VZCZCXRO3352
PP RUEHLMC
DE RUEHUM #0336/01 1632351
ZNR UUUUU ZZH
P 122351Z JUN 07
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC PRIORITY 1183
INFO RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC
RUEHUL/AMEMBASSY SEOUL 2780
RUEHMO/AMEMBASSY MOSCOW 1788
RUEHBJ/AMEMBASSY BEIJING 5596
RUEHKO/AMEMBASSY TOKYO 2509
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0600
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/SECDEF WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000336 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
Department for EAP A/S Hill, from Ambassador 
 
E.O. 12958: N/A 
TAGS: PREL EAID EMIN ETRD PINR MG
SUBJECT: Mongolia Scenesetter for A/S Hill 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (SBU) We and the Mongolian Government very much look forward to 
your visit.  You will be the most senior solo State Department 
visitor to Mongolia since Jim Kelly in October 2004; Kelly visited 
to inaugurate the first session of the "Comprehensive, Bilateral, 
Global, Regional Issues" (CBRGI) dialogue.  That visit followed 
President Bagabandi's July 2004 trip to the U.S., during which the 
new "comprehensive partnership" description of the bilateral 
relationship was coined in the presidential joint statement.  You 
accompanied the President and the Secretary on the historic November 
2005 visit, which provided considerable momentum to the relationship 
and Mongolian expectations.  Your own visit likely will have as a 
central theme the deliverables for President Enkhbayar's proposed 
trip this October. 
 
Mongolia's Closest Third Neighbor 
--------------------------------- 
 
¶2.  (SBU) The United States has pride of place among Mongolia's 
"third neighbors," an elastic category that also includes South 
Korea, Japan, and Europe.  The third neighbor concept is Mongolia's 
effort to escape from its distinct geopolitical disadvantage of 
being a landlocked state wedged between the twin giants of Russia 
and China.  Mongolia is careful to remain on cordial terms with both 
its real neighbors, but historical wariness about Chinese domination 
is not far below the surface, and there is some resentment about the 
rapid Russian pullout in the early 1990s which led to a sharp 
depression, resentment which has bubbled to the surface more now 
that the Russians have made a heavy handed reappearance trying to 
gain special access to Mongolia's mineral deposits.  U.S. wariness 
about the Shanghai Cooperation Organization is more than matched by 
Mongolia's own cautiousness.  Mongolia only decided to become an 
observer in the organization because it wishes to be ready to take 
part in any regional economic integration activities.  Mongolia aims 
to build relationships as widely as it can -- one reason it is 
hosting an Organization for Security and Cooperation in Europe 
(OSCE) meeting June 11-12, and why it hopes for U.S. support to join 
APEC and NATO's Partnership for Peace. 
 
8th Rotation: Time for a Decision 
--------------------------------- 
 
¶3.  (SBU) Your visit is well-timed to urge a decision on an 8th 
rotation of Mongolian soldiers to Iraq.  The troops for the next 
rotation have finished training, and a formal decision needs to be 
made soon if they are to have any chance of getting to Iraq by July 
1, the date the three-month extension of the 7th rotation ends. 
According to the President's Foreign Policy Advisor (FPA), 
Tsogtbaatar, the Ambassador's June 6 meeting with President 
 
SIPDIS 
Enkhbayar was helpful in moving the discussion on the next rotation 
forward within the Mongolian government.  There reputedly has been 
an "Alphonse and Gaston" dynamic within the government, with the 
President viewing it as an issue for the Prime Minister and the 
Cabinet to make a decision, and Prime Minister Enkhbold not wanting 
to make the decision (for fear of shouldering the blame by himself 
if troops are injured during the rotation).  As reportedly happened 
for the extension of the 7th rotation, Enkhbayar likely will blink 
and ask the National Security Council (President, Speaker and Prime 
Minister) to recommend to the Cabinet that an 8th rotation be sent. 
(Note:  You may expect increased sensitivity to casualties as there 
has been a recent surge in attacks against Camp Echo, where the 
Mongolians provide perimeter defense, with attacks on June 8 (2 
rockets), 9 (18 rockets, 2 landing inside the base), and 11 (43 
mortar rounds, 13 landing inside the base), but fortunately none 
were killed or wounded.) 
 
