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UNCLAS SECTION 01 OF 04 ULAANBAATAR 000376 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL EAID EMIN ETRD PINR MG
SUBJECT: Mongolia Scenesetter for Codel Payne 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (U) We and the Mongolian Government very much look forward to 
your visit, and to the initiation of the House Democracy Assistance 
Commission's program of exchange with the State Great Hural.  The 
historic 2005 visits of Speaker Hastert and the President and First 
Lady underlined the increasingly close bilateral relationship. 
Despite the separation in distance and economic levels, a July 2004 
joint presidential statement noted that Mongolia and the United 
States are united by a "comprehensive partnership based on shared 
values and common strategic interests."  Beyond the official 
phrases, there is much in Mongolians' open, friendly and informal 
style, and rugged sense of individual self-reliance fostered by 
nomadic life on the steppe which appeals to Americans.  With 2.6 
million people spread over an area the size of Alaska, much of 
Mongolia's varied scenery resembles the western United States. 
You'll get a small taste of that scenery at your hotel, which sits 
in a semi-rural area on the outskirts of Ulaanbaatar. 
 
Economics: Things Are Looking Good 
---------------------------------- 
 
¶2.  (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 grown strongly. 
Nevertheless, while some Mongolians are doing very well, about a 
third of the population remains 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.  The budget this year 
rose 33% from that for 2006. 
 
¶3.  (SBU) Some of those increased revenues came from a confiscatory 
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 located on "strategic deposits" 
as defined by the government.  However, Rio Tinto and the Canadian 
company Ivanhoe have struck a tentative bargain this year on the 
world class 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 it provides the main prospects for either new U.S. investment, 
through companies like Peabody coal or Phelps Dodge, or product 
exports, like those of Caterpillar. 
 
Politics: Looking Toward the 2008 Election 
------------------------------------------ 
 
¶4.  (SBU) The next parliamentary elections will take place in late 
June 2008 (and the presidential election will follow in May 2009). 
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 governing coalition is an unwieldy 
collection of three very small parties and the Mongolian People's 
Revolutionary Party (MPRP), the social democratic descendant of the 
former Communist party. 
 
¶5.  (SBU) The latest victim was the Speaker.  Ts. Nyamdorj 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.  His resignation was accepted by Parliament on 
June 14.  Vice Speaker Lundeejantsan was nominated as the new 
Speaker by the MPRP, and confirmed as Speaker on June 19.  Earlier 
in the year, Democrats successfully split off enough government MPs 
to oust an MPRP minister and a minor party minister.  Before you 
visit, Emergency Minister Otgonbayar, a minor party MP, may resign 
or be forced out as the result of the June 15 crash of a helicopter 
which killed 15 firefighting personnel. 
 
¶6.  (SBU) The MPRP, which is languishing in opinion polls, doesn't 
seem to have gained 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 
 
ULAANBAATA 00000376  002 OF 004 
 
 
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 his successor as MPRP chairman, is dismayed at the MPRP's 
slump in the polls, and by all accounts 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, and he actively works the countryside, 
pressing the flesh. 
 
A Closer Look at Parliament 
--------------------------- 
 
¶7.  (U) The State Great Hural's 76 MPs represent seven different 
political parties.  Only the MPRP and Democratic Party have more 
than four MPs; the MPRP by itself has 39, and the Democratic Party 
has 26 (including 3 nominal independents).  The MPs were elected in 
2004 from single-member districts by a first-pass-the-post system. 
Twenty-one (28%) of the MPs represent constituencies in the capital, 
a proportion that should rise when redistricting is done this fall, 
given that 40% of Mongolia's population lives in Ulaanbaatar.  At 
present, MPs outside the capital represent on average 30,000 
residents spread over constituencies just slightly smaller than 
Maryland.  Visits to constituents typically involve prolonged 
journeys to tiny communities and nomadic herders over rutted dirt 
roads winding across the steppe. 
 
¶8.  (U) In late 2005, Parliament significantly changed the rules for 
the next elections.  In June 2008, MPs will be elected from 
multi-member districts, with 2-3 MPs representing each of the 20 
aimags (provinces) and 9 districts of Ulaanbaatar.  Voters will mark 
as many choices as there are MPs for the constituency.  Parliament 
also approved a requirement that 30% of candidates nominated by 
parties be women.  There are some indications that one or both 
provisions may be revised in the fall parliament session, as the 
MPRP is starting to believe it could suffer large losses on a party 
line vote in the multi-member constituencies, and male politicians 
of all parties are complaining about an alleged dearth of qualified 
female candidates.  If kept, the move to multi-member constituencies 
will increase the challenge of connecting to voters, and may give a 
strong advantage to those who start the contest well-known 
throughout the whole area. 
 
¶9.  (U) Parliament normally sits in two sessions each year: the fall 
session, from early October to the Tsagaan Sar (Mongolian New 
Year's) holiday in late January/early February, during which the 
budget is adopted; and the spring session, from early April until 
the Naadam holiday in mid July.  MPs are all resident in 
Ulaanbaatar, and many venture back to their constituencies but once 
or twice a year.  MPs have one paid staffer in their constituency 
and one at Parliament.  Only the MPRP Caucus has government-paid 
legislative staffers -- 19, or 1 for every 2 MPs elected under the 
MPRP banner.  Of the 38 other MPRPs, 34 were elected in 2004 under 
the banner of a subsequently-dissolved electoral coalition. 
Legally, these MPs are all technically "independents."  While the 
Democrats gained the right to form a party "council" in Parliament 
under a deal struck with the MPRP in 2006, the fact they don't have 
a "caucus" deprives them of government-paid staff, though the 
Democratic Party itself has scraped together funds for a handful of 
staffers. 
 
