GA/AB/3395

NON-PAYMENT OF DUES UNDERMINING UN FINANCIAL STABILITY AGAIN, FIFTH COMMITTEE TOLD

1999 a Good Year, but Not So for 2000, Under-Secretary-General States

Presenting the financial situation of the United Nations to the Fifth Committee (Administrative and Budgetary) this morning, Under-Secretary-General for Management Joseph E. Connor said that, while he had reported that 1999 was a good year, he could not say the same for 2000. In short, deterioration abounded. Assessment levels were increasing markedly, and unpaid assessments were growing at an alarming rate. Non-payments and withholdings were undermining the financial stability of the Organization.

For the regular budget, the year-end cash position still depended on one Member State, he said. For the International Criminal Tribunals, there were increasing annual budgets, accompanied by larger unpaid assessments. For peacekeeping, there were increasing assessments, larger levels of unpaid dues, and the availability of cash was becoming limited. For debt to Member States, the situation remained intractable.

The question was whether the Organization had the financial foundation to take on the cycle of initiatives to be considered at the current Assembly session, including expansion of peacekeeping field operations, better security protection for United Nations staff, and the Capital Master Plan to refurbish United Nations Headquarters. The year-end cash position would depend on what payments were made by the major contributor, he said. With action not yet taken by the United States Congress, the forecast became uncertain.

He said that the Secretary-General would again make every effort to pay out sufficient funds to prevent an increase in the Organization's debt to Member States for troops and contingent-owned equipment, but he could not, at this time, give any unequivocal assurance on the matter. If the Secretary-General's efforts were successful, debt could drop to its lowest level in six years ($736 million).

As Mr. Connor had difficulty in speaking, his statement was presented to the Committee by Assistant Secretary-General for Central Support Services Toshiyuki Niwa. Both Mr. Connor and Mr. Niwa responded to questions from the floor.

In the debate that followed, many speakers stressed the urgent need for all Member States to pay their contributions in full, on time and without conditions.

The representative of Singapore said that there was a great paradox surrounding the United Nations. It was the only organization in the world which

Fifth Committee - 1a - Press Release GA/AB/3395 14th Meeting (AM) 17 October 2000

could draw 150 out of the 189 world leaders to attend a Millennium Summit. Between them, world leaders controlled or managed a global economy which now exceeded $30 trillion. Yet between them, they were not able to produce the $1.25 billion that the United Nations needed to keep its finances in order.

Speaking on behalf of the European Union and associated States, the representative of France said that the current situation of financial instability only benefited those States in arrears, in particular the United States. The financial crisis meant a massive transfer of the burden from the largest contributor to troop-contributing countries and good payers, to the detriment of the Whole Organization. If a permanent member of the Security Council refused to assume its special responsibility, how was it possible to call on other Member States to meet their financial responsibilities?

The representative of the United States said that his country had a special fund set aside to pay its dues, and he wished that conditions were was not part of the package. He could not but endorse the principles of paying in full and on time. However, the United States would only be able to pay if solutions to problems were found. This year, the United States anticipated being able to pay all its assessed contributions to the current regular budget and increase its peacekeeping contributions.

It was true that his country�s policy had put the United Nations in a straitjacket, he added. The time had come to review that policy, in view of the United Nations evolving priorities. Excessive reliance on one contributor or a group of contributors was not in the best interests of the Organization, which was based on the principle of equality of its Members. If all Member States could join together in adjusting the scale of assessments, substantial amounts would be paid to the United Nations.

Speaking on behalf of the �Group of 77� developing countries and China, the representative of Nigeria expressed concern at late and irregular reimbursements to developing countries that provided troops and equipment to peacekeeping missions. That extraordinary practice could not be allowed to continue indefinitely, since it amounted to a subsidy from, and placed undue financial stress on, those developing countries. The Group of 77 and China asked the Secretary-General to formally report on the financial situation of the Organization to the General Assembly. The Group would continue to participate constructively in collective efforts to resolve the persistent financial difficulties of the Organization.

Also speaking on the financial situation of the Organization were the representatives of Norway, Mozambique, Philippines (on behalf of the Association of South-East Asian Nations), Malaysia, China, India, Japan, Cuba, Argentina, Algeria, Australia (also on behalf of Canada and New Zealand) and Italy.

Also this morning, the Committee continued its consideration of the procurement reform and outsourcing practices of the United Nations. Addressing the Committee on this agenda item were the representatives of the Russian Federation, Turkey, the United States, Mexico, India and the Philippines.

The Committee will continue its work at a date to be announced.

