PRESS BRIEFING BY UNDER-SECRETARY-GENERAL FOR MANAGEMENT

Press Briefing

PRESS BRIEFING BY UNDER-SECRETARY-GENERAL FOR MANAGEMENT

Summing up the financial picture of the United Nations, the Under- Secretary-General for Management, Joseph Connor, told correspondents at a press briefing this afternoon that the Organization's cash position was weak, and getting weaker. Its unpaid assessments were slowly decreasing, and its ability to "cross-borrow" was drying up, he added.

Using the three key indicators to assess the financial stability of the United Nations -- cash, assessments, and debts owed to Member States -- Mr. Connor presented a year-end review of the Organization's financial situation that included projections for the coming year.

He said that cash at $669 million was slightly worse at year end in 1997 than one year earlier; unpaid assessments totalling $2,048 million were slightly better; and amounts due Member States for troops and equipment at $884 million were slightly worse. "In all fairness, not a lot of change."

Regarding cash, he said that the aggregate year-end balances -- regular budget and peacekeeping cash combined -- showed a high of $728 million in 1995, a drop to $677 million in 1996, and a slight drop to $669 million in 1997, representing little change over the three-year period. Disaggregated, however, with regular budget cash and peacekeeping cash shown separately, the picture was somewhat different, reflecting a steady downward level of peacekeeping cash from $923 million in 1995, to $874 million in 1996 and to $791 million in 1997.

Peacekeeping cash levels were expected to be down at year end in accordance with the decreasing level of peacekeeping assessments and consequent reduced cash inflows, he said. However, end-of-year peacekeeping cash balances were favourably affected by lower-than-anticipated expenditures relative to several missions and obligations recorded, but not disbursed and relative to several other missions in liquidation. Those favourable factors, while adding some $80 million to the year-end cash balances, were temporary. When they turned around, peacekeeping cash would be adversely affected.

Regular budget cash had been in a deficit position at each year end for the past three years, he said. The deficit was virtually the same in 1996, minus $197 million, as in 1995. The reduced deicit of $122 million in 1997 was the result of two factors. The first was the result of the large 1996-1997 biennium budget underspend of $54 million. However, the budget underspend was a one time factor which would not be present in 1998. Second, the regular budget cash position benefited from unexpected contributions received in December 1997, principally from the United States. Without those unusual factors, the regular budget cash deficit at year end would have been $74 million greater and once more at a deficit level of about $195 million -- the pattern of recent years.

He said that the pattern of payment of regular budget assessments differed substantially between that of the United States and that of all other Member States. Payments by the United States had ranged as high as 130 per cent of current year assessments in 1990 to below 50 per cent in 1995. During the period from 1980 to 1997, 90 per cent of all regular budget assessments had been paid, leaving 10 per cent unpaid. By contrast, the payments by other Member States -- totalling 99 per cent of all assessments -- had not differed as markedly from the amount assessed either on a year-to-year basis or cumulatively. The gap between assessment levels and payment levels caused the regular budget cash account to move into a deficit position. Until Member States, and principally the United States, closed that gap and paid down their arrearage, a similar regular budget cash deficit would persist at every future year end. He said at year end, unpaid assessments, both for the regular budget and peacekeeping, stood at $2 billion, down from $2.1 billion at year end 1996, and down from $2.3 billion at the end of 1995. Two factors could contribute to a reduction in the level of unpaid assessments. First, the level of new assessment could moderate. That had happened in 1996-1997. Regular budget appropriations were $2,603 million in 1996-1997 down from $2,632 million in 1994-1995. Looking ahead, those would be $2,532 million in 1998-1999. The aggregate decrease over the six-year period was $100 million. However, some of that decrease was due to an accounting change in preparing the 1998-1999 biennium budget -- or net budgeting.

Net budgeting included in United Nations budget appropriations only that portion of the cost of joint bodies, such as the Joint Inspection Unit (JIU), that related to United Nations activities and not that portion of the cost of the JIU that related to the United Nations Development Programme (UNDP) or the World Health Organization (WHO) or other components of the United Nations system. Ignoring the effect of the accounting change in 1998-1999, United Nations appropriations in 1998-1999 were down $60 million from 1994-1995, when the accounting change was applied retroactively to 1994-1995 and 1996-1997.

