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Ambassador Buangan Addresses Amcham Mongolia on Promoting Third Neighbor Policy www.mn.usembassy.gov

U.S. Ambassador Richard Buangan addressed the January Monthly Meeting of AmCham Mongolia today to discuss Mongolia’s third neighbor policy and investment climate, alongside Member of Parliament D. Tsogtbaatar and Chairperson of the Board of AmCham Mongolia, Gary Biondo. Ambassador Buangan reflected on U.S. engagements in Mongolia in 2022, bluntly noting concern for non-transparent legislative processes and that Mongolia’s investment climate remains “unattractive for investors and challenging for importers and exporters.” However, he also encouraged attendees to make 2023 the year of the U.S.-Mongolia relationship and, with regards to the third neighbor policy, Ambassador Buangan expressed understanding about Mongolia’s geopolitical challenges.

“When faced with decisions to deal with its neighbors, we want to ensure that Mongolia can make choices from a position of strength,” said Ambassador Buangan. “That is the underlying purpose of our interest in strengthening Mongolia’s democratic institutions, enhancing its national sovereignty, and diversifying the Mongolian economy.”

Complete text of his remarks as prepared follows here.

Remarks of Ambassador Richard L. Buangan
To the American Chamber of Commerce in Mongolia
January Monthly Meeting
Shangri-La Hotel, Ulaanbaatar
Tuesday, January 24, 2023 
(As Prepared)

Chairman [Gary] Biondo, Member of Parliament Tsogtbaatar, members of AmCham, thank you for the opportunity to address AmCham Mongolia, particularly at the opening of what looks to be a consequential year for all of us. As I have been telling my Mongolian government counterparts recently, let’s make this the year of the U.S.-Mongolia relationship. The year where we invest in Mongolia’s strong democratic traditions and open market institutions by deepening the ties with its democratic partners. I have said time and again, the United States is proud to be one of Mongolia’s third neighbors, its strategic partner, and also its friend. I firmly believe that I arrived at a high point in the U.S.-Mongolia relationship and as we look to 2023 and beyond, let’s work together to deepen the relationship even more. I have a few thoughts on this that I’d like to share with you this morning.

Regional and global post-COVID impacts, Russia’s invasion of Ukraine, and Mongolia’s fiscal, financial, and investment climate challenges affect everyone in this room.

Other than Russia’s brutal and unjustified war against Ukraine, most of these challenges existed when my predecessor addressed you in November 2021.

And while I may bring a different tone than Ambassador Klecheski to these discussions, and certainly different experiences, building on his focus in helping you all address the economic and market challenges here and his successes in tackling those are my guiding stars at this point.

In that spirit, let’s look back at U.S. engagements with Mongolia in 2022 with an eye to where these should lead us in 2023 and beyond.

These include the Millennium Challenge Corporation’s $462 million compact for increased water provision and wastewater recycling; an expanding USAID program; discussion of Mongolia’s investment climate in 2022; and the implications for Mongolia of Russia’s war against Ukraine.

In terms of more specific engagements on pressing issues, I am pleased that our $462 million MCC water compact – a partnership between the U.S. and Mongolian governments – is on track. Supply chain issues notwithstanding, the project is progressing well, with the recent groundbreaking in August for a state-of-the-art wastewater recycling plant; the ongoing construction of an advanced water purification plant; and the drilling of 30 new wells downstream on the Tuul river – will increase Ulaanbaatar’s water supply by some 80 percent, staving off an imminent water shortage. Additionally, while increasing water supplies, the compact’s water technologies also contribute to our mutual efforts to combat climate change and strengthen the Ulaanbaatar’s climate resiliency.

The United States has revitalized USAID’s Mongolia portfolio. USAID’s budget for 2022 tripled 2021’s, and these additional resources will expand support for things like energy sector modernization and reform, food security, increased financing for small business, and strengthened democratic institutions, all of which will contribute to Mongolia’s economic sovereignty and security. In addition, in response to the particularly harsh dzud conditions this year, I have issued a Declaration of Humanitarian Need, requesting USAID release $100,000 for immediate relief efforts to meet the needs of vulnerable dzud-affected households. This will allow our team on the ground to provide emergency support to herder families in the hardest hit areas, supplementing its existing disaster preparedness work.