Fifth Committee - 3 - Press Release GA/AB/3395 14th Meeting (AM) 17 October 2000

Committee Work Programme

This morning, the Fifth Committee (Administrative and Budgetary) met to hear a statement by the Under-Secretary-General for Management, Joseph E. Connor, on improving the financial situation of the United Nations. The Committee was also scheduled to continue its consideration of the procurement and outsourcing practices of the Organization. (For background information on that matter, see Press Release GA/AB/3394 of 16 October.)

Statement by Under-Secretary-General for Management

Reading the statement by the Under-Secretary-General for Management, JOSEPH E. CONNOR, Assistant Secretary-General for Central Support Services TOSHIYUKI NIWA said that often history repeated itself, but not as far as the United Nations finances were concerned. Last year was a good year, but he could not say the same for 2000.

The question was whether the Organization had the financial foundation to take on the cycle of initiatives to be considered at the current Assembly session -- the expansion of peacekeeping field operations, and Headquarters backstopping support; better security protection for United Nations staff; additional resource commitments to the Tribunals; and a capital master plan completely refurbishing United Nations Headquarters. The United Nations financial affairs demanded a healthy balance between how much had been assessed and how much had been paid.

He went on to say that the overall level of assessment for 2000 would be the highest in five years -- $3.3 billion. According to estimates, assessment levels could reach $3.5 billion in 2001. Year 2001 requirements could begin to rival the resource requirements of 1994 and 1995. Only the regular budget assessment had remained constant, without any growth over the entire 1994 to 2000 period. Tribunal assessments showed a different picture: negligible amounts a few years ago; up each year since; and more projected -- at a level close to $200 million -- for 2001.

Peacekeeping had the largest, and most erratic, resource requirements, he continued. The bulk of peacekeeping assessments were rendered twice a year, usually in January and July, with sporadic amounts assessed throughout the year to deal with new and extended or expanded missions. There had been a constant flow of assessment notifications throughout the year, but it had not been followed by the same number of payments. As a result, at 30 September 2000, unpaid assessments -- regular budget, peacekeeping and Tribunals together -- totalled $3.094 billion.

Unpaid peacekeeping assessments alone had reached a staggeringly high level of $2.5 billion, he said. Unpaid Tribunal assessments were also continuing to rise. Only regular budget payments would show a positive pattern at year-end. The picture was even more stark if one looked at actual amounts of unpaid assessments -- peacekeeping at $2.507 billion, approximately $675 million more than a year earlier. In total, unpaid assessments were up 23 per cent from a year before. Another bad sign was that the amount of unpaid assessments on 30 September -- $3.094 billion -- almost equalled anticipated total assessments for the year -- $3.376 billion. In effect, it meant the Organization was almost a year behind in collecting assessments, which was a dangerous situation. Of the total amount due to September, the major contributor owed 61 per cent of the amount outstanding, he continued. Fourteen other major contributors accounted for 25 per cent. All other Member States owed 14 per cent. Unpaid regular budget assessments at 30 September were some $533 million, an amount higher than what had been anticipated would be owed at 31 December.

Payment of current assessments by the United States would only begin when that Member State started its new budget year on 1 October, he continued. The United States, owed at 30 September 2000, 81 per cent of aggregate regular budget amounts. Two other Member States among the next 14 principal contributors, Brazil and Argentina, had outstanding regular budget contributions amounting to 12 per cent. Those two Member States were expected to make additional regular budget payments by 31 December 2000. In fact, Argentina had done so last week � $1.5 million paid. Of the remaining 173 Member States that had been assessed, 53 owed 7 per cent of the uncollected regular budget total.

Those percentages were not significantly different from a year before, he said. The United States portion was the same, and two other principal contributors' percentage had increased from 9 to 12 per cent. Most significantly, among other Member States, the number with outstanding contributions had reduced from 78 to 53, and their percentage owed had fallen from 10 to 7. There was a substantial change in the number of Member States that paid their assessments in full by the end of the year. That was real progress. At the end of September 2000, that number stood at 131. As of today, that number had increased to 136. Only 52 Member States had not so far paid in full.

On peacekeeping assessments, he noted that all but two of 14 ongoing missions were funded through peacekeeping assessments. The other two, the United Nations Military Observer Group in India and Pakistan (UNMOGIP) and the United Nations Truce Supervision Organization (UNTSO), were funded through the regular budget. Peacekeeping assessments for 2000 were estimated to reach $2.1 billion. Peacekeeping assessment levels had fluctuated irregularly over the last nine years, with highs of over $3 billion in 1994 and 1995 and lows of $900 million in 1998 and 1999. Currently, they were on the upswing. However, peacekeeping levels of assessments were inherently hard to forecast and, even at this point in the year, assessment levels could go higher.