¶4.  (SBU) The initial deployments to Iraq and Afghanistan were made 
when Enkhbayar was Prime Minister in 2003, and he remains a strong 
supporter of these and other PKO deployments.  The ongoing shift of 
Mongolia's military to focus on international peacekeeping has 
helped raise Mongolia's political profile with a range of nations -- 
and has helped bring the Mongolian military much-need cash.  Some 
250 Mongolian troops have guarded the UN war crimes tribunal in 
Sierra Leone since late 2005, and two Mongolian detachments have 
also served under Belgian command in Kosovo.  For the second year in 
a row, Mongolia will host the U.S.-supported multinational 
peacekeeping training exercise this August; Admiral Keating has 
already said he'll come for the closing of the "Khaan Quest 2007" 
exercise. 
 
 
ULAANBAATA 00000336  002 OF 003 
 
 
For the President, Signing MCA Compact is Key 
--------------------------------------------- 
 
¶5.  (SBU) Early this year, President Enkhbayar won the wrestling 
match with PM Enkhbold as to who would sign the Millennium Challenge 
Account Compact agreement.  Signing the Compact appears to be an 
essential element of his proposed visit to the U.S. -- enough so 
that the President's schedulers may get antsy if it appears that the 
Compact will not be ready for signing during whatever date is set in 
October by the White House.  Since MCC expects to fund the compact 
with FY 2008 money, a delay might come if Congress does not pass the 
budget on time.  The substantive work on the roughly $175 million 
compact itself -- focusing on expanding rail capacity, preventive 
health, vocational education, and property rights -- is drawing to a 
close.  The smooth, harmonious pace of recent months is a welcome 
change from two and a half years of inconclusive discussions, which 
had led to frustration, bitterness, and some finger-pointing on both 
sides. 
 
MFA Hopes for a "Comprehensive Partnership" Agreement 
--------------------------------------------- -------- 
 
¶6.  (SBU) For its part, MFA appears to have its heart set on 
President Enkhbayar also signing during his U.S. visit its proposed 
"Comprehensive Partnership Framework Agreement (CPFA)," a draft text 
of which MFA gave to DAS Christensen when he came here in late 
January for the annual CBRGI talks.  MFA probably hopes to use such 
a U.S.-Mongolia document as an example to duplicate with other third 
neighbors.  Enkhbayar himself dutifully raises the CPFA, but we 
don't sense a personal attachment to it.  MFA appears quite miffed 
that we have reservations about the desirability and feasibility of 
a document which -- ignoring problematic points like endorsement of 
a bilateral FTA -- is at once meant to be mostly hortatory, while 
also being legally binding.  Our own belief is that we should mark 
the warm bilateral relationship via a good presidential Joint 
Statement, a political statement to meet a political need.  For your 
meetings here, we suggest simply saying that we also look forward to 
issuing a good statement on the warm bilateral relationship during 
President Enkhbayar's visit to the U.S. and that, in consultation 
with our National Security Council staff, we intend to work closely 
with MFA as the visit draws closer. 
 
Eager to Talk About North Korea 
------------------------------- 
 
¶7.  (SBU) Mongolian officials tell us that Kim Young Nam, President 
of the Presidium of the Supreme People's Assembly, will likely visit 
Mongolia in the latter part of July.  The Mongolians will be deeply 
interested in your brief on the Six Party Talks and North Korea. 
They retain warm feelings toward their former Socialist fraternal 
nation, and even (rather improbably) see themselves as a model for 
the DPRK of how political and economic transformation can turn out 
alright and without bloodshed.  Economic ties, through bilateral 
trade and remittances from Mongolian workers, are much stronger with 
South Korea than with the DPRK.  However, Mongolian also hopes a 
North Korea which acts more normally will help speed regional 
economic growth.  President Enkhbayar visited South Korea from May 
28-30, and one focus was the hope that freight from South Korea 
would go via Mongolia to Europe, which first requires that a rail 
link through North Korea be open.  While desirous of keeping alive 
its links to North Korea, the GOM says the right things, and 
deserves praise for its willingness to quietly allow North Korean 
refugees to transit Mongolia en route to resettlement elsewhere and 
for giving the North tough love messages on nuclear weapons and 
missile launches. 
 