Peacekeeping assessments were down markedly from $3 billion in 1994 and 1995 to an annual level of $1.2 billion in 1997, he said. A second factor which could moderate the level of unpaid assessments was, of course, arrearage payments. With aggregate regular budget and peacekeeping assessments in 1997 down from a level in 1994 and 1995 well above $4 billion, it was hoped that arrearage payment would increase substantially because of lesser current demands on Member States. That did not happen in 1996 or in 1997, and a significant pay down of prior year assessments did not occur.

To borrow a commercial term -- "our receivables aren't aging very well", he said. A higher and higher percentage of assessments were in arrears and remained uncollected.

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He said that the remaining receivables from Member States was "very concentrated" in one Member. The United States owed 79 per cent of all outstanding regular budget assessments at 31 December 1997. The United States, together with Brazil and Ukraine, accounted for 86 per cent of all regular budget unpaid assessments at year end 1997.

Concerning peacekeeping assessments, the amount unpaid at year end aggregated $1,574 million, down $150 million since 1995. But that "down" did not apply to everybody: the United States was up in that total by $124 million; the Russian Federation was down by $269 million.

That was a rather remarkable performance -- down dramatically by $269 million in two years, he said. Russian Federation President Boris Yeltsin had announced the intention of his Government to pay off all United Nations arrears. The pay-off period was subsequently identified as seven years. It was quite a bit ahead of that. Of all the peacekeeping arrears, three Member States -- United States, Russian Federation and Ukraine -- owed 82 per cent. The Russian Federation was dramatically dropping from 23 per cent in 1995 to 9 per cent in 1997; the United States was going up, 47 per cent to 60 per cent, and Ukraine was staying about where it was in 1995.

Turning to the level of debt to Member States for troops and contingent- owned equipment, it was, at the peak, $1,155 million in 1995, he said. It was down to $884 million in 1997. Since the end of 1996, it had been the intention of the Secretary-General to compensate Member States each year for approximately the amount of obligation incurred by the Organization that year for troops and equipment. What he was attempting to do was not allow the present aggregate debt to increase, and he was waiting for some Member State to come in with an arrearage payment so he could pay down the amount of contingent-owned equipment and troop debt.

That policy was followed in 1997, he went on. The year started with a debt to Member States for troops and equipment of an aggregated $838 million. New obligations in 1997 aggregating $270 million were undertaken by the Organization. Payments of $262 million were made in 1997 in amounts approximately equal to those new obligations. In addition, the Russian Federation remitted payments of $65 million against assessments in arrears. That amount was paid to Member States to reduce the Organization's past due obligations for troops and contingent-owned equipment. Unfortunately, negotiations with those Member States which had provided contingent-owned equipment to missions required an upward revaluation of $100 million for that debt. As a result, the debt to Member States on 31 December 1997 stood at $884 million. Troop debt at 31 December 1997 was down to $140 million, he said. More than 70 Member States were owed for the use of troops and contingent owned equipment. France was owed the largest amount of $127 million. Five other Member States were owed in excess of $40 million -- United Kingdom, Netherlands, Pakistan, Belgium and India.

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Turning to projections for 1998, combined regular budget and peacekeeping cash at year end was projected to drop another notch to $577 million, compared to $669 million at the end of 1997, he said. Looking at the regular budget component of combined cash standing alone, the amount at the end of 1998 was once more a deficit -- at $184 million. The projection showed no basic change in recurring patterns of significant deficit which had affected the Organization during the last four or so months of every year since 1995. In fact, 1998 showed a return to the deficit levels experienced in 1995 and 1996.

Peacekeeping cash at the end of 1998 was also projected to continue the pattern of decrease in recent years, he said. It was estimated that peacekeeping cash would be at the level of $761 million at the end of 1998.