He said that the year 2000 was adding to the upswing pattern as a result of four of the most recently established missions -� United Nations Mission in Sierra Leone (UNAMSIL), United Nations Transitional Administration in East Timor (UNTAET), United Nations Interim Administration in Kosovo (UNMIK), United Nations Organization Mission in the Democratic Republic of the Congo (MONUC). Those four missions apart, assessment levels for this year were considerably smaller, barely reaching $0.4 billion. With the four missions, the aggregate level totalled over $2 billion. Unpaid peacekeeping assessments at the end of September reached a high of $2.5 billion. There was real concern over the imbalance in the amount of assessments unpaid compared to the current levels of assessment. Another concern was that the amount of assessments was highly concentrated. The United States alone accounted for 58 per cent of the aggregate.

In October a number of significant contributions had been received, he continued, including $200 million from the United States, $61 million from Italy and $17 million from France. The United States had also informed the Organization that an additional $100 million should be expected shortly. These two payments from the United States would bring down that Member State's share and percentage of the total owed.

Regarding the two International Criminal Tribunals, he said that since their creation in 1994 and 1995 assessments had increased fourfold. They now stood at $166 million. New proposals from the International Criminal Tribunal for the Former Yugoslavia and the International Criminal Tribunal for Rwanda for the year 2001 showed continued rapid growth. Also growing were the numbers of staff involved -- over 1,600 in 2000, heading up higher in 2001.

Assessment payments had not kept pace, and unpaid assessments were now at $54 million, up from $20 million in 1997, he continued. One hundred twenty-two Member States had unpaid assessments at 30 September 2000. Three Member States -- United States, Russian Federation, France -- accounted for the largest component. Each of the three owed $12 million. France had informed the Secretariat that its Tribunal payments would be made by year-end. The Russian Federation had made no payment for the current year or, in fact, for prior years. The United States arrears continued to grow as that Member State did not pay the full assessed amount.

In a word, he said, deterioration abounded. Assessment levels were increasing markedly, and unpaid assessments were growing at an alarming pace. Non-payments and withholdings were undermining the financial stability of the Organization.

Turning to the cash situation of the United Nations, he said that for the regular budget the cash position during the first nine months of year 2000 showed an all too familiar pattern. The Organization had started the year with a positive balance of $111 million, followed in January through June by an intake of cash following payment of regular budget assessments. It went into a negative position in July and continued to be negative until September, when major payments were received from Japan and the United States. At 30 September, the United Nations was just above the zero line.

To project the year-end cash position, it was necessary to focus on what payments could be made by the major contributor, he said. With action not yet taken by the United States Congress, any forecast would be uncertain. Three possible scenarios, however, seemed possible.

Scenario 1 assumed an end-of-year payment by the United States equivalent to the remaining balance of its current year's assessment, or $267 million. That payment approach was what had occurred in 1999. Scenario 2 assumed that the United States would withhold up to $100 million pending a review. In that case, payment of only $167 million would be made by 31 December 2000. Scenario 3 assumed that no year-end payment would be made, which was unlikely.

Under the first scenario, the regular budget cash balance would be positive by some $48 million, he said -- not as much as 31 December 1999, but still on the plus side. Under the second scenario, the regular budget cash balance would be negative by some $52 million, forcing a return to cross-borrowing from peacekeeping cash at year-end to compensate for the regular budget cash deficit. The third scenario meant a step backward to a very large negative balance. The situation was uncertain. Member States efforts to pay dues currently had ameliorated the cash situation, but the amount of year-end cash depended on one Member State. A return to cross-borrowing remained a very real threat.

Regarding peacekeeping cash, he said that the picture was far different from regular budget cash, but very much in line with the timing and extent of peacekeeping assessments. Peaks in the level of peacekeeping cash occurred in the spring and autumn of the year, lagging several months or so behind the issuance of major peacekeeping assessments. On average, the Organization had $900 million to $1 billion in peacekeeping cash through the year, but that amount was deceptively large.

There was cash currently available for active missions -� about $419 million, he said. With 12 missions to administer, that amount was very low, even marginal. Cash requirements were currently in the order of about $120 million a month, and rising. The present cash balance represented only about three months cash on hand. That was a precarious, if not potentially destabilizing, position. Another complicating factor was the fact that some active missions had better cash positions than others. No cross-borrowing was permitted between active peacekeeping missions. That meant that for certain missions it was necessary to delay planned troop and contingent-owned equipment payments.

There was also cash available for inactive missions of some $374 million, he said. That cash was frozen. Most of it was earmarked for settlement of contingent-owