UNITED NATIONS IS 'BORROWING MORE AND MORE FROM A SMALLER AND SMALLER SOURCE', USG FOR MANAGEMENT TELLS ADMINISTRATIVE AND BUDGETARY COMMITTEE

10 March 1998

Press Release
GA/AB/3213

UNITED NATIONS IS 'BORROWING MORE AND MORE FROM A SMALLER AND SMALLER SOURCE', USG FOR MANAGEMENT TELLS ADMINISTRATIVE AND BUDGETARY COMMITTEE

19980310 Speakers Express Concern over Practice of Cross-Borrowing, Committee Also Discusses Procurement Reform and Use of Outsourcing

The United Nations cash flow was "weak and getting weaker", the Under- Secretary-General for Management, Joseph E. Connor, told the Fifth Committee (Administrative and Budgetary) this morning as it began its consideration of the United Nations financial situation. While the overall amount owed by Member States was decreasing slightly, the Organization was forced to cross- borrow against peacekeeping funds to make up for deficits in the regular budget.

At the end of 1998, the projected amounts in both the regular and peacekeeping budgets would be $577 million, the smallest amount in four years, he continued. By the same date, the United Nations would be forced to cross- borrow 25 per cent of peacekeeping cash to cover the deficit in regular budget cash. That was the largest percentage in four years. The Organization was, thus, borrowing more and more from a smaller and smaller source.

When the amount of cash on hand was low and the amount of unpaid assessments was large, he continued, the United Nations was forced to slow its payment for troops and contingent-owned equipment for peacekeeping operations. The Organization's debt to Member States had now become resistant to change.

Several speakers expressed concern about the practice of cross-borrowing. The representative of Colombia, speaking on behalf of the Non-Aligned Movement, stressed that continued borrowing from peacekeeping funds for the regular budget delayed payments to troop-contributing countries. Pakistan's representative noted that developing countries were particularly affected by that practice.

Also this morning, the Committee continued its review of the United Nations administrative and financial efficiency, focusing on procurement reform and the use of outsourcing.

On procurement reform, the representative of Mexico noted that despite the Secretariat's efforts to broaden the supplier roster's geographical reach, the largest supplier country had recently increased its share of procurement contracts. The representative of the United States said that free and fair

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competition was the hallmark of a transparent system and would result in ultimate savings for all Member States. The expansion of competitive bidding must continue, he added.

The representatives of Indonesia (for the "Group of 77" developing countries and China), United Kingdom (for the European Union and associated States), India, New Zealand, Canada, Uruguay, Uganda, Democratic Republic of the Congo, Poland, Cuba, Latvia, Tunisia, Ukraine, Algeria, and Portugal also spoke this morning.

Reports were introduced this morning by the Under-Secretary-General for Oversight Services, Karl Th. Paschke; Vice-Chairman of the Joint Inspection Unit (JIU), Andrzej Abraszewski; and the Chief of the Common System and Specialist Services, Office of Human Resources Management, Rachel Mayanja.

The Director, Operations Services Division of the Office of Human Resources Management, Johannes Wortel, addressed the Committee on the reasons for delays in the issuance of documentation.

The Committee will meet again at 10 a.m. tomorrow, 11 March, to continue its general discussion on financial reports and statements of the Board of Auditors; review of the Organization's financial and administrative efficiency; and aspects of the 1998-1999 budget.

Committee Work Programme

The Fifth Committee met this morning to hear a report by the Under- Secretary-General for Management on the financial situation of the United Nations. It would also continue its review of the Organization's administrative and financial efficiency.

Also this morning, the Committee would begin considering aspects of the 1998-1999 programme budget, including the Secretary-General's proposal to redirect savings resulting from cuts in non-programme costs towards a development fund.

The report of the Secretary-General on the reduction and refocusing of non-programme costs (document A/52/758) refers to the two overall aims of this exercise. It is to reduce by 1 January 2002 non-programme costs by one third as compared to those for 1996-1997 as presented by the Secretary-General -- in actual terms, this represents a reduction of $280 million of the $849 million attributed to such expenses. In so doing, efficiency dividend of some $200 million would be placed at the disposal of the General Assembly, through the mechanism of the development account, for reallocation to economic and social activities.

The Assembly decided last December to establish in the 1998-1999 programme budget, a development account to be funded from savings from possible reduction of administrative and other overhead costs.

Prepared at the request of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), the report presents an outline of the various elements which constitute non-programme costs, together with measures aimed at reaching the objective within the indicated time-frame.