Three key assumptions were the basic building blocks of the peacekeeping cash projection, he said. First, it was estimated that the level of peacekeeping would drop to $800 million, a continuing step-down from the level of prior years. It was further estimated that new obligations for troops and equipment would be about $170 million, also a step-down from prior years. And lastly, it was expected that the Secretary-General would continue in 1998 his stated intent to pay Member States in 1998 an amount approximately equal to that new obligation. No estimate had yet been made in connection with arrearage payments by Member States. Hence, he was not in a position at that time to project any reduction by year end 1998 of the aggregate debt to Member States for troops and contingent-owned equipment.

Returning to the combined cash position, he said that it was now projected that year end 1998 would see a further increase in the percentage of peacekeeping cash which must be cross-borrowed by the regular budget to offset the cash deficit in that account. At 31 December 1998, combined cash would total $577 million, the smallest amount in four years. At that time, the Organization would have to cross-borrow 25 per cent of peacekeeping cash -- the largest percentage in four years -- to cover the deficit in regular budget cash. It was borrowing more and more from a smaller and smaller source.

He drew attention to the number of Member States that had paid in full by January and then by February. Last year, 29 Member States had paid in full by the expected payment date of 31 January 1997, while this year only 24 Member States had paid in full. The Secretary-General was most appreciative of the efforts made by those Member States to pay their assessments in full and on time. By the end of February, the number of Member States making full payment of the current years' assessments grew to 39, even with 39 in 1997. It was disappointing, however, that some Member States that were on the "payments received" list in 1997 were not there in 1998. As a consequence, and regrettably, the normal surge of cash inflows traditionally expected at the beginning of each year had not materialized for 1998.

He said that a closer look at the individual contribution payments of 15 contributors showed that of the 15 Member States who had made the largest

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assessment payment in the first two months of 1997, only eight had made any payments in 1998. The United States had informed the Organization to expect payments of $152 million in several instalments beginning in March, but also in April, July and September. Those payments related to those authorized by the Congress as of 1 October 1997 applicable to assessments due the United Nations on 31 January 1997. That extended delay, unfortunately, pushed further down the line the expectations of payments. The protracted payment period was a major contributor to the tight cash situation of the Organization.

Continuing, he said that year-end 1998 amounts owed for troop and contingent-owned equipment was projected to increase to $890 million from $884 million at year-end 1997. The troop and contingent-owned equipment component of peacekeeping operations was in a downward trend except for the increase in the police component costs required by missions, which must be paid currently. Hence, some degree of financial flexibility which had been present when troops and contingent-owned equipment was a more prominent component of costs would be lost in 1998.

The Organization had received no information from Member States that would indicate the prospect of arrearage payment, he said. It did not, therefore, anticipate making any other payments to Member States in 1998 beyond an amount approximately equal to the obligation it incurred for troops and equipment in 1998. Obviously, it was hoped that that situation would turn around and that payment would be received. In that regard, he looked once more to the Russian Federation and, of course, to Washington -- which was on the Secretary-General's agenda for tomorrow.

He said, in closing, that debt to Member States had become resistant to change. The Organization faced a situation where it may be faced with a choice "where someone is going to be the last one to get paid".

A correspondent asked about plans for the Secretary-General's trip to Washington, D.C., tomorrow and whether Mr. Connor would accompany him. Mr. Connor said that, yes, he would be going to Washington with the Secretary- General where they were scheduled to meet with United States President William Clinton, and with State Department officials. He hoped that the position of the United States Government had solidified in terms of legislating and paying its arrears. Time was short, and the amounts under discussion were very large. He was not trying to be an alarmist -- he had been sounding the warning for three years, yet the numbers kept going down. His Department had realistically estimated the Organization's financial future, although it did not like what it found. However, surprises sometimes came from countries like the Russian Federation, which presented enormous payments that had not been anticipated.

Continuing, he said that such payments were sought by the United States, which owed $1.3 billion. United States legislation, passed last year, would

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permit some $100 million more to be paid over the course of certain months in 1998, largely on a quarterly basis, leaving $1.2 billion for which there was no legislation for payment.

