Mongolia is accepting Russian demands to refuse US government funding for a railroad project and will ask the United States to redirect the funding to another project, the country's foreign minister said during a visit to Washington.

Under the Millennium Challenge Corporation aid program, which rewards countries that liberalize their political and economic systems, Mongolia is set to receive $188 million in US funding to modernize its aging rail infrastructure. Russia, however, has objected to Mongolia taking the funding.

The Mongolian Railway Company is a joint venture between the Russian and Mongolian governments, and if the Russian side does not agree to something, the Mongolian side can't force them to accept it, explained Batbold Sukhbaatar, Mongolia's minister for foreign affairs and trade. Sukhbaatar spoke at an event June 8 at the Hudson Institute in Washington, "Mongolia's Relations with Russia and China and its 'Third Neighbor' Relations with the United States and Japan."

"One of the important areas of cooperation with the United States is to implement the projects we have agreed [upon] under this Millennium Challenge Corporation compact. Unfortunately, last year we started to have issues with one of the projects, a Mongolian-Russian joint venture railway. If it is a government-to-government joint venture and one party is not agreeing to support from the third party, it becomes a real issue," Sukhbaatar said. "We need to agree with Russia on this, as it's a 50-50 joint venture. Therefore, we have to ask the United States government . . . to kindly accept this situation and to understand the circumstances and to redirect the funding to other projects."

Sukhbaatar was scheduled to meet with US Secretary of State Hillary Clinton on June 9, and he said the railway funding would be one of the items on the agenda.

In his talk, Sukhbaatar highlighted how Mongolia's ties with Russia have strengthened since the collapse of the Soviet Union. Trade between the two countries, which reached $800 million in 1990, fell to $200 million in 1994, but has since rebounded and last year topped $1 billion, he said.

The trade is imbalanced, however, because Mongolia depends heavily on Russia for energy, Sukhbaatar said. "So we pay a lot of attention to our trade and investment relations with Russia," he added.

Russian Prime Minister Vladimir Putin visited Mongolia in May, and during the visit the two countries vowed to increase cooperation in agriculture, uranium mining and on flights between Moscow and Mongolia's capital, Ulaanbaatar. Also agreed upon was a deal, worth up to $7 billion, in which Russia would build rail links to coal, copper and gold mines in Mongolia. [For background see the Eurasia Insight archive]. Critics have described Moscow's aid package as little more than a hidden subsidy designed to prop up Russian exporters.

Sukhbaatar spent relatively little time discussing Mongolia's relations with Washington. But he did describe the United States as his country's "main partner" in the defense sector, and highlighted the annual joint military exercises between the two countries. Mongolia's troops have served in Iraq and Mongolia is also "ready to contribute to operations" in Afghanistan, where a handful of Mongolian military trainers have already been serving, he said.

Ulaanbaatar believes that the Shanghai Cooperation Organization, of which Mongolia is an observer, holds more promise as an engine of economic development and cooperation than as a military bloc, Sukhbaatar added.