VZCZCXRO5905
RR RUEHLMC
DE RUEHUM #0552/01 2010706
ZNY EEEEE ZZH
R 200706Z JUL 06
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 0140
INFO RUEHBJ/AMEMBASSY BEIJING 5122
RUEHRL/AMEMBASSY BERLIN 0055
RUEHLO/AMEMBASSY LONDON 0037
RUEHML/AMEMBASSY MANILA 1210
RUEHMO/AMEMBASSY MOSCOW 1550
RUEHFR/AMEMBASSY PARIS 0019
RUEHRO/AMEMBASSY ROME 0026
RUEHUL/AMEMBASSY SEOUL 2355
RUEHKO/AMEMBASSY TOKYO 2167
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0322

UNCLAS E F T O SECTION 01 OF 02 ULAANBAATAR 000552 
 
SIPDIS 
 
SENSITIVE 
NOFORN 
SIPDIS 
 
TREASURY PASS USEDS TO WORLD BANK AND IMF 
LONDON PASS USED TO EBRD 
MANILA USED TO ADB 
STATE FOR EAP/CM AND EB/IFD/ODF 
 
E.O. 12958: DECL: 07/20/2011 
TAGS: EAID EFIN PREL MG
SUBJECT: EBRD OPENS FOR BUSINESS IN MONGOLIA 
 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (U) Summary:  On July 15, 2006, the European Bank for 
Reconstruction and Development (EBRD) received notification 
from the Russian Federation that it had ratified Mongolia's 
accession to the EBRD, the last of the sixty-one EBRD members 
to do so.  EBRD Business Group Director Olivier Deschamps and 
the new Director for Mongolia John Chomel-Doe on July 18 and 
19 briefed representatives of diplomatic, UN, and 
multi-lateral agencies in Ulaanbaatar on the EBRD's approach 
and goals in Mongolia.  EBRD's emphasis on private sector 
investment; non-concessional, commercial-rate loans for 
economically sustainable projects; and corporate good 
governance is a welcome complement to the USG's own focus on 
private sector-led development and good governance. Deschamps 
is particularly interested in collaborating with the 
Millennium Challgenge Corporation to implement projects in 
Mongolia, citing previous such collaboration with MCC in 
Georgia. End Summary. 
 
¶2. (SBU) Deschamps opened the July 18 briefing (attended by 
Ambassadors from US, UK, France, and India and 
representatives from Russia, Japan, the UN, World Bank, IMF, 
and Asian Development Bank) by describing the July 15, 2006 
decision of the Russian Federation to ratify Mongolia's 
accession and EBRD plans for its office in Mongolia. 
(Comment:  Mongolia was slated to be admitted in May, 2006, 
but the Russian Federation, alone, held up its ratification 
of the accession.  According to Deschamps, in a private 
conversation with the Ambassador, the Russians extracted some 
concessions from Mongolia in exchange for the ratification. 
He was unclear exactly what the Russians had demanded and 
received, but he understood that this had been a major focus 
of the July 8-9 Joint Mongolian-Russian Economic Commission 
meeting held in Ulaanbaatar (septel to follow).  It was 
noteworthy, said Deschamps that the Russian notification to 
the EBRD -- informing EBRD that President Putin had approved 
the March Duma ratification -- followed the meeting of the 
Commission and the July 10-12 visit to Mongolia of the 
Russian Prime Minister (for the 800th anniversary 
celebrations). 
 
¶3. (U) Mongolia will be included with other "poor" countries 
at the equivalent point in their economic development, in the 
"Southern and Eastern Europe, Caucasus and Central Asia" 
group.  EBRD intended to open an office, headed by John 
Chomel-Doe (currently Director for Bulgaria) on September 1; 
the EBRD President will visit in mid-September; and the 
Mongolia strategy and work plan will be presented to the EBRD 
Board in November.  Stressing that EBRD is unlike the World 
Bank and Asian Development Bank which provide soft loans and 
subsidies, Deschamps described the EBRD's focus:  identify 
and finance economically sustainable private sector projects, 
through long-term, non-concessional financing based on LIBOR 
Plus (5 or 6 percent, in the case of Mongolia, whose credit 
rating is a B (S&P) to a B  (Fitch)). The projects can be as 
small as $500,000 (e.g., a single factory equipment 
improvement) or as large as $300 million (e.g., a second 
north-south railroad line).  EBRD has a proven track record 
in the mining sector in other countries and will apply this 
experience to Mongolia's developing mining sector.  Other 
areas for potential investment would include:  infrastructure 
(power plants), transportation (railroads and aviation), 
banking, and SME-level projects (e.g., cashmere/textile 
production and tourist facilities). EBRD takes a "banker's" 
approach to project financing and will implement these 
projects directly through commercial banks and NBFI financial 
mechanisms. In terms of corporate governance, the EBRD can 
provide technical assistance in the form of retired CEOs who 
can be tapped to sit on the boards of Mongolian companies 
involved in EBRD-financed projects. 
 
¶4. (SBU) During Deschamps' July 19 lunch with the British, 
German, and French Ambassadors and DCM, he sought views on a 
 
ULAANBAATA 00000552  002 OF 002 
 
 
host of investment climate, political, and social issues.  He 
spent a considerable block of time asking questions related 
to corruption and prospects for Mongolia's new 
anti-corruption law, and he sought "potential allies" for 
reform in Mongolia's Parliament.  Deschamps was also 
interested in Mongolia's political leadership and the 
stability of the current coalition government.  He wanted to 
know about Russian and Chinese interests in Mongolia and 
Mongolia's and Mongolians' attitudes towards both; ditto for 
Europe and the U.S.  After listening to an extensive expose 
of Mongolia's faults and shortcomings tempered with cautious 
optimism, Deschamps, for his part, stressed that the EBRD was 
committed to establishing a relationship with Mongolia and 
making a difference.  "The EBRD will find its niche and be 
relevant," he concluded. 
 
¶5. (SBU)  Comment:  The European Bank for Reconstruction and 
Development had been preparing to open an office in Mongolia 
for over a year and had sent at least two fact-finding 
missions to Mongolia.  The Embassy Country Team met with one 
such mission, led by Masaru Honma (Director, Central Asia) in 
June 2006.  At the end of that meeting, one member of the 
EBRD team noted that he saw no real commitment by the 
Mongolian leadership to a market economy, only lip service 
and rent-seeking activities.  Honma and others acknowledged 
that given EBRD guidelines, Mongolian political behavior 
(read:  corruption), and the economic challenges facing 
land-locked Mongolia, the EBRD may not find many economically 
sustainable projects to fund. In the margins of the July 18 
briefing, Honma conveyed to the Ambassador his appreciation 
for the frank and informative exchange of views at the June 
meeting, and confided that the EBRD's strategy and work plan 
for Mongolia was based largely on input provided by the 
Embassy/USAID.  He and Chomel-Doe requested to meet with 
USAID's implementing partners (Chemonics Inc.) for the 
Economic Policy Reform and Competitiveness Project (EPRC) to 
discuss, inter  alia, investments in the energy sector, 
cashmere, and tourism.  Deschamps noted to the Ambassador 
that EBRD is interested in working with the US Millennium 
Challenge Corporation on project implementation in Mongolia; 
he cited the precedent of EBRD-MCC collaboration in Georgia. 
The Ambassador welcomed the offer and suggested that EBRD 
follow up directly with the MCC in Washington. End Comment. 
SLUTZ