Mr. Eckhard asked Mr. Connor to explain how Article 19 of the United Nations Charter worked and how it might apply to the United States. Mr. Connor said that Article 19 applied to every Member State, and that at various times somewhere between 20 and 30 Member States came under Article 19. Those were usually countries suffering from severe financial problems in their payments to the Organization. The United States was approaching that time. The computation -- which was strictly mechanical and always applied as of 1 January -- was a combination of how much was owed compared to what was assessed in the preceding two years. If one number was twice the other, then Article 19 was invoked. The amount owed by the United States was close to provisions of Article 19. To avoid Article 19 would require as at 1 January 1999 payments from the United States in an amount more than what it had paid last year.

In response to a follow-up question, he said that he was not in a position to disclose how close the United States was at this time, but the Member State had been advised, as had all others in arrears. The amount it would need to pay this year was more than what it had paid last year. He reminded correspondents that the United States Congress had twice passed legislation in that regard. It had failed because of the unrelated issue of abortion that was attached to the legislation.

Replying to a request for clarification about the mechanism for invoking Article 19, he said that as of 1 January, the Contributions Service of the Department of Management had compiled a list of Member States that had failed the comparative arithmetic test. The list was forwarded to the President of the General Assembly. Some Member States had appealed and had been granted leeway owing to extenuating circumstances.

To a question about why only 39 Member States out of 185 had paid in full and on time, he said some of them were affected by the calendar regarding the legislative processes. The unpredictability of the payment patterns was the reason for the concern about the decreased incoming cash flows in January and February. Only eight of the 15 countries that had paid large amounts by this time in 1997 had paid thus far.

Given the pledge by so many countries upon the opening of the General Assembly each year to pay their debts, a correspondent asked if Mr. Connor could recall the countries that had defaulted on that pledge. He said that much progress had been made in that regard, referring to the 100 Member States paid completely for every past year. That significant change, however, was overshadowed by the major contributor accounting for the concentrated portion of the monies owed. Those were very big percentages, and unless that pattern was broken, the contributions of other Member States were just not as significant in terms of absolute dollars. In other words, there was a

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concentrated receivable, along with an established pattern that had to be broken or "we're never going to get out of this financial straitjacket".

Asked if there were other United Nations activities in addition to its peacekeeping operations that had felt the financial crunch, Mr. Connor said that the Organization's ability to undertake new missions when it had not paid off the cost of the old missions was "highly questionable". An organization would have to be very wary of undertaking any further obligation, adding that "we're hanging on by our fingernails". Nearly $900 million was owed to Member States. "We don't have that much cash and we can't make a dent in our uncollected assessments." That was not a good position from which to expand activities.

Continuing, he said that the United Nations had responded in the context of the Secretary-General's reform package. The running costs were lower, the number of employees was lower, and the process of simplification by turning administration spending into productive spending was all under way. What was planned had been approved and was being effectively and enthusiastically implemented. Regarding the financial aspect, $77 million in cash at the end of February was simply not enough. The cycle of cash payments was heavily geared to the end of the month, when salaries and pension contributions were paid, so it peaked out. But, it was a very strident month, with projections decreasing to the $40 million range in the next few days. There was a possibility that the Organization might have to borrow from peacekeeping operations in March.

The United Nations was usually able to pull itself out of the hole with early payments, but those did not come this year, he said. Contributions were needed in order "to pull us out". The United States representative to the General Assembly's Fifth Committee (Administrative and Budgetary) had indicated that the United States would pay $125 million sometime in March. "We'll open the mail very eagerly to get that", he added.

As the cash dwindled, was he prepared to recommend a one-day symbolic closure of the United Nations? another correspondent asked. Mr. Connor said that the focus now was on "getting some cash in here". The reason for today's presentation was to sensitize Member States to the fact that "we are in a very tight spot at this moment". With the peacekeeping cash at the current level, closing the doors could be averted. But, new missions were not being opened, and others were being shut down. There were also unapplied credits, or underspends of prior assessments in peacekeeping that had not been refunded to Member States by lowering their future assessments. Applying those credits to the store of peacekeeping cash would raise the question of survival.

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