PRESS BRIEFING BY UNDER-SECRETARY-GENERAL FOR MANAGEMENT

Press Briefing

PRESS BRIEFING BY UNDER-SECRETARY-GENERAL FOR MANAGEMENT

The United Nations had taken a step back from the financial brink in 1999, the Under-Secretary-General for Management, Joseph E. Connor, told correspondents at a Headquarters press briefing this afternoon.

Mr. Connor updated correspondents on the financial situation of the Organization, saying that at the end of 1999 cash balances were up and unpaid assessments were down, as was debt to Member States for troops and equipment. However, the year 2000 had the potential to overturn the progress made in 1999 and to see the Organization slip once more to the brink -- in fact, to slide over that brink if the Organization’s operational grasp exceeded its financial reach.

Beginning with an overall assessment of the service requirements placed upon the United Nations by its Member States, he said that they showed up in changing assessment levels. Overall, the regular budget level in 1999 had stayed about even with 1994 and every year in between. The figure of 1999 was the lowest in the past several years. Peacekeeping levels had nosed downwards from the peak levels of 1994 and 1995. Assessment levels for international criminal tribunals had quickly mounted each year since their inception. The year 2000 showed more of the same for the regular budget and the Tribunals. The combined assessment level for 1999 was the lowest in six years at $2,065 million. As a result of new responsibilities mandated to the Organization, the forecasted peacekeeping assessments were to move to a much higher level -- $1,938 million in the current year. In the aggregate, assessment levels projected for 2000 represented an increase of more than $1 billion over the two previous years.

Turning to the Organization’s resource situation for meeting its service requirements, he said that the United Nations would be better able to begin to satisfy 2000 demands because of better 1999 year-end resources. The Organization had more cash. Such issues as the possibility of the major contributor falling under Article 19 of the Charter had been resolved. As a result, aggregate available cash balances at the end of 1999 for the regular budget, peacekeeping and the tribunals combined, had jumped to a high of $1,093 million from the previously relatively stable amounts of $677 million in 1996, $669 million in 1997 and $736 million in 1998. At the end of 1999, unpaid assessments for the regular budget, peacekeeping and the tribunals, stood at $1,758 million, down from $2,031 million a year earlier. The level of debt to Member States for troops and contingent-owned equipment totalled $800 million at the end of 1999 -- significantly lower than the previous three years.

Aggregate cash levels at year-end 1999 was $1,093 million compared to $736 million a year earlier, he continued. The significant change in the Organization’s year-end cash position became more evident when the parts of the combined total were viewed separately. At the end of 1999, regular budget cash was a positive $111 million, the highest in five years. Peacekeeping and tribunal cash aggregated $982 million, also the highest amount in five years.

Continuing, he said that, in his October 1999 financial presentation, he had discussed possible year-end scenarios, all turning on the level of regular budget payments that the United States could make by year-end 1999. In the end, that Member State had chosen the most optimistic one -- full payment in 1999 of an

Connor Briefing - 2 - 27 March 2000

amount equal to its 1999 regular budget assessment of $302 million, plus an additional payment of $150 million. As a result, the United States total regular budget payments to the United Nations totalled $452 million in 1999.

He said that the United Nations regular budget cash crisis had begun in earnest in 1995 when the United States had paid only 48 per cent of its regular budget assessment. The immediate cash crisis had subsided in 1999, when the United States paid 149 per cent of its regular budget assessment. In effect, its payments in 1999 largely made up for the shortfall in 1995. Payments by other Member States of their current year's assessments and arrears totalled 103 per cent of 1999 assessments. As a result, no cross-borrowing of funds from peacekeeping cash was needed to cover a year-end deficit in regular budget cash -- the first time since 1995.

Payments by Member States other than the United States of current year assessments and arrears totalled 123 per cent of amounts assessed in 1999, he continued. Peacekeeping contributions from those Member States had ranged from 90 per cent to 120 per cent in the five years previous to 1999 -- so 1999 was a plus year. The United States paid at a rate of 92 per cent of 1999 assessments -- about the same percentage as 1997 and 1998, but far in excess of the 40 per cent and 70 per cent paid by the United States in 1995 and 1996. That had contributed to the improved peacekeeping cash position at 31 December 1999. Three new key elements of the United Nations cash situation at the end of 1999 included the higher cash balances; the absence of the need to cross-borrow; and availability of excess regular budget cash to augment peacekeeping needs.

There was continuing improvement as far as the regular budget was concerned, he said. At the end of 1999, 126 Member States had paid their regular budget assessment for 1999 and all earlier years in full, nine more than last year, and 51 more than in 1994. Not too many years ago, only 75 Member States had paid their regular budget contribution in full. The absolute level of unpaid regular budget assessments continued to be reduced, down to $244 million as of 31 December 1999, a reduction of $173 million compared with the end of 1998. Unpaid assessments due from the United States were down $148 million, while amounts due from all other Member States were down $25 million.

The level of unpaid regular budget assessments as of 31 December 1999 was highly concentrated in four Member States. The United States, Brazil, Yugoslavia and Argentina together owed 88 per cent of the total outstanding amount. The remaining 12 per cent was owed by 59 other Member States. As to peacekeeping assessments, the amount unpaid at 31 December 1999 aggregated $1,482 million, a decrease of $112 million from 1998. The United States' outstanding payments had increased by $19 million, Ukraine's position had not changed, nor had that of Belarus. The Russian Federation had once more reduced its unpaid balance this year -- by $46 million from the year before. Five years ago, the Russian Federation had had unpaid peacekeeping assessments which aggregated over $500 million. Each year since had seen a pay-down by the Russian Federation. All other Member States had reduced their unpaid amounts by $85 million.

Yet another indicator of the Organization's financial situation was its debt to Member States, he continued. The Organization had started the year owing $872 million, most of it for contingent-owned equipment. At the end of 1999, debt to Member States stood at $800 million -- $72 million less than the amount owed at the beginning of the year. During the course of 1999, the United Nations incurred new obligations aggregating $232 million, slightly more than those incurred in 1998.

The Secretary-General intended to continue for 1999 the policy of paying out to Member States amounts equivalent to new obligations incurred. A partial payment of $141 million was made during the course of 1999; a further $91 million would be paid shortly. The policy adopted by the Secretary-General also sought to pay down debt to Member States when arrears payments were received. Accordingly, a payment of $16 million was made in October 1999 as a result of an arrears contribution of that amount by the Russian Federation in September. Two additional arrears payments were received very late in 1999 ($46 million from the United States and $25 million from the Russian Federation) and would be paid out to Member States in 2000.

In determining the amount owed to Member States for contingent-owned equipment, it was not unusual for individual Member States and the Secretariat to negotiate a revaluation of the equipment debt. A significant revaluation, primarily affecting one Member State, had reduced debt owed to Member States this year by $147 million. During 1999, the debt to Member States had decreased, in part, because of the consistent application of the policy set by the Secretary- General, which envisioned full payment to Member States of current year obligations and strict dedication of arrearage payments to reduce the debt to Member States incurred prior to the current year. Future liquidation of troops and equipment obligations was almost entirely dependent on the collection of peacekeeping assessments now long in arrears.

Turning to year 2000, he said that cash collections for the regular budget had started off well. The number of Member States paying on time and in full in 2000 had surpassed those who had done so in 1999. As of 31 January 2000, 43 Member States had paid their regular budget assessments for 2000 in full as compared with 32 a year earlier. In February 2000, another 21 Member States had made their full regular budget payment, bringing the total to 64 -- 15 more than last year. Some other good signs included the fact that regular budget cash flow was expected to show some dramatic changes from earlier years, and he projected a positive year-end cash balance that would contrast starkly with 1995, 1996 and 1997, when deficits had been more common than surpluses.

All of those changes depended on the basic assumption that the United States would pay regular budget contributions in 2000 equivalent to its assessments for that year, he said. The main deficit cash position would fall on October and November 2000 as the Organization awaited the current year's contribution from the United States. He hoped that that Member State could accelerate its usual year- end regular budget payment so that there would be no need for any cross-borrowing from peacekeeping cash for any month during the year 2000.

Peacekeeping cash showed a different picture, he said. He did not expect as high a year-end balance in 2000 as had been the case in 1999. There were two reasons for that. Approximately $162 million of cash in the peacekeeping account had been earmarked to pay to Member States in 2000 for the obligations incurred in 1999, which included the final settlement in the amount of $91 million for troops and contingent-owned equipment, and $71 million made possible by the arrearage contribution from the United States and the Russian Federation in late 1999. He projected year-end peacekeeping cash at $773 million -- not far different from 1999 -- after excluding from that year cash amounts earmarked for payment to Member States in 2000 on a delayed basis.

Year 2000 was also in line with 1997 and 1998, he continued. It was anticipated that new obligations for troops and contingent-owned equipment aggregating $419 million would be incurred in 2000. That amount anticipated several large or expanded missions, including Kosovo, East Timor and Sierra Leone. The Secretary-General intended to pay in 2000 a minimum of some $365 million to liquidate a high portion of new obligations for troops and contingent-owned equipment. That payment amount fell short by $54 million of the total of new obligations to be undertaken in 2000.

The failure of the projection to fully pay out new troop and contingent- owned equipment obligations in the year in which they arose was not a change in policy -- or at least not at this time. Given the high level of payments made for 1999, and the high level of obligations to be undertaken in 2000, the Secretary- General intended to be both conservative and prudent in identifying a minimum amount to be paid out. Based on the elements of the above projection, unpaid debt to Member States for troops and contingent-owned equipment would aggregate $692 million at year-end 2000. The debt had been decreasing in the past several years. The amount projected for the end of 2000 was certainly a major step downward since the peak year of 1995, when the United Nations had owed its Member States over $1.1 billion.

He said that the word for the projection at year-end 2000 was "better". Better cash, better collection of assessments, better level of debt -- all that added up to a United Nations better prepared to meet the responsibilities placed on it by the Member States. However, the new special missions, in particular Kosovo and East Timor, presented a challenge, which could undo the prevailing "better situation". Those operations were daunting, and so was their financial underpinning. Much had been reported by the media on the precarious financial situation of several special missions. Accordingly, it might be most relevant to review the financial status of all sources of funding -- assessments, voluntary contributions, fees for services.

Citing Kosovo as an example, he said that far-reaching undertaking had been organized to deal with both the complex nature and the extent of the mission. The humanitarian affairs were the responsibility of the Office of the United Nations High Commissioner for Refugees (UNHCR), with funding largely provided by voluntary contributions. The United Nations was responsible for civil administration, with funding provided by assessed contributions and voluntary contributions. Economic reconstruction was the responsibility of the European Union, with funding for its consolidated budget being provided by voluntary contributions and fees for services. Institution building was the responsibility of the Organization for Security and Cooperation in Europe (OSCE), and the funding for that sector was provided by its own budget and voluntary contributions. The Special Representative of the Secretary-General was the highest international civilian official in Kosovo, responsible for the entire mission. However, each pillar remained financially independent.

He said assessments were issued in a timely fashion to fund the United Nations responsibility for civil administration -- establishing government structures and providing an interim law enforcement capability. However, of late, those assessments had not been paid in a timely fashion, if at all. When the amount of $125 million was approved by the General Assembly in July 1999, 17 Member States had been assessed 90 per cent of the budget. The remaining 171 had been assessed 10 per cent. Five months later, $115 million had been collected. A second assessment had been legislated in December for $290 million. The two assessments together aggregated $415 million. By 29 February, only $190 million had been paid -- less than half the total amount assessed.

Estimated revenue sources for the Kosovo consolidated budget for 2000 totalled DM 423 million and were required to fund most of the consolidated budget in 2000, he continued. Half of the DM 423 million revenues to fund these services were to be drawn from taxes (DM 180 million) and user fees (DM 27 million); the other half from voluntary contributions (DM 216 million). Amounts pledged to date by various donors aggregated DM 210.9 million. The European Union and its individual members had pledged almost 75 per cent of the required voluntary funds. Of those pledges, DM 84.2 million had been paid to date and a further DM 70 million was expected shortly. By the end of March, 73 per cent of pledges would have been paid. The recent inflows of cash, both from improved collections of taxes and user fees, together with payment of pledges, would fund the Kosovo consolidated budget through mid-June. Receipt of the further pledged contributions of the European Union of 35 million euro would extend that date to September 2000.

While that brief description did not provide financial information on all the pillars and all the amounts contributed, he said it did provide a good picture of the financial mix of assessed contributions, revenues and voluntary contributions.

In conclusion, he said that for 2000 as a whole a degree of financial stability had returned -- after an absence of several years -- for activities funded from the regular budget. For activities funded from peacekeeping assessments, the degree of stability was less -- with periodic juggling of amounts owed to Member States to provide the United Nations a degree of financial liquidity. For special missions, funded in large measure by voluntary contributions, uncertainty had become the watch-word: who would contribute, when and how much?

Asked to provide the reasons why the United Nations could slip back in 2000, Mr. Connor replied that the Organization was in Kosovo and East Timor, and it was going to finance the missions somehow. However, it was "a mix". The United Nations had never before relied on voluntary contributions to such an extent, and that produced uncertainty. It was also uncertain whether any new missions would be authorized by the Security Council this year.

Asked to comment on the Secretary-General's statement in the Security Council last Thursday regarding "a more flexible approach by the Council to the use of assessed funding for critical elements of disarmament, demobilization and reintegration", Mr. Connor said that he would not like to do that. However, he was willing to say that "the newer parts" of the Organization's activities, in terms of increased effectiveness -- including human rights and drugs -- had very small implications on the regular budget. Many of them were funded through voluntary contributions, whereas the "old parliamentary activities" of conference services and, in fact, his own department, were historically totally funded from the regular budget. Such an approach was unbalanced, and some reordering of that might be appropriate.

To a question regarding the restructuring of assessments for the United States, he replied that for a number of years the United States had been indicating that its assessment for peacekeeping should be 25 per cent instead of 31, and that the present

assessment for regular budget should shrink down to 20 per cent. The payment of the remaining two tranches of the Helmes-Biden Bill, which left $826 million unpaid, was largely conditioned on changes in the scale of assessment. In his statement, he had used the number of $826 million, but some amount might be subtracted from that for other organizations within the common system.

Continuing, he said that the Secretary-General had indicated his disappointment that Member States had not yet faced the major issue of "sunset provisions" on reform. "There is a day when you should stop doing something, and that day should not be infinity", he said. Periodically, some items were eliminated or reallocated within the regular budget financing. It would clearly be helpful to the Secretariat if Member States pointed out which programmes had lost effectiveness. He hoped to get such a message when a review of the results- based budgeting proposal would be conducted.

Asked what the likelihood was of United States releasing the money for 2000, Mr. Connor said that the Organization had had no difficulty meeting many of the so-called "benchmarks" in the past, and he did not foresee many difficulties in the future. As for the capabilities of the Secretariat, it had nothing to do with the level of assessment. That was clearly between the Member States, and he could make no prediction regarding their future actions.

"In a nutshell, could you tell us how bad things really were"?, a correspondent asked. Mr. Connor replied that when he first came to the United Nations, there were projections for minus $400 million in regular budget cash, which were predicated on the non-payment by the United States for that year. Actually, that country had come up with about half the year's assessment payment by the end of the year. Since then, the United States had gradually increased the amount of total assessment it paid every year. This year, it had paid 100 per cent. The deficit had begun to shrink. Also, the Organization had "a formidable amount of borrowed money" -- borrowed from peacekeeping cash on a recurring basis for the regular budget. If that pattern had continued, the Organization would have headed "straight for a crisis".

To a question about United States reduction of regular budget assessments, he responded that there was only "a sliver of 1 per cent" held back because of national legislation, which precluded that Member State from paying contributions for certain activities. Their part in the overall picture was relatively minor. Legislatively, that country could pay 99 per cent of its assessment.

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