¶10.  (SBU) During the 2000-2004 Parliament, the MPRP held 72 out of 
76 seats, the quirk of a closely-divided electorate where opposition 
votes were split among a number of candidates.  Needless to say, 
then MPRP Prime Minister Enkhbayar (the current President) had 
little trouble with a restive Parliament.  The current, more 
evenly-split legislature has meant a much more lively session, for 
good and for ill.  The mining legislation which eroded investor 
confidence in 2006 was the result of cross-party populist sentiment 
the government was hard-pressed to resist, and big increases in 
social welfare benefits have been the result of a bidding war, with 
the MPRP and the Democrats competing to see who can promise the 
voters more money. 
 
¶11.  (U) Under a USAID grant, IRI has worked with the current 
Parliament to strengthen the operations of standing committees and 
to institute ethics legislation.  These remain works in progress, 
 
ULAANBAATA 00000376  003 OF 004 
 
 
and HDAC's efforts should provide new impetus.  Of the seven 
parliamentary standing committees, three have adopted rules of 
procedure which are based on the U.S. House of Representatives' 
Committee on Agriculture rules.  With close support from IRI, two 
committees have held open hearings with witnesses (on mining 
legislation, in February 2006; and air pollution in Ulaanbaatar, in 
February 2007). 
 
¶12.  (SBU) Corruption is a growing problem in Mongolia, and the 
public is generally cynical about the fact that so many MPs and 
Cabinet Ministers have business interests (often in flagrant 
violation of conflict of interest norms).  The current session of 
Parliament, which got bogged down in the travails of Speaker 
Nyamdorj, has ethics legislation on its lengthy "to do" list, and 
should be encouraged to pass it.  The legislation was put aside last 
year on the sensible basis that it interacted with the major 
anti-corruption law the State Great Hural adopted in July 2006, and 
Parliament first needed to pass that act.  By June 15, the new 
independent Anti-Corruption Agency established by the 2006 law 
should have received the first asset and income disclosure forms 
from MPs and other government officials.  The forms for MPs and 
senior government officials are supposed to be made public.  MPs 
previously had to file a form, but it was kept unexamined in the 
Parliament Secretariat, and most reportedly never even bothered to 
submit the document. 
 
Mongolia's Closest Third Neighbor 
--------------------------------- 
 
¶13.  (SBU) Despite the very active domestic political scene, foreign 
policy is not a subject of dispute.  Mongolian politicians of all 
stripes agree on the wisdom of the "third neighbor" policy and on 
close relations with the U.S.  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 the distinct geopolitical 
disadvantage it suffers as 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.  Mongolia aims to build relationships as widely as it can 
-- one reason it hosted 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. 
 
Mongolian Warriors Stride the World -- As Peacekeepers 
--------------------------------------------- --------- 
 
¶14.  (SBU) The day before you arrive, an 8th rotation of 130 
Mongolian soldiers will depart for Iraq.  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 
peacekeeping 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-needed 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.  New PACOM commander Admiral Keating has already said he'll 
come for the closing of the "Khaan Quest 2007" exercise. 
 
¶15.  (SBU) The decision on the 8th rotation, as for the 7th rotation 
last September, came down to the wire.  This was not so much due to 
Mongolian angst about Iraq per se as it was due to concern about the 
increasing dangers faced by Mongolian troops at Camp Echo south of 
Baghdad, where they provide force protection for 900 Polish troops 
of the Multinational Force.  Rocket and mortar attacks by insurgents 
have become increasingly common, and Prime Minister Enkhbold appears 
to have not wanted to be politically exposed should injuries be 
suffered during a new detachment.  Political safety came in sharing 
that decision.  On June 22, the National Security Council 
(President, Speaker and Prime Minister) recommended that the Cabinet 
send an 8th rotation, rather than scale back to a handful of staff 
officers, as Mongolia once planned to do early this year.  After 
President Bush phoned President Enkhbayar in early March, the 7th 
 
ULAANBAATA 00000376  004 OF 004 
 
 
rotation was extended by three months to allow time to train the 
next rotation.  The 8th rotation will have 30 more soldiers than the 
one it replaces, and will include snipers, the better to counter the 
greater insurgent action. 
 
President Enkhbayar Is Going to Washington 
------------------------------------------ 
 
¶16.  (SBU) During the early March phone call, President Bush 
extended an invitation to President Enkhbayar at a convenient time 
this year.  The White House, which did not announce this invitation 
(although the GOM did), is currently considering Mongolia's proposal 
for an October visit.  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.  MCC 
expects to fund the compact with FY 2008 money, making President 
Enkhbayar a very interested observer of the Congressional budget 
process this year.  The substantive work on the $150-175 million 
compact itself -- focusing on expanding rail capacity, preventive 
health, vocational education, and property rights -- is drawing to a 
close.  The first Congressional notification period started June 15. 
 A Mongolian team will visit Washington in mid-July to negotiate the 
language of the actual compact. 
 
Minton 
 
 
 
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