PRESS BRIEFING BY UNDER SECRETARY-GENERAL FOR MANAGEMENT

Press Briefing

PRESS BRIEFING BY UNDER SECRETARY-GENERAL FOR MANAGEMENT

The Under-Secretary-General for Management, Joseph E. Connor, briefed correspondents on the United Nations financial situation at Headquarters yesterday afternoon.

The United Nations was in the business of serving Member States and providing service to humanity, he said. Those service demands had changed radically over the past several years and would continue to change, which would be reflected in changing assessment levels.

Since 1992, aggregate assessment levels -- for the regular budget, peacekeeping and the two ad hoc international criminal Tribunals -- had peaked at over $4 billion in 1995 and gone down to some $2 billion in 1998. In 1999, they were rising to $2.4 billion and it was projected that they would rise still further to $2.8 billion in 2000-2001.

He then described the assessment trends by component. Regular budget assessments had been fairly flat since 1995. That was an unusual condition and it had been achieved for a number of years. Peacekeeping assessments, on the other hand, looked like a roller coaster. They had peaked in 1995 and reached a low of $907 million in 1998. Since the assessment levels projected in 1999 included only the start-up phase of missions in Kosovo, East Timor and Sierra Leone, higher amounts would be involved for these missions in 2000- 2001. There was a sustained increase in Tribunal assessments, he continued.

In overall terms, the Organization’s resource requirements would turn a corner by year-end 1999, he said. Assessment reductions that had characterized the years 1995 through 1998 would be replaced by increased resource levels necessary for 1999, 2000 and beyond.

He then described the basis of his presentation. Actual results were used for the period January through September, and estimates for the remaining three months of 1999. The analysis focused on unpaid assessments, available cash and how much was owed to Member States for troops and contingent-owned equipment.

Turning then to unpaid assessments, the Under-Secretary-General said that at the end of September, those aggregated $2.51 billion. They had remained at a high level for the past four years. Unpaid peacekeeping assessments constituted the major component; unpaid regular budget assessments had moved in a narrow range for 10 years; and unpaid Tribunal assessments had increased each year.

The United States, which was the major contributor, had in 1999 paid contributions of $264 million, but it still accounted for 65 per cent of the total amount of all assessments owed at 30 September 1999, he said. The other 14 members of the largest contributor group accounted for 17 per cent of unpaid assessments, while all other Member States together accounted for 18 per cent. Of the total unpaid assessments as at 30 September, $644 million was for the regular budget, $1.831 billion for peacekeeping and $35 million for the Tribunals –- an aggregate of $2,510 million. That amount was slightly more than a year ago, but an increase of almost $100 million compared to two years ago. Most of the increase resulted from the growth in peacekeeping arrears.

In any year, unpaid regular budget assessments at 30 September were usually higher than at the year's end, for one simple reason: the major contributor only began to pay the current year's assessment after 1 October. Accordingly, the peak level of regular budget assessments was expected to decrease in the coming months.

At the end of September, 81 per cent of the regular budget aggregate assessments were due from the United States, he said. Two other Member States had outstanding regular budget contributions which amounted to 9 per cent. Seventy-eight member States out of the remaining 170 owed about 10 per cent of the total.

Uncollected peacekeeping assessments had risen steadily since 1990, he said. At 30 September 1999, unpaid peacekeeping assessments were above the level experienced in 1995, despite the significant decrease since then in the level of peacekeeping activity. It had been anticipated that Member States would take advantage of the lower level of current peacekeeping assessments to ‘pay down’ their overdue peacekeeping arrears, but that had not happened. The outstanding amount was $1.831 billion at the end of September.

At 30 September 1999, the United States owed 60 per cent of total outstanding peacekeeping assessments, Ukraine owed 11 per cent and the Russian Federation 6 per cent, he said. The United States unpaid assessments had increased from the amount owed a year ago, Ukraine’s level was roughly flat, and the Russian Federation’s had decreased. In fact, five years ago the Russian Federation's unpaid peacekeeping arrears had stood at $569 million, and today, the level had been reduced by 80 per cent. Further, that country was up-to-date on all regular budget assessments.

Unpaid Tribunal assessments at the very end of September came to some $35 million -- an increase of $13 million in one year, he said.

The magnitude of unpaid assessments at the end of September effectively eliminated the Organization's financial base, he stressed. The assessment system had been developed to produce cash at the beginning of a period so it could be spent during that same period to carry out the mandates that were the source of those assessments. In practice, however, only a partial resource level was received at the start of the period. Financial flexibility had been lost and its absence endangered the Organization’s very existence.

He then turned to the United Nations cash balances, starting with regular budget cash. The year 1998 had ended with a regular budget cash deficit of $40 million. That was a significant number, but even larger cash deficits had been experienced at the end of 1997 and 1996. There were several causes for that improvement. The United States had made a significant payment -- $197 million -- in late 1998. That amount had been sufficient to pay down its unpaid assessments to an amount less than the aggregate of its assessments for the prior two years.

By the end of January 1999, cash inflows from the timely payment of 1999 regular budget assessments had permitted the repayment of amounts borrowed from peacekeeping funds, and had eliminated the regular budget cash deficit, he said. A continuing stream of regular budget receipts had enabled the United Nations to stay in a positive position until July, when it was once again obliged to borrow from peacekeeping accounts. Japan's payment in September of the balance of its regular budget contribution for the year -- $155 million –- allowed the Organization to repay peacekeeping funds borrowed to that date. September had ended with the United Nations being in a positive cash position.

Taking into account member States expected payments during the last few months of 1999, it was likely that the Organization would be faced with a negative regular budget cash balance of $60 million at the end of October and $162 million at the end of November, he said.

The projection for December was almost totally based on how much would be received in that month from the United States, he continued. If no payment was made by the United States, the year-end regular budget cash deficit would be $248 million, but that was not considered likely.

The United States, late last year, had made substantial payments he went on. But their enabling legislation had not yet passed, and therefore no definite assurance could be provided that all payments would in fact be made. For that reason, two different year-end scenarios had been projected.

Scenario 1 forecasted year-end regular budget cash by projecting an end-of-year payment by the United States equivalent to that made in the last weeks of 1998, which was $197 million, he explained. Scenario 2 assumed that the United States would pay regular budget and peacekeeping assessments, in addition to funds previously appropriated by it, but still not paid sufficiently to reduce its total obligations to the Organization to the equivalent of the most recent two year assessments -– approximately an additional $350 million. A further assumption had been made that, of the amount, $250 million would relate to the regular budget assessments and $100 million to peacekeeping.

Under Scenario 1, the regular budget cash deficit, while in a negative position, would be relatively small, approximately $48 million, he said. It would be similar to the year-end position last year. Under Scenario 2, the regular budget cash balance would go into a positive amount by $2 million. That would be the first time in years that the year ended with a positive regular budget balance.

Turning then to the peacekeeping cash situation, he said that the cash balances and the level of cash activity in 1999 largely resulted from the situation relative to established missions -- which were the bulk of peacekeeping activity during the year -- and their respective cash balances, together with the cash balance of the peacekeeping reserve account of about $100 million. The Secretariat had forecast one year ago that the level of peacekeeping activity for 1999 would be about $900 million; in March, it forecast that the amount would be $650 million. Those assumptions had proven wrong.

Cash levels had peaked twice during the course of the year –- $825 million in March and $869 million in September, he continued. It was anticipated that by year-end, peacekeeping cash would have been at a level close to the beginning of the year. That was still expected. Peacekeeping cash was now forecast at $749 million, at 31 December 1999, compared to $768 million at the beginning of the year. What that meant was that the impact of the “new” missions would be felt only marginally until the year-end approached. At present the cash impact of a “start up” assessment made for the United Nations Interim Administration in Kosovo had only begun. Budgets for significant follow-on assessments were only now being finalized. Assessments had not yet been voted for Sierra Leone or East Timor.

With that as a caveat, the Secretariat envisaged the year-end peacekeeping cash balance to be $749 million, he said. That amount was the one in the December column, "the base case". It did not reflect any amounts which might be received from the United States for peacekeeping missions by way of arrearage payments.

One hundred million of the prospective $350 million payment from the United States would be headed for peacekeeping and the total, necessary to keep the United States from under the level of assessments of two years ago. Scenario 2 included that amount -- $100 million. The United States had not made such an arrearage payment in 1998 for peacekeeping, hence there had been no effect on the base case. Because of uncertainty as to the prospects of an arrearage payment by the United States, once again the Secretariat could not make a precise forecast. If, however, that $100 million arrearage payment was made, peacekeeping cash would rise to $849 million, the highest amount in a long time.

Without cash, the United Nations was unable to act, he said. For example, the United Nations Mission in Kosovo (UNMIK) had been mandated by the Security Council on 10 June 1999, and an assessment of $125 million had been authorized by the General Assembly on 28 July, to cover start up costs. Assessment letters had been sent to all Member States on 30 July. To date only 30 Member States had paid for UNMIK for a total receipt of $35 million. So, in the third month of the Mission, only some 25 per cent of the financing had been received. So while new missions meant higher levels of peacekeeping activity, that did not necessarily translate into higher levels of cash.

Looking at regular budget and peacekeeping cash combined with the Tribunal cash balances, at year end 1998, cash balances had been higher than in 1997 and 1996, he said. The improved combined cash position had been primarily due to increased year-end payments by the United States. Whether, and to what extent those payments would be made by the end of this year, had not yet been confirmed by that Member State’s legislative process.

Scenario 1 assumed that amounts equal to those paid in 1998 – $197 million –- would be legislated and paid, he continued. As a result, combined cash would total $727 million. Scenario 2 assumed that additional payments of approximately $150 million beyond those paid in 1998 would be made in the last quarter. On that basis, combined cash would rise to $877 million. In the case of Scenario 1, cross-borrowing from peacekeeping funds would still be necessary at the end of 1999, to cover the regular budget cash deficit of $48 million. Scenario 2 did not entail the need for cross- borrowing. The elimination of the need to cross-borrow was a step in the right direction, he stressed. But that step was a small and tentative one.

The implication was that the Organization lacked financial flexibility, and it had no cash reserves or start up cash, he said. Cross-borrowing had been used as stop-gap financing and it might be used again. Largely, all the cash on hand had been held back from payments long overdue to member States for troop and equipment.

At the end of 1999, the estimate was that $729 million would be owed to those member States that had provided troops and equipment to the Organization, he explained. That was down from the level of, over $800 million of the past few years. The decrease, however, was caused primarily by a revaluation of a debt, not by anyone writing a check. Over the last several months payments had been made totalling $80 million to troop and equipment contributing countries. In the weeks ahead, the Organization expected to be able to make additional payments, bringing the total reimbursement amount for 1999, to $157 million.

It had begun the year owing Member States $872 million, he said. To that, new obligations for troops and equipment had been added of $141 million. Already, $80 million had been paid against that $141 million, and another $61 million would be paid. Further, the Russian Federation's arrearage payment of $16 million would go for that. So that would mean $157 million against the obligations incurred in 1999.

The revaluation had been a key element, he continued. The Secretariat had negotiated a revaluation of the cost of equipment with one member State, which reduced the debt owed to that State by some $127 million. That was not the first time revaluations had occurred. Sometimes they resulted in increased obligations, sometimes decreased.

Even so, the Organization's debt remained high and could not be liquidated. Further liquidation of troop and equipment obligation depended almost entirely on the collection of peacekeeping assessments which were now long overdue. The $16 million arrearage payment by the Russian Federation was most welcome because it would be turned around and the United Nations would finally be able to pay out some of the money that had been incurred for operations in Somalia some five or six years ago.

The implications were profound, particularly for an intergovernmental organization, he said. One group of member States was financing another group –- with no relief in sight. That was potentially destabilizing to the Organization. Seventy member States were waiting for arrearage payments to be made by another group of member States.

On balance, the United Nations was a little better off than a year ago, he said. But it was running on empty, with many miles yet to travel.

A correspondent asked about the United States debt. Mr. Connor said it showed up on the books, presently at $1.6 billion. The United States had appropriated, one year ago, additional payments to be made. One payment had been received late on 30 September. Others were still expected.

How much did that country have to pay to avoid the application of Article 19? the correspondent asked. New legislation, effective 1 October or thereafter, must provide for at least an additional aggregate $350 million and that amount must be paid by 31 December, he stressed. The key computation was how much could be legislated. A payment of $200 million was expected, and it was hoped that the United States would legislate an additional $150 million through legislation that would enable the amounts to be paid by 31 December.

Based on the experience of 1998, it appeared that only $200 million might actually be paid, he continued. The assessments made this year had been falling, meaning that the United States had to come up with more than it had paid last year to avoid the application of Article 19 of the Charter.

A correspondent drew attention to United States Ambassador Richard Holbrooke's efforts to mobilize support for paying the debt. Did the Under- Secretary-General think it was likely to happen? Mr. Connor said that the Organization had been entrusted, to undertake new missions. It was willing to go, but needed resources to get it there. Ambassador Holbrooke had made a statement to the Fifth Committee (Administrative and Budgetary) that had wrapped the whole issue into a package of reforms and legislation that he called his highest priority.

The same correspondent asked whether funds would be forthcoming for the proposals put forth in the Secretary-General's new report on East Timor. Mr. Connor said he thought the amounts were $58 million for phase II in East Timor and several hundred million for phase III. The Organization's presence in East Timor was necessary, he stressed.

A correspondent asked how much the United States was likely to be paying for missions in Kosovo, Sierra Leone and East Timor. He said he had been told that the estimate for Kosovo was some $5-600 million in a year, while Mr. Miyet had said it would be even more costly for East Timor.

Mr. Connor stated that total costs for the United Nations could go up roughly $800 million. The assessment rate of the United States for peacekeeping missions was currently about 30.3 per cent.

A correspondent asked what would be left if all funds were repaid to peacekeeping contributors. Mr. Connor said that under scenario 2, roughly $100 million would be left. Despite the fact that for nine months, peacekeeping activity had steadily diminished, cash had not dropped that much, because it was being retained as the Organization's last reserve. Member States awaiting payment had claims on almost every dollar.

Returning to the subject of United States payments, another correspondent asked how much it must pay before the end of the year to avoid losing its vote in the General Assembly. The Under-Secretary-General said the United States must pay additional ammounts totalling over $350 million, and that it was his understanding that legislation that would enable them to pay $200 million was currently before the United States Congress.

Asked whether the remaining $350 million would go to the regular budget, Mr. Connor said the assumption had been made that $250 million would go to the regular budget and another $100 million to peacekeeping. That was based on a reading of the legislation under consideration.

Returning to the costs for the three new missions, a correspondent said Mr. Connor had earlier told him that the costs for Kosovo could be some $5-600 million. If East Timor was going to be more expensive, and then Sierra Leone was added on, the amount seemed higher than Mr. Connor had said just now. Mr. Connor said those budgets were not yet finalized -- the requirements definition was made up by the Department for Peacekeeping Operations, then submitted to the Controller, who adjusted and generally lowered the figures. The figures would probably come to some $4-500 million. But the Fifth Committee legislated on the basis of how every component of the assessment would be directed. It was a long and gruelling process.

The experience with Kosovo had been disappointing, he said. The Secretary-General had asked for $200 million; only $125 had been assessed, and of that, only $35 million received. There were interim financing problems, and that was why the Organization held on to peacekeeping cash that was owed to Member States.

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