Section I of the report states that six elements should be included totally or partially under non-programme costs. These are: direct administrative costs, executive direction and management, programme support, conference services, public information costs and general operating expenses. It states that a computation base has been derived from the total regular budget amount by deducting certain elements such as maintenance/construction, staff assessment and special expenses. Those elements are considered to be neither programme nor non-programme costs and have been maintained outside the scope of the study.

Section II of the report outlines economies to be effected in the next two bienniums. These will be achieved by way of simplification and rationalization of rules, simplification and streamlining of procedures and processes, delegation of authority and responsibility, the Integrated Management Information System (IMIS) information technology, reimbursement of services rendered to extrabudgetary entities and common services.

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Section III of the report addresses the issue of preserving the integrity of the development account. That section states that a precise procedure must be established to preserve the integrity of the process by which non-programme costs of the Organization are reduced and thereafter reallocated, in the case of administrative and conference service costs, to a development account, or to programme outputs, in the case of information costs. Without such a procedure, the report states, the benefit of such reductions in non-programme costs could be lost in succeeding bienniums.

The report then details steps in the budgetary process to be taken to guard against such occurrences. These are, in precise order: defining base period non-programme costs; comparing base period biennium non-programme costs with non-programme costs in succeeding bienniums; and costing the remaining budget elements.

In its report (document A/52/7/Add.10), the ACABQ states that the Secretary-General's report is flawed by the lack of a clear concept of what constitutes the nature of activities funded by the regular budget.

The report states that the concept of "non-programme" is not applicable in the United Nations regular budget context since regulation 5.5 of the Regulations and Rules Governing Programme Planning, the Programme Aspects of the Budget, the Monitoring of Implementation and the Methods of Evaluation, states that "all activities for which resources are requested in proposed programme budget shall be programmed". Also, activities funded by the regular budget are, in large part, service-oriented. Seen in that context, the labelling of a number of the activities relating to direct administrative costs, such as costs for the Department of Management at Headquarters and the administrative divisions of the United Nations Offices at Vienna, Geneva, and Nairobi, seems difficult to justify.

The report further states that even if the proposed definitions of "programme/non-programme" costs are accepted, the methodology for calculating that they represent 38 per cent of the programme budget appears seriously flawed. The computation base of some $2.23 billion is derived from the total proposed programme budget for the biennium 1996-1997 of some $2.687 billion. The ACABQ recalls, however, that the total level of expenditure for 1996-1997 as approved by the Assembly was $2.608 billion. Also, the ACABQ discovered that even though expenditure for maintenance/construction and special expenses was deducted from the computation base, elements for administrative support related to that expenditure were used against the reduced base to derive the overall percentage of non-programme costs -- this is considered technically unsound.

The report states that compounding the difficulties of an unworkable definition of non-programme costs and a faulty computation base is the arbitrariness of the assumptions used to compute the non-programme costs, as

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exemplified by the treatment of conference services and public information. With regard to public information, for example, it points out that the programme of work of the Office of Communications and Public Information (OCPI) is, to a large extent, in support of an informed understanding of the objectives of the United Nations, including its substantive activities. The assumption that the OCPI's activities are non-programme is, therefore, non-tenable.

The report concludes that a case has not been made that administrative expenditures constitute 38 per cent of the programme budget, nor has it been demonstrated that a one-third reduction in administrative expenditures will yield cumulative savings of $195 million. The report further notes that, as staff costs account for approximately 70 to 80 per cent of the United Nations regular budget, savings of the magnitude referred to in the Secretary- General's report would inevitably affect hundreds of posts.

The report states that instead of recommending the submission of another report of the Secretary-General, the more practical way to proceed towards reaching the goal of reform would be to concentrate on the procedure to elicit specific new measures to increase the efficiency of the United Nations and to confirm the results arising out of the implementation of new measures, as well as those initiated prior to the current exercise.

Statement by USG for Management on UN Financial Situation

JOSEPH E. CONNOR, Under-Secretary-General for Management, presented the Committee with a review of the United Nations current financial situation and a forecast for 1998. He said the information contained in his presentation would be later issued as an official document.

At the end of 1997, three key indicators told the overall story of the Organization's financial situation, he said. The Organization's coffers had about $669 million, which was slightly worse than a year earlier. Unpaid assessments amounted to about $2.04 billion, which was slightly better than in 1997. Amounts due to Member States for troops and contingent-owned equipment came to some $884 million, which was slightly more than had been owed a year earlier.

Trends were apparent within each of the three indicators: cash, unpaid assessments, and amounts due for troops and contingent equipment, he continued. Regarding cash, the aggregate end of year balance of regular and peacekeeping budgets combined had dropped from $728 million in 1995 to $669 million in 1997. Thus, there was not a great deal of change over the three-year period.

