government of the two major 
parties last fall and to hold a transparent, fair, and peaceful 
presidential election on May 24, 2009.  Mongolians have rejected the 
violence of last summer as the wrong direction for their country. 
The defeat of the incumbent President by opposition candidate Ts. 
Elbegdorj, followed by a peaceful transition of the presidency also 
underscored Mongolia's political maturity. 
 
¶5. (SBU) The coalition has taken some steps in the last few months 
to secure passage of mining legislation that is more agreeable to 
the government and possibly to western investors, but passage 
remains elusive.  With presidential elections behind them, the 
parties may be better able to focus on such legislation, but ongoing 
inter- and intra-party political squabbles hamper progress. 
However, the Government will try once more to gain parliamentary 
approval of Mongolia's first large-scale mining project with a major 
western mining company, Rio Tinto, at about the time of your visit. 
 
------------------ 
POLITICAL OVERVIEW 
------------------ 
 
¶6. (SBU) Mongolia's successful democratic transition motivates our 
deepening engagement in recent years. Mongolia has made significant 
progress since 1992: These years have seen the withdrawal of 100,000 
Soviet troops, the beginnings of a multi-party political system, and 
the advent of a market economy.  Although the formerly communist 
Mongolian People's Revolutionary Party (MPRP) held the overwhelming 
majority of power in the immediate aftermath of the Soviet 
withdrawal, opposition parties have since coalesced into the 
Democratic Party (DP), which has at times won a majority in 
parliament and selected a prime minister.  The MPRP chose to form a 
coalition government with the DP in recognition of the need to work 
together to face the global economic downturn and the crash in 
copper prices that significantly diminished government revenue. 
 
¶7. (SBU) The May 24, 2009, presidential election best illustrates 
 
ULAANBAATA 00000208  002.2 OF 005 
 
 
the extent of Mongolia's political recovery.  Then incumbent 
president N. Enkhbayar of the MPRP lost to DP challenger Ts. 
Elbegdorj, a veteran of the Democratic Revolution of the early 
1990s.  Embassy officials and other international partners sent 
observers to over 95 percent of the polling places in Ulaanbaatar on 
Election Day and noted no significant irregularities.  By noon the 
following day, President Enkhbayar conceded defeat, dispelling fears 
of a repeat of last summer's violence.  Elbegdorj took office on 
June 18.  A Harvard M.A., fluent in English and knowledgeable about 
American culture, Elbegdorj is well disposed toward the United 
States. 
 
¶8. (SBU) One of the central themes of Elbegdorj's presidential 
campaign was that of change, with particular emphasis on fighting 
corruption.  Mongolia established the Independent Authority Against 
Corruption (IAAC) in 2007 and has now required financial disclosure 
statements of its top officials; those refusing to disclose have had 
to pay significant fines and run the risk of being dismissed.  Some 
officials have been arrested as a result of IAAC efforts, but few 
have been high-ranking. 
 
----------------- 
ECONOMIC OVERVIEW 
----------------- 
 
¶9. (SBU) The global economic crisis has not spared Mongolia.  GDP in 
the first five months of 2009 has declined 7.5 percent from 2008, 
with no immediate recovery in sight.  The most painful impact has 
been on Mongolia's budget.  From 2005 through mid-2008, booming 
profits from the Mongol-Russian state-owned Erdenet copper mine 
provided more than one-third of state revenues.  Copper then dropped 
to a low of USD 3,500 per ton following record highs of over USD 
8,000 per ton.  During this boom period, the government adhered to a 
largely pro-cyclical policy, increasing civil service wages and 
social welfare programs.  Increased spending, coupled with import 
dependency, also led to inflation rates as high as 33 percent as 
recently as summer 2008.  As the global situation soured last fall, 
foreign investment slowed.  Scarce dollars led to a rapid 
devaluation of the Mongolian national currency, the tugrik, which 
fell nearly 40 percent against the dollar from October 2008 through 
March 2009. 
 
¶10. (SBU) In March, the GOM negotiated a USD 224 million Stand-By 
Arrangement (SBA) for Balance of Payments Support with the IMF and 
passed its first IMF review last May.  As part of the SBA's 
conditions, the GOM cut its budget deficit from 10-12 percent of GDP 
to about six percent.  The SBA also requires the GOM to obtain donor 
support for the remaining budget gap, estimated at USD 205 million 
for 2009 and 2010.  The World Bank, Asian Development Bank, and the 
Government of Japan announced a combined USD 160 million in support. 
 All parties continue to lobby the U.S. for a substantial 
contribution.  We expect to receive approximately US 14 million for 
a 2009 contribution to the donor program through a supplemental 
recently passed by the Congress. 
 
--------------- 
BILATERAL TRADE 
--------------- 
 
¶11. (SBU) U.S.-Mongolian trade currently stands at around USD 140 
million per year.  U.S. imports to Mongolia -- mostly in the form of 
heavy machinery -- have remained relatively stable.  Caterpillar, 
Ford, and John Deere flourish, even in the current down market.  In 
September 2008, Department of Commerce Deputy Undersecretary for 
International Trade Michelle O'Neill led the first ever certified 
U.S. business delegation to Mongolia.  The annual U.S.-Mongolia 
Business Forum, sponsored by the Department of Commerce, the 
Government of Mongolia, and State, attracted nearly 200 participants 
this year to a Washington meeting addressed by Secretary of Commerce 
Locke. 
 
¶12. (SBU) Mongolia's top trade priority with the U.S. is reaching a 
Free Trade Agreement, although USTR has consistently responded that 
the small size of bilateral trade makes such an agreement unlikely 
for the foreseeable future.  In 2007, USTR proposed a stand-alone 
Transparency Agreement (TA), which if successfully negotiated could 
lead to additional stand-alone agreements for key aspects of the 
trade relationship.  As most businesses active in Mongolia 
identified lack of legislative and regulatory transparency as one of 
the key factors inhibiting foreign and domestic investment, USTR 
decided to work with Mongolia in this area through an administrative 
 
ULAANBAATA 00000208  003.2 OF 005 
 
 
agreement.  Mongolia and USTR plan to start negotiations on the TA 
later this year. 
 
--------------- 
MINING OVERVIEW 
--------------- 
 
¶13. (SBU) The establishment of major mining projects remains the key 
commercial and development issue facing Mongolia.  Extraction of 
Mongolia's considerable coal, copper, gold, uranium, iron, and other 
deposits will generate substantial earnings for the GOM.  For U.S. 
commercial interests such as mining firms Peabody Energy and Rio 
Tinto and equipment makers Caterpillar, Ingersoll-Rand, Bucyrus, and 
John Deere, mining is THE industry that will provide the income 
necessary to ensure long-term purchases of U.S. goods and services. 
Failure to move on the Rio Tinto/Ivanhoe Oyu Tolgoi copper-gold 
project has already cost U.S. export interests an estimated USD 200 
million in equipment sales and other contracts.  Separately, the 
Embassy is providing advocacy support for Peabody to secure the 
operating rights for the major Tavan Tolgoi coking coal deposit. 
 
¶14. (SBU) The global economic crisis has forced investors to make 
hard choices as to where to put scarce dollars.  An opaque legal and 
regulatory environment, arbitrary enforcement of and changes to the 
rules of the game, and a weak global economy have driven many 
exploration firms out of Mongolia, removing hundreds of millions of 
dollars in foreign direct investment and hundreds of well-paying 
jobs from the Mongolian economy. 
 
¶15. (SBU) Recently, the government of Mongolia, acting with 
Parliament's sanction, crafted an investment agreement with mining 
giant Rio Tinto and Canada's Ivanhoe to stabilize the legal and 
regulatory environment for the Oyu Tolgoi mine.  The only remaining 
hurdle is parliamentary approval of the agreement.  Foreign and 
domestic observers expected Parliament to vote on the agreement in 
mid-July, but Parliament yet again declined to vote definitively up 
or down, kicking the agreement back to the government for additional 
negotiations.  Private investors have signaled that failure to pass 
this deal will cause them to mothball the project. 
 
--------------------------- 
FOREIGN ASSISTANCE OVERVIEW 
--------------------------- 
 
¶16. (SBU) The Millennium Challenge Account (MCA) for Mongolia, which 
over five years is scheduled to disburse $285 million in grant 
money, entered into force in September 2008.  MCA is overcoming the 
loss of its $188 million rail modernization project due to the 
objection of the Russian government, which owns 50 percent of the 
state-owned railroad.  Bowing to pressure from the most senior 
levels of the Russian government, Mongolia was forced to decline the 
MCC rail grant.  However, both U.S. and Mongolian officials are 
working quickly to design proposals for other appropriate projects 
in Mongolia in order to present recommendations to the MCC Board of 
Directors in September.  This was a key issue in Foreign Minister 
Batbold's discussions with Secretary Clinton on June 9 in 
Washington. 
 
¶17. (SBU) USAID, present in Mongolia since 1991, has several ongoing 
programs with a focus on private sector-led economic growth and good 
governance.  In the area of economic growth, USAID focuses on 
economic and trade policy, financial sector reform, energy sector 
reform and national dialogue.  Current emphases are working with 
international financial institutions (IBRD, ADB, EBRD, IMF and IFC) 
to address critical and systemic banking sector problems, and on 
building a national consensus on development of Mongolia's vast 
mineral resources.  In the area of good governance, USAID focuses on 
anti-corruption and improving the Mongolian judiciary's adjudication 
of commercial cases.  With over 125 Peace Corps volunteers, 
Mongolia's program is one of the largest in the world per capita. 
 
---------------- 
DEFENSE OVERVIEW 
---------------- 
 
¶18. (SBU) Mongolia's armed forces represent a compromise between 
national identity and practical reality.  There are three 
national-level armed services, only one of which falls under the 
Ministry of Defense: the 12,500-man Mongolian Armed Forces.  The 
Ministry of Justice oversees the Border Forces (13,000 soldiers out 
of the 18,500 strong General Border Protection Board, which also 
 
ULAANBAATA 00000208  004.2 OF 005 
 
 
includes Customs and Immigration personnel) and the Internal Troops 
(approximately 4,000).  An additional disciplined service, the 
National Emergency Management Agency, reports directly to the Deputy 
Prime Minister and is responsible for civil defense, fire and 
disaster response. 
 
¶19. (SBU) Sandwiched between two military powers and with no 
illusions about countering an invasion or attack by either, the 
Mongolian Armed Forces' (MAF) raison d'etre is not entirely clear to 
outside observers.  However, the Mongolians have astutely used their 
participation in Coalition and UN peace support operations to 
increase their international recognition and improve their 
reputation as a partner in regional stability.  This increased 
recognition has helped counterbalance the enormous economic 
dependence on Russia and China.  The MAF are in the midst of an 
ambitious defense reform program to transform its Soviet-legacy 
military into a modern, Western-style, expedition-capable armed 
force interoperable with U.S. and UN partners.  The centerpiece of 
Mongolia's reform effort is the ongoing development of a 
2,500-soldier Peace Support Brigade. 
 
¶20. (SBU) Playing a key role in Mongolia's initiative is the annual 
multinational peacekeeping exercise Khaan Quest.  This multi-part 
exercise, which began as a Marine Forces Pacific (MARFORPAC) 
bilateral exercise with the Mongolian Armed Forces, has grown into a 
regional exercise drawing participants from as far away as India, 
Nepal, and Indonesia.  South Korea will participate for the first 
time in 2009.  The exercise this year includes an expanded UN 
Peacekeeping Staff Officers Course, a U.S.-Mongolian humanitarian 
civic action project, a medical readiness exercise, and a battalion 
staff operations training course to assist in readying Mongolian 
peacekeeping battalions for upcoming deployments.  Observers from 
other nations attend the exercise, which is normally opened by the 
President of Mongolia.  The exercise is one of several peacekeeping 
exercises supported globally under the Global Peace Operations 
Initiative (GPOI) auspices, and has been a significant factor in 
raising Mongolia's regional and international profile as a quality 
provider of peacekeeping forces. 
 