Bilateral economic ties remain robust, despite the challenges of the People’s Republic of China’s COVID policies and Russia’s senseless war of aggression against Ukraine. U.S. exports rose in 2021 to $148 million and look set to exceed that number in 2022; and as important, Mongolian exports to the United States will break $20 million, returning to pre-COVID levels.

We want this trade to grow on both sides and believe that collective business climate reform efforts are the best way to get exporters and investors back to Mongolia.

Making the business climate better is essential, and that depends upon the AmCham business community taking the lead.

We need to hear from you about what’s working, what’s not, and what reforms you want.

Large or small, or something in between, talk with us, with my colleagues, Economic Section Chief John Cheng and Michael Richmond – or come to me directly.

Done together, thoughtfully crafted, and with the careful engagement of our like-minded embassies and chambers, we can deliver needed reforms and change to a system that needs it.

In terms of the investment climate, Ambassador Klecheski, my team, and you have told me that Mongolia hasn’t delivered improvements that will motivate significant foreign or domestic investment into Mongolia – government or parliament public statements notwithstanding.

Our 2022 Mongolia Investment Climate Statement, or “ICS”, reported that capricious, nontransparent, unpredictable, and corrupt application of laws and regulations make Mongolia unattractive for investors and challenging for importers and exporters. We cannot say that more clearly.

Mongolian officials and legislators agreed, noting we fairly assessed the situation; and, if anything, suggested that the circumstances could have justified a harsher critique.

On Oyu Tolgoi, 2022 provided compelling evidence that the 2021 agreement has worked, sending a clear signal that Rio Tinto and the government can resolve differences.

We need to build on this achievement.

We take no side among the parties—our side is the project itself, that it continue—and crucial to that is managing expectations realistically.

As OT moves from development to sustainable operation, issues of power, water, labor, and regional development remain unresolved. We suggest that the parties get ahead of predictable controversies jointly.

Our 2022 ICS bluntly notes that Mongolia fails to implement commitments under the U.S.-Mongolia Transparency Agreement, which was signed in 2014 but has yet to be fully implemented.

The deadline for full implementation, March 2022, has passed; and so, our top priority remains implementation of the Transparency Agreement and I have pushed for that personally with the Mongolian government and key members of parliament.

We commend parliament for the significant steps it has taken to increase transparency and public input into the lawmaking process. However, the government has not implemented the notice, comment, and review requirements under Mongolia’s own laws and the Transparency Agreement.

As you all know, implementation means the Mongolian government publishes all draft laws and regulations affecting international commerce on LegalInfo.mn for a period of no less than 60 days; that foreign and domestic businesses have the opportunity to comment on those regulations; and for these comments to be either factored into the final regulation or responded to publicly.

Only your consistent, persistent, and wide use of this agreement will demonstrate the demand for it to the government and parliament.

I would also recommend you look for allies for transparency among other chambers and civil society groups.

On the positive side, Mongolia has taken meaningful steps to enhance judicial independence, limiting the ability of its senior officials to select, reject, and discipline judges at all levels.

We’ll need several years to see an impact but recognize the importance of this change.

Also positive, the government and parliament have told us they are amending the Investment Law and Minerals Law to encourage existing investors and attract new domestic and foreign investment.

They have sometimes invited AmCham and like-minded associations to participate in discussions on what reforms in law and practice are needed.

That’s all to the good, and like my predecessor, I support Prime Minister Oyun-Erdene’s and Speaker Zandanshatar’s affirmation of these changes.

However, the business communities and governments of the United States and other Third Neighbors are concerned that ongoing efforts to amend these laws are following a non-transparent path.

AmCham and others tell me they have neither seen nor been able to comment on legislation the government has been drafting for over a year.