With regular budget cash and peacekeeping cash considered separately, however, the picture was different, he said. There was a steadily decreasing trend regarding peacekeeping cash, from $923 million in 1995 to $874 million in 1996, to $791 million in 1997.

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Peacekeeping cash levels were expected to be down at 31 December 1997, reflecting the decreasing level of peacekeeping assessments and consequent reduced cash inflows, he said. At the end of 1997, peacekeeping cash balances had been favourably affected by lower-than-anticipated expenditures for several missions and obligations recorded, but not disbursed for missions in liquidation. While those favourable factors added some $80 million to cash balances at 31 December 1997, they were temporary. When they changed, peacekeeping cash would be adversely affected.

At the end of each of the past three years, he noted, the regular budget had been in the red. The deficit was virtually the same in 1996 and 1995: minus $197 million. In 1997, the deficit was less, some $122 million, for two reasons. First, the regular budget cash balance had been favourably affected by savings due to a large "underspend" of $54 million of the 1996-1997 biennium budget. Second, unexpected contributions had been received in December 1997, principally from the United States. Without those two unusual factors, the regular budget cash deficit at the end of 1997 would have been $74 million more, and almost the same amount as the past two years.

He said the United States' payment pattern differed substantially from all other Member States. "In the case of the United States, payment amounts have ranged as high as 130 per cent of current year assessments in 1990 to below 50 per cent in 1995." From 1980 to 1997, 90 per cent of its regular budget assessments had been paid, leaving 10 per cent unpaid. By contrast, the payment patterns of other Member States had not differed dramatically from amounts assessed, either on a year-to-year basis or cumulatively. Considered as a group, other Member States had paid 99 per cent of all their assessments, leaving only 1 per cent unpaid. The gap between assessment levels and payment levels caused the regular budget cash account to move into deficit position, he said. Until Member States, and principally the United States, closed that gap and paid their arrearage, regular budget cash deficits would be the reality at every year end.

At the end of 1997, unpaid assessments, both for the regular and peacekeeping budgets, amounted to $2 billion; down from $2.1 billion at the end of 1996 and $2.3 billion at the end of 1995, he said. Two factors could contribute to reduced levels of unpaid assessments. The level of new assessments could moderate, as had happened in 1996-1997. The aggregate decrease over the six-year period was $100 million.

Some of that decrease was due to the use of net budgeting in preparing the 1998-1999 biennium budget, he said. 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. In other words, it did not include 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.

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Another factor which could moderate the level of unpaid assessments was arrearage payments, he continued. With aggregate regular budget and peacekeeping assessments in 1997 down from the 1994 level, it had been hoped that arrearage payments would increase because of reduced current demands on Member States. However, such was not the case in either 1996 or in 1997. A significant pay down of prior year assessments had not occurred.

While there had been improvements in both regular budget and peacekeeping collections, the overall rate of improvement was disappointing, he said. In 1997, assessment levels were much lower than 1994, yet unpaid amounts were above those of 1994. A higher and higher percentage of assessments were in arrears and remained uncollected. As to the regular budget, he continued, the number of Member States paying their regular budget assessment in full continued to climb. To date, 100 Member States had paid all assessments for 1997 and all prior years. Only 75 Member States were in that position in 1994. There had also been a substantial decrease in the number of Member States owing more than their 1997 assessments at the end of the year, he added. At 31 December 1997, those Member States were down to 50 in number; down from 75 in 1994.

There continued to be a reduction in the absolute level of unpaid regular budget assessments, he said. Those unpaid assessments came to about $473 million as of 31 December 1997; down $91 million from the end of 1995. Unpaid assessments due from the United States were down $41 million; while those for all other Member States were down $50 million.

The United States owed 79 per cent of all outstanding regular budget assessments as of 31 December 1997, he continued. That country, together with Brazil and Ukraine, accounted for 86 per cent of all regular budget unpaid assessments at year end 1997. The number of States making no payments in 1997 had retrogressed to 17.

As to peacekeeping assessments, the unpaid amount at 31 December 1997 aggregated almost $1.6 billion, a decrease of $150 million since 1995, he said. That decrease, however, was a "net" number. The United States' portion of unpaid assessments increased $124 million. The amount owed by the Russian Federation had decreased dramatically, down $269 million in two years, he added.

As at 31 December, 82 per cent of all unpaid peacekeeping assessments were owed by three Member States, he said. All other Member States owed 18 per cent of total unpaid assessments, an amount which aggregated $292 million.

He then turned to debt to Member States for contingent-owned equipment. The United Nations as an organization had no capital and it had no cash reserves to speak of, he said. When the amount of cash on hand was low and the amount of unpaid assessments was large, the Organization was forced to slow down the payment of its obligations.

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The level of unpaid peacekeeping obligations to Member States who provided troops and equipment for United Nations missions was the Organization's principal obligation, he said. That obligation was now in a state of very protracted delay. The Secretary-General was trying not to allow the debt owed to Member States to rise. It was his intention to pay down the Organization's aggregate debt arrearage when Member States paid substantial amounts of their peacekeeping assessment arrearage.

That policy had been followed in 1997, he continued. At 1 January 1997, debt to Member States for troops and equipment aggregated $838 million. New obligations in 1997 of some $270 million had been undertaken by the Organization. Some $262 million had been paid in 1997, approximately equalling the new obligations. Further, some $65 million paid by the Russian Federation against arrears had been used to reduce the Organization's obligations for troops and contingent-owned equipment.

Unfortunately, negotiations with those Member States which had provided contingent-owned equipment to missions had led to an upward revaluation of $100 million for the outstanding debt, he said. As a result, the debt to Member States on 31 December 1997 stood at $884 million. There had been similar revaluations in the past; it was not unlikely that additional revaluations would occur in the future. Most of the $884 million owed related to contingent-owned equipment. At 31 December 1997, debt for troops was down to $140 million.

Over 70 Member States were owed amounts for the use of troops and contingent-owned equipment, he said. France was owed the most: $127 million. Five other States were owed more than $40 million: United Kingdom, Netherlands, Pakistan, Belgium and India.

He then turned to projections for 1998, framing the presentation again in terms of the three prime indicators of financial stability: cash, assessments, and debt owed to Member States.

At the end of 1998, cash amounts for the regular budget and peacekeeping together were projected to drop to $577 million, compared to $669 million at the end of 1997, he said. Looking at the regular budget component alone, the amount at the end of 1998 was a deficit of $184 million. The projection showed no basic change in recurring patterns of significant deficit that had affected the United Nations 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 also was projected to continue the pattern of decrease in recent years, he said. Cash flow projections were inherently difficult to make, especially for peacekeeping. The number of variables involved rendered such a financial exercise extremely complicated. The level of peacekeeping activity; the timing and amount of assessments; the

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timing and amount of payment of obligations; the timing and amount of the application of credits -- those factors, and more, affected predictability. With that in mind, it had been, nonetheless, estimated that peacekeeping cash would be about $761 million at the end of 1998.

Three key assumptions had been made in the projection of peacekeeping cash, 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. Also, new obligations for troops and equipment were estimated to be about $170 million, also a step-down from prior years. And third, it was expected that the Secretary-General would continue in 1998 his intent to pay Member States in 1998 amounts approximately equalling new obligations.

No estimate had been made in connection with arrearage payments by Member States, he said. As a result, no reduction was projected by the end of 1998 for the aggregate debt to Member States for troops and contingent-owned equipment.

At 31 December 1998, combined cash would be $577 million, the smallest amount in four years, he continued. By the same date, the United Nations would be forced to cross-borrow 25 per cent of peacekeeping cash to cover the deficit in regular budget cash. That was the largest percentage in four years. The Organization was thus borrowing more and more from a smaller and smaller source.

Turning to assessments for 1998, he said that regular budget assessments totalling $1.1 billion had been issued to Member States last December. Last year, 29 Member States had paid in full by the expected payment date, which was 31 January 1997. This year, only 24 Member States had paid in full.

The Secretary-General appreciated Member States' efforts to pay their assessments in full and on time, he said. He noted with disappointment that some Member States that were on the "payments received" list in 1997 were not there in 1998. As a consequence, the normal surge of cash inflows traditionally expected at the beginning of each year had not materialized for 1998. Of the 15 Member States who had made the largest assessment payment in the first two months of 1997, only eight had made any payments in 1998. Total receipts for the two months were down from $555 million to $319 million, which represented a 43 per cent drop.

The United States had promised to make promised payments of $152 million in instalments in March, April, July and September, he said. Those payments had been authorized by that country's Congress as of 1 October 1997, and were applicable to assessments due as of 31 January 1997. That country's protracted payment period was a major contributor to the Organization's financial constraints.

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On the matter of debt to Member States for troop and contingent-owned equipment, he said that at the end of 1998 the amount owed was projected to increase to $890 million from $884 million at the end of 1997. It was expected that peacekeeping activity would be about $800 million in 1998 and that troop and contingent-owned equipment obligations would come to some $170 million during 1998.

The troop and contingent-owned equipment component of peacekeeping operations was decreasing, while the police component required by missions was increasing, he stated. The costs for police must be paid currently. Hence, some degree of financial flexibility which had been present when troops and equipment were more prominent components of costs would be lost in 1998.

The Organization had received no information from Member States that indicated prospective arrearage payments, he said. Therefore, no additional arrearage payments had been factored into the projections for peacekeeping cash flows. The Organization did not anticipate paying Member States in 1998 beyond amounts approximately equal to obligations incurred for troops and equipment in 1998. Any further pay down would first require arrearage payments.

In sum, the Organization's cash position was weak, and getting weaker, he said. The need to cross-borrow against peacekeeping funds persisted. Unpaid assessments were slowly decreasing, while the ability to cross-borrow was drying up. The Organization's debt to Member States had become resistant to change. It was faced with a situation requiring choice, where someone could be the last one to get paid.

Other Statements

MAKARIM WIBISONO (Indonesia), speaking on behalf of the "Group of 77" developing countries and China, said the Group remained deeply concerned by the continued difficult financial situation of the Organization. In that regard, it had consistently held the view that the current financial difficulties of the Organization were primarily a crisis of payment due to the failure by some Member States, in particular the major contributor, to fulfil their United Nations Charter obligations in full, on time and without conditions. The Group was also of the view that in addressing the late or non-payment by States of their assessed contributions there was a need for understanding to be given to those willing to pay, but temporarily unable to do so due to genuine economic difficulties and reasons beyond their control.

Due consideration should be given to the debts owed by the Organization to Member States, he said. The Organization had been operating at the expense of those States -- in particular, developing countries -- that had contributed troops and equipment. That ongoing and vexing problem should be resolved. The Group had actively participated in attempts to find a solution and would continue to do so. The lack of political will on the part of certain States

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to fulfil their financial obligations should not be used to confuse the issue with others. It was, therefore, necessary to reiterate that the scale of assessments had no relationship with the ongoing financial problem of the Organization.

MAURICIO BAQUERO (Colombia), speaking on behalf of the Non-Aligned Movement, said that the difficult financial situation of the Organization was nothing new. It could be said that the Organization had been in a permanent financial danger almost since its creation. Proposals had been presented and discussed in order to find a way out of the crisis of payments -- resulting in many hours of work and in extensive use of conference services needed to make the analysis of the issue. However, a right solution to the problem had not been found.

The Non-Aligned Movement had previously expressed its position on the issue of improving the financial situation of the United Nations, he said. The Movement wished to reiterate its belief that the deteriorating financial situation of the Organization was mainly due to the non-compliance with provisions of the Charter on the part of some developed countries by not paying their full assessed contributions to the regular budget and to peacekeeping operations. In the same manner, the Movement was concerned at the continued borrowing of money from the peacekeeping fund for the regular budget, resulting in the delay of payment to the troop-contributing countries.

On the issue of incentives or disincentives to overcome the difficult financial situation of the United Nations, the Movement believed that the time had come to look for such alternatives, he said. In that regard, during its last ministerial meeting, held in New York last September, the Movement had stated that "in awarding procurement contracts, preference should be given to Member States that have fulfilled their financial obligations to the Organization". The Movement was of the view that proposals like that one should be seriously studied as mechanisms that would bring some financial stability to the Organization.

NICHOLAS THORNE (United Kingdom), speaking on behalf of the European Union and Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Cyprus and Iceland, thanked Mr. Connor for his useful presentation and the insight it had given into the Organization's financial situation. That information would be carefully studied. Clearly, however, all credit was due to those Member States that paid their assessed contributions promptly. The underlying trends remained very disturbing.

The continued recourse to borrowing from the peacekeeping operations account was of particular concern, he said. Both Mr. Connor and the Secretary- General had spoken against that practice. If payment patterns followed those of previous years, there appeared to be no prospect of avoiding further cross- borrowing again in mid-year. There was concern, however, that soon even that

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unfortunate practice would not be possible given the decline in available peacekeeping funds. He added that the views of the European Union on the issue of arrears were well known to all present.

He said that despite some progress, there was still a need to make the scale of assessments more truly reflective of Member States' actual capacity to pay. The reduction of the floor assessments had helped in that regard. However, more could and should be done to reform the regular budget scale to share the burden more equitably. The peacekeeping scale remained inequitable and needed to be amended to better reflect the fundamental principle of capacity to pay.

RAJAT SAHA (India) said India wished to associate itself with the statement made by the Indonesia on behalf of the Group of 77, as well as with that of Colombia, on behalf of the Non-Aligned Movement. The Organization continued to remain financially strapped for cash. As long as Member States did not abide by the Charter obligation to pay in full and on time and did not pledge to pay their outstanding arrears on the basis of a time schedule, the Organization could not undertake proper financial planning.

Despite the obvious cause of the crisis, there were some who were seeking to deflect the focus of their failure to meet their obligations towards other factors, he said. There were, undeniably, reasons that had contributed to the inability of some States to meet their obligations. However, what crippled the Organization was the withholding of assessed contributions by the largest contributor, as an article contributed by the Secretary-General to yesterday's The New York Times had made clear.

Long delays for reimbursement relating to peacekeeping operations was another problem, he said. While discussions had taken place, a comprehensive solution had yet to be found. It was, therefore, imperative to focus on adoption of concrete measures by consensus to address the crisis which the Organization faced. India had repeatedly reiterated its commitment to working for reform of the United Nations, including financial reform. Any solution that might be consensually agreed to required that all Members would jointly pledge to henceforth pay their assessed contributions in full and on time. It was hoped that the current consultations and implementation of reform by the Secretary-General would lead to the establishment of a funding system that would generate substantial increases in resources on a predictable, continued and secure basis.

AHMAD KAMAL (Pakistan) associated itself with the statement by the Group of 77 and by the Non-Aligned Movement. His delegation was deeply concerned that there was little improvement in the financial situation of the Organization. The grave financial situation continued primarily due to the non-payment of assessed contributions by some Member States, especially those that had the capacity to pay but were not doing so. That alarming situation had virtually crippled the

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Organization, and endangered the implementation of its mandated programmes and activities. The grim financial situation was now adversely affecting the Organization's ability to respond to the aspirations of the people around the world, as well as the morale of the United Nations staff, he said. The crisis had also led the Organization to adopt extraordinary practices such as the acceptance of gratis personnel. That practice should be discontinued immediately in accordance with the Secretary-General's United Nations reform proposal and General Assembly resolutions 51/243 and 52/220.

He said the financial situation had also resulted in borrowing from the peacekeeping budgets in order to meet the recurring expenses of the Organization. That had led to the non-reimbursement of peacekeeping expenses to contributing countries -- particularly the developing States that had responded to the call of the United Nations for the maintenance of international peace and security. At a momentous juncture, when the United Nations was being reformed, it was all the more important to provide adequate resources for the reinvigoration of the Organization.

WEN CHIN POWLES (New Zealand) said that the picture depicted by Mr. Connor was sobering. The most disturbing fact was that the situation was not new. For the 39 States who had paid their dues in full, there was little to say to the 146 Member States that had not fulfilled their obligations, except that it was time they did so.

SAMUEL HANSON (Canada) thanked Mr. Connor for his lucid presentation. He fully agreed with the previous speakers who had underlined Member States' obligation to pay their dues in full, on time and without conditions. Last December, the Organization's scale of assessments to share out its expenses and its regular budget had been adopted by consensus. There was, therefore, no reason for States to fail to pay their dues. Canada supported a variety of measures, including incentives and disincentives for payment of arrears, and tightening the application of Article 19 of the Charter, by which States were stripped of their voting rights when their arrears fell below a certain level.

BERNARDO GREIVER (Uruguay) said that he supported the statement of the Group of 77. He was particularly concerned at the grave financial situation facing troop-contributing countries as a result of the United Nations financial crisis.

RICHARD SKLAR (United States) said Mr. Connor had been correct that some $152 million would be received shortly from the United States. That amount was larger than the contribution of the next largest contributor for the entire year, he noted. The President of the United States had repeatedly indicated his firm support for obtaining enabling legislation that would allow the country to pay arrears accumulated in past years. The Administration was working with Congress to secure such legislation.

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ODYEK AGONA (Uganda) thanked Mr. Connor for his presentation. The views of his delegation had been well put by Indonesia on behalf of the Group of 77 and by the statement made on behalf of the Non-Aligned Movement. He noted that many States were taking their financial responsibility to the Organization seriously. There had been some improvement since 1994. States should be encouraged to keep up that spirit. Because of the budgetary cycle in their countries, some States were unable to pay their contributions on time. Chart 27, used in Mr. Connor's presentation, should reflect that fact; it should not be limited to those that had paid by January.

DOBE MBALANGA (Democratic Republic of the Congo) thanked Mr. Connor for the quality of his report. His delegation associated itself with the statements made on behalf of the Group of 77 and of the Non-Aligned Movement. His delegation attached great importance to the subject under discussion. The lack of liquidity, linked with persistent arrears in payment of contributions, placed the United Nations in a position of continuous deficit, causing it to borrow from the peacekeeping fund. That would hamper the implementation of peacekeeping operations. The Organization was in that position due to the non-payment of contributions by the major contributor.

JAN JAREMCZUK (Poland) informed the Committee that Poland had yesterday made its payment of assessed contributions. It had been ready to pay three weeks ago, but because of technical problems it had to wait.