Economics: Things Are Looking Good 
---------------------------------- 
 
¶8.  (SBU) Mongolia's economy has boomed since 2004, with growth 
rates from 7-10%.  Increased mining operations and high minerals 
prices have been part of the reason, but favorable weather has 
helped herders and services like tourism have also grown strongly. 
Nevertheless, while some Mongolians are doing very well, about a 
third of the population remain below the poverty line.  Mongolia's 
politicians have been blessed with rapidly rising government 
revenues, which they have begun to fling at voters in the form of 
cash handouts to every child and to newlywed couples, as well as a 
trebling of infrastructure spending this year. 
 
¶9.  (SBU) Some of those increased revenues came from a confiscatory 
 
ULAANBAATA 00000336  003 OF 003 
 
 
Windfall Profits Tax law on copper and gold sales abruptly passed 
last year, a measure which spooked foreign mining investors.  Adding 
to the discomfort was a new law which allows the government to take 
an equity share of 34-50% in mines on "strategic deposits." 
However, Rio Tinto and the Canadian company Ivanhoe have struck a 
deal this year on the Oyu Tolgoi copper mine, which has raised hopes 
that deals can still be done.  The U.S. has a key interest in the 
issue, since the mining sector is a major factor for Mongolia's 
future -- and provides the major prospects for either new U.S. 
investment, through companies like Peabody coal or Phelps Dodge, or 
exports, like those of Caterpillar. 
 
Politics: Looking Toward the 2008 Election 
------------------------------------------ 
 
¶10.  (SBU) In a little more than a year, the next parliamentary 
elections will take place.  This thought is never far from the mind 
of Mongolian politicians, as is the reality that the outcome may 
well be similar to the hung parliament which resulted from the June 
2004 elections.  Meanwhile, the Democratic Party, Mongolia's 
fractious major opposition party, has had fun and a good deal of 
success in recent months in helping to widen and make more visible 
the divisions in the current coalition government.  The latest near 
victim was Speaker Nyamdorj, who survived a no confidence vote on 
June 7, but was embarrassed by the fact that at least 11 government 
MPs voted against him, including at least 5 from his own MPRP.  The 
Democrats dispute the outcome of the vote, and are currently 
boycotting the State Great Hural.  The Democrats earlier 
successfully split off enough government MPs to oust an MPRP 
minister and a minor party minister. 
 
¶11.  (SBU) The MPRP, which is languishing in opinion polls, doesn't 
seem to gain much public credit for the large new social welfare 
programs or sharply increased civil service salaries.  Corruption 
scandals and the visibility in recent months of the feuds within the 
coalition government and MPRP haven't helped.  Odds are the 
government will hang on until the next election, but Prime Minister 
Enkhbold looks to be the fall guy if, as seems likely, the MPRP 
fares poorly in June 2008.  President Enkhbayar, who anointed 
Enkhbold as his successor as MPRP chairman, is dismayed at the 
MPRP's slump in the polls, and by all accounts (including his own) 
unhappy with the PM.  Enkhbayar also has an election to think about: 
he is eligible to run for a second term in May 2009 but, under the 
Constitution, must be nominated by a political party with seats in 
parliament, i.e., by the MPRP.  While Enkhbayar had to resign his 
party membership before becoming president, that makes him a very 
interested spectator of the MPRP's travails.  Enkhbayar's own 
popularity, however, has remained relatively high.  All this creates 
a very active domestic political scene, but one in which foreign 
policy is not a subject of dispute.  Mongolian politicians of all 
stripes agree on the wisdom of the third neighbor policy and close 
relations with the U.S. 
 
Minton 
 
 
 
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