Business leaders are concerned these will simply be released to parliament, where opportunities to debate their contents may well be limited.

An example of this was last week’s passage of the Law Protecting Human Rights on Social Networks. I won’t go into the detailed concerns we have with the potential problems this law makes for the conduct of speech in Mongolia, but I find aspects of this law deeply troubling, particularly those sections that could roll back fundamental freedoms which Mongolians have enjoyed for decades. I will raise these issues directly with members of the government and parliament in the next few weeks, as well as consult with our diplomatic partners to determine coordinated efforts to raise our concerns collectively for the sake of all of us who have been advocating for transparency and openness in Mongolia over the last few years.

The law appeared with no notice to public or private sector stakeholders.

It clearly effects free speech and your commercial speech.

It was rushed through parliament in three days, with no comment, consultation, nor review. As you can see, we think this is a step in the wrong direction.

Also concerning, 2022 saw the continued rise of state-owned enterprises, or SOEs.

The recent troubles at state-owned Erdenes Tavan Tolgoi (ETT) demonstrate the impact SOEs have on the public and private sectors, often without consideration of economic viability, or of the impact on employment, the environment, or Mongolia’s fiscal stability.

SOEs create incredible conflicts of interest for any government.

Such conflicts often lead to the government allowing its SOEs to ignore regulations and laws that private sector firms must follow.

Such conflicts have led the government to use its SOEs to underwrite off-the-books projects that appear to leave the government free of obligation but effectively render Mongolia fiscally weakened and more deeply indebted.

Government and parliamentary voices have publicly said Mongolia will review its approach to SOEs and trim its SOE portfolio.

We welcome these voices and hope to see follow-through very soon.

We encourage AmCham and like-minded organizations to engage on this issue with the government and the public.

Looking forward to our relationship with the government, we are committed to partnering with Mongolia to strengthen its sovereignty, as well as diversify its economy.

In practice, we will support policies deepening economic ties with Mongolia’s third neighbors.

Macroeconomically, recovery from COVID remained the key challenge in 2022.

We had hoped that last year would have seen an export-led boom, but the PRC’s COVID policies frustrated those hopes, and we don’t really know if China will meaningfully loosen those restrictions in 2023.

In any case, Mongolia needs to resolve the investment climate issues raised while addressing well-known debt and financial sector weaknesses looming in 2023.

We should also consider how Russia’s brutal and unjustified war against Ukraine has exacerbated Mongolia’s economic troubles. Supply chains and payment channels have been disrupted, and global financial and commodity markets critical for Mongolia’s stability and security remain in turmoil.

These realities have created high levels of external debt, the thinnest of foreign exchange reserve buffers, and festering financial sector weaknesses, making Mongolia vulnerable to external shocks and coercion.

These realities justify implementing prudent fiscal and monetary policies, and a well-thought-out and sequenced approach to banking reform, sovereign borrowing, and SOE policy to ensure Mongolia’s financial stability, sovereignty, and economic independence.

Joint efforts to resolve these challenges are necessary.

Now, that’s what happened in 2022, but what will we do together in 2023?

The answer lies in broadening and refining our advocacy.

AmCham has become a model for and leader of the broader business community in working with the government and parliament.

Your advocacy has been fruitful, even if much work remains to be done. Your persistence and insight ensure a place for AmCham in the rooms where laws and regulations are deliberated and implemented.

Openly or behind-the-scenes the U.S. Embassy has aided your efforts and will continue to do so.

From the Embassy’s perspective, we must further legislative and regulatory transparency, and do so by focusing on laws important to AmCham’s members, which might well be advocacy for the new minerals and investment laws, as well as reform of the tax assessment and dispute resolution system.

You and other business groups have told me that these two laws are the effective foundation for most of your activities; in fact, the foundation for Mongolia’s future development.

We, and other like-minded diplomatic partners, will advocate for you and with you to affect the course of these two pieces of legislation, and other laws as opportunities present.