EVA SILOT BRAVO (Cuba) supported the remarks made on behalf of the Group of 77. It also thanked Mr. Connor for his detailed presentation. It was sad for Cuba to note that there was a persistent grave financial situation in the United Nations that had led to a serious degree of illiquidity. That was due to a payment crisis. Member States, in particular the largest contributor, were not complying with their Charter obligations. It was important not to lose sight of the different situation of some countries that were temporarily unable to comply with their obligations.

ULDIS BLUKIS (Latvia) said he regretted that his country was not on the list of those who had paid in full, but expected to be on that list next year. He asked whether revaluations of amounts owed to Member States could be downwards, as well as upwards.

RADHIA ACHOURI (Tunisia) joined those who had thanked Mr. Connor for his clear description of the Organization's grave financial situation. Her country's position was reflected in statements made for the Group of 77 and China and for the Non-Aligned Movement. She supported further consideration of proposals regarding deterrents and incentives for payments. Article 19 of the Charter could be enhanced to improve the Organization's financial situation, and extricate it from its present crisis.

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Regarding the cross-borrowing concept, she did not support the practice in principle, but understood it had been used due to a lack of alternatives. Mr. Connor had implied, although not stated outright, that cross-borrowing was to be used. She could not support the suggestion. The Committee must seriously analyse the causes of the crisis, which were essentially related to payment, and find means to address that lack of payment. Some contributors refrained from paying contributions in full and on time, while others had objective difficulties.

IHOR HUMENNY (Ukraine) thanked Mr. Connor for his useful presentation. Ukraine was a major debtor, but it was trying to resolve the issue. Last year, it had contributed $28 million to the United Nations, and it was currently making further arrangements to reduce its arrears. He did not support proposals to change Article 19 criteria.

Mr. CONNOR then responded to questions. He said that periodic updates on the Organization's financial position were issued, and that the suggestion of the representative of Uganda would be considered. Contributions made by individuals could not be used to pay a State's debt, he noted. On revaluation, he said that while the aggregate seemed always to increase, revaluations were conducted by individual missions, and, therefore, some probably had decreased. There was a relationship between percentages of cash and of debt. He had tried to show the relationship between levels of assessment relative to unpaid amounts.

He said he hoped he had not conveyed a message that the Secretariat preferred cross-borrowing as "a way of life". Rather, it found itself without any alternative. What seemed to be a perpetual negative cash position had first occurred about four years ago, when the major contributor had paid less than half a year's assessment. Until that amount was made up, the Organization would face a regular budget deficit interminably. The Secretariat did not wish to see cross-borrowing as a standard practice.

Mr. AGONA (Uganda) thanked Mr. Connor for his replies. He drew attention to Chart 15 of the presentation. He noted that the number of non-paying States had risen. What interaction had taken place with those Member States? he asked. What were their future plans for payment?

Mr. CONNOR said that, periodically, there was follow-up with a large number of Member States. Reminder notices were sent. Some small States had national situations that made it difficult for them to pay and recognition was shown for that problem. Major concentration was placed on the large contributors and frequent contact maintained.

ANWARUL KARIM CHOWDHURY (Bangladesh), Committee Chairman, said that the interaction with Mr. Connor had been very useful. The question of the financial situation of the United Nations was a matter of great concern for the Committee.

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He wished all success to the Secretary-General in his initiatives to address the situation. It was hoped that at his upcoming press briefing, Mr. Connor would draw attention to the content of statements made by delegations today.

Review of Efficiency

ANDRZEJ ABRASZEWSKI, Vice-Chairman of the Joint Inspection Unit (JIU), introduced that body's report on the challenge of outsourcing for the United Nations system. After introducing the report, he said that their authors believed that more transparency and determination in exploring the usefulness of outsourcing for international organizations would contribute to correct a perceived lack of confidence and trust with regard to outsourcing practices and procedures in the United Nations and in many organizations of its system.

Mr. CHOWDHURY (Bangladesh), Committee Chairman, thanked Mr. Abraszewski, and welcomed him, as a senior colleague, to the Fifth Committee.

KARL TH. PASCHKE, Under-Secretary-General for Internal Oversight Services, said his Office's report on outsourcing had been introduced on 17 March 1997. To bring the two reports together, the JIU report, which had gathered details from the entire United Nations system, supported the findings in the Oversight Office's report. For example, his Office's report had indicated that managers often did not explain their reasons for using outsourcing, while the JIU report indicated that the majority of United Nations system bodies were reactive and lacked procedures requiring them to conduct cost-benefit analysis prior to undertaking them.

The fact that there were differences between the two oversight bodies on certain policy issues was not significant, he said. What was significant, however, was the fact that the project had demonstrated the worth and validity of opportunities for dialogue between the Oversight Office, the JIU and, at times, the Board of Auditors. He had tried to foster dialogue between the oversight bodies during his tenure.