¶21. (SBU) Once the sole domain of the U.S.-Mongolia defense 
cooperation program, the peace support concept -- as well as the 
rest of the MAF -- has seen a surge in Russian interest and 
assistance, with a five-year $120 million assistance program 
underway.   A 450-man Russian contingent of maintenance troops came 
to Mongolia last fall for Exercise Darkhan One -- the first such 
entry by a sizeable contingent since the Russian departure in the 
early 1990s.  Russian personnel taught and performed maintenance on 
legacy military systems, improving the operational readiness rate of 
the MAF main line forces considerably.  A second Darkhan exercise is 
planned for this fall.  Russia's recent steps to reestablish a 
presence in Mongolian security affairs illustrate that while 
U.S.-Mongolian security ties remain strong, there is no guarantee 
that we will continue to play a singular role in Mongolian defense 
reform. 
 
----------------------- 
MONGOLIAN TROOPS ABROAD 
----------------------- 
 
¶22. (SBU) Mongolian troops have earned a strong reputation providing 
Coalition and UN support since their first deployment in 2003.  Five 
years' worth of ten consecutive deployments to Iraq ended in October 
of 2008.  Mongolia also provided a 21-soldier artillery training 
team to Afghanistan, an effort it temporarily discontinued late last 
summer due to multiple soldier deployments by these specialized 
personnel.  Mongolia has had an ongoing 250-soldier deployment under 
the UN flag in Sierra Leone, which is due to conclude at year-end. 
This deployment represented a major success for U.S. policy, as 
there has been virtually no U.S. involvement in the effort.  Helping 
the Mongolians prepare for expeditionary missions has been a 
longstanding priority for the United States. 
 
¶23. (SBU) After a SECDEF request, Mongolia is now in the final 
stages of preparing to deploy approximately 200 personnel to 
Afghanistan:  130 personnel will support the United States with 
fixed site security at Camp Eggers; 23 personnel will provide 
artillery training with the United States for the Afghan National 
Army; and about 40 personnel will support the German contingent 
under ISAF command in the North.  Foreign Minister Batbold 
underscored Mongolia's commitment to deploying troops to Afghanistan 
during his June 9 meeting with Secretary Clinton in Washington. 
 
ULAANBAATA 00000208  005.2 OF 005 
 
 
 
¶24. (SBU) Earlier decisions to provide more limited support have 
been overcome by Mongolia's recent commitment to sending an 800 
strong battalion of peacekeepers to support the UN mission in 
northeastern Chad, to be deployed by the end of 2009.  Mongolia's 
government can use the revenue from the deployment to Chad to offset 
the cost of supporting OEF and ISAF deployments in Afghanistan. 
This will be Mongolia's most ambitious overseas military deployment 
ever attempted in modern times and is fully in line with the goals 
of U.S. support to the Mongolian Armed Forces peacekeeping efforts. 
While the provision of Coalition support will incur considerable 
cost to the cash-strapped Mongolian government, Mongolia clearly 
understands the value of accumulating political capital. 
 
------------------------- 
ATTITUDES TOWARD THE U.S. 
------------------------- 
 
¶25. (SBU) Among officials, the media, and the public attitudes 
toward the United States are generally positive.  Our public 
diplomacy efforts focus on providing information about the United 
States and its policies, partly through our American Corners in 
Ulaanbaatar and Khovd.  Mongolians are keenly interested in U.S. 
visa policy, and some argue for including Mongolia in the visa 
waiver program, but Mongolia is not close to qualifying for this 
program. 
 
--------------------- 
EDUCATIONAL EXCHANGES 
--------------------- 
 
¶26. (SBU) Educational exchanges have greatly expanded in recent 
years.  For the 2009-10 academic year, four Mongolians will study on 
Fulbright Scholarships for Master's Degrees at U.S. universities, 
and five American students will come to Mongolia for research as 
Fulbright Students.  The Embassy supports an active educational 
advising center with an increasing number of Mongolian students 
heading to the U.S. to study each year.  Our English language 
program provides scholarships for economically disadvantaged high 
school students from more remote provinces. 
MINTON