Exercising our convening power between governments and the private sector, we can point out challenges, suggest other approaches that have worked or failed elsewhere, and hold Mongolia to the commitments it has made with our respective governments, such as the Transparency Agreement.

We draw upon key members of the Third Neighbor states to give that Third Neighbor concept the commercial and trade pillar it has lacked since the term was coined in the 1990s.

Over the last three months, the U.S. Embassy and our like-minded friends and partners have launched a program to share information about economic and commercial issues, to identify areas of mutual interest, and to create collective action with our respective business communities to resolve issues affecting economic and commercial interests.

One such effort was the recent meeting between AmCham and this group of like-minded countries on the investment climate, which some of you attended.

The outcomes of this pilot event are positive, and the parties look forward to our collective outreach with the other chambers.

This effort will culminate in a high-profile series of events where I and hopefully like-minded ambassadors will spotlight key business sector challenges for Mongolia’s government and parliament derived from meetings with AmCham and partner chambers, as well as numerous side interventions with the government and parliament leading to the main event.

If this approach works, we will use it to facilitate transparent debate on other issues before Mongolian decision makers.

That was the advocacy side, let’s look at what we can do together on the investment side. We’re aggressively expanding the footprint here of the U.S. Development Finance Corporation, or DFC. Your support for their visit to Mongolia last October was a clear success and produced several project leads for the upcoming year.

DFC is the bigger and better version of what was formerly known as OPIC. DFC is supporting transparent, sustainable, and – above all – private sector-led projects, and such projects need not have an American nexus.

DFC is looking to expand their Mongolia portfolio substantially. We need you to bring viable projects to us.

AmCham, a recognized leader among all business communities, will play a crucial role in inspiring others to join these united efforts.

This is the convening and convergence of resources and people, long absent but long needed, a persistent and patient—sometimes grueling–effort to achieve—not a perfect—but a workable investment climate and a strengthening of our economic relationship with Mongolia.

I want to share with you something else that I have been telling my Mongolian government counterparts over the last few weeks. Something that explains why all this is important for the U.S. government.

We recognize the delicate situation in which Mongolia finds itself, given its geopolitical challenges sandwiched between two authoritarian neighbors. As explained to me, Mongolia must balance out competing interests and take a neutral approach to many choices that the international community has asked Mongolia to make as we all stand up against aggression, bullying, and the malign behavior that seeks to alter the international rules-based system which Mongolia and others have enjoyed over the past few decades.

I have told my Mongolian counterparts this: we do not seek to persuade you to cut off ties with your neighbors, but on the contrary give you the tools to have options so the decisions you make are in your sovereign interest, aligned with your values. Decisions that you make because they favor Mongolia. When faced with decisions to deal with its neighbors, we want to ensure that Mongolia can make choices from a position of strength. That is the underlying purpose of our interest in strengthening Mongolia’s democratic institutions, enhancing its national sovereignty, and diversifying the Mongolian economy.

Lastly, at the risk of repeating myself, some of you heard in my remarks at the Bank of Mongolia last December, we want to ensure that in the next 35 years of our relationship the core shared values that have brought us together thus far continue to flourish. We see a Mongolia that stands tall among democracies, a model for others in the region to emulate; a Mongolia that not only upholds the fundamental rights of its people, but also champions the rights of all people on the global stage; a Mongolia with a robust, diverse economy where investors come in confidence and aspiring young entrepreneurs know their innovation and hard work will be rewarded. The United States is proud to stand with it as it forges a future that delivers on the hopes and aspirations of the Mongolian people.

During my tenure, we will devote no less persistence than you to achieving our collective aims, ensuring that AmCham’s unique, essential voice will ring persuasively before government and parliament. And ensure that Mongolia’s hopes and aspirations are realized with the partnership of its Third Neighbors.

Thank you all, happy 2023, and I wish you continued success in the days ahead.

Published Date:2023-01-25

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Ambassador Buangan Addresses Amcham Mongolia on Promoting Third Neighbor Policy www.mn.usembassy.gov

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