ERNESTO HERRERA (Mexico) thanked the ACABQ for its reports on procurement reform. He welcomed what had been said with regard to the removal of gratis personnel from procurement divisions. The Secretariat's efforts to increase the presence of States on the list of suppliers was welcome. The largest supplier country, however, had recently moved from 43 per cent to 48 per cent. Despite the progress made in reform of the procurement system, Mexico had interest in the report the Secretariat was preparing on the subject.

ROYAL WHARTON (United States) said it welcomed the reports on procurement reform and outsourcing. The Assembly had endorsed the recommendation that procurement reform should be given high priority. Much still remained to be done in that regard. Free and fair competition was the hallmark of a transparent system and would result in ultimate savings to Member States. The expansion

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of competitive bidding must continue. Also important was the further training of those responsible for procurement, as well as the drafting of a procurement manual.

The procurement roster should be made larger, he said. When competition was not fair, cost to the Organization was driven up. That the United States received more contracts was not surprising, as United States products were highly competitive. Out of a total United Nations system-wide procurement in 1996, United States vendors had only provided 10.4 per cent. Figures for 1997 would be higher. However, it was likely that the United States vendor share would not be higher than 15 per cent. As long as competition was fair, there should be few complaints. Procurement reform was a benefit to all Member States.

DJAMEL MOKTEFI (Algeria) said he was pleased with the synergetic work conducted by the JIU and the Oversight Office. He referred to mention made in paragraph 9 of the French version of the document that the JIU had been unable to obtain sufficient information from the Secretariat regarding its use of outsourcing contracts. How was it that the Secretariat did not have data on its outsourcing practices? he asked. The Secretariat should provide the Committee with information on that matter.

Ms. POWLES (New Zealand) said she hoped a written copy of Mr. Connor's presentation would soon be made available. On the JIU's report, she noted that in paragraph 52 there was the suggestion of using ex-staff members, who might have been separated as a result of outsourcing, as potential providers of outsourcing contracts. She did not think that the practice should be considered, since it would clearly result in conflicts of interest. The matter must be dealt with very carefully, primarily to protect staff or former staff. Using former staff in procurement would require extreme transparency. Her delegation would want intense auditing if that practice were to be used.

Mr. THORNE (United Kingdom), speaking for the European Union, said the two reports were welcome. The Union broadly supported the recommendations in both reports, with some reservations. The issue of core functions deserved further consideration. Governments frequently made use of the practice of outsourcing, in order to save funds; there was no reason the United Nations should not benefit from the practice as well. The Union welcomed the complementary approach taken by the two oversight organizations, both of which were extremely valuable.

Mr. HANSON (Canada) said that the idea that in-house staff might compete for outsourcing contracts blurred the concept. The idea that former staff might compete for contracts also needed to be investigated.

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Reports of Internal Oversight Office

Mr. PASCHKE, Under-Secretary-General for Internal Oversight Services, introduced the report of his Office on the audits of the regional commissions. After introducing that report, Mr. Paschke said he wished to take the opportunity to recognize the positive efforts made to date by the regional commissions to implement the Oversight Office recommendations and improve management controls and financial accountability. He then introduced the Oversight Office report on the review of programme management in the Crime Prevention and Criminal Justice Division.

Programme Budget for 1998-1999

RACHEL MAYANJA, Chief, Common System and Specialist Services, Office of Human Resources Management, introduced the report of the Secretary-General on an interim study of the question of honorariums payable to members of organs and subsidiary organs of the United Nations.

JOHANNES WORTEL, Director, Operations Services Division of the Office of Human Resources Management, said that the preparation of his office's report had suffered delays of data submission beyond its control. The report would probably be available tomorrow.

Mr. CHOWDHURY (Bangladesh), Committee Chairman, said that yesterday in informal consultations it had been decided that all delegations who wished to submit written suggestions regarding the review of Committee working methods should do so by tomorrow. A compendium of those comments would be made.

Ms. SILOT BRAVO (Cuba) asked that tomorrow's meeting on the programme budget for the biennium 1998-1999 not be the final meeting -- that was the first time that the report of non-programme costs would be considered. Also, precise information on the proposals made at the informal consultations yesterday on the programme of work had been requested. All the proposals had not yet been circulated. Cuba had made specific proposals and it wished for confirmation. When could an answer be expected? she asked.

Mr. CHOWDHURY said that the item would be kept open, but in the future, the programme of work should be honoured. The report on privileges and immunities would be taken up by the bureau.

REGINA EMERSON (Portugal) said that her understanding regarding that report was that the Committee had agreed that the Secretary-General was to present a yearly report, but that the Committee would not necessarily take yearly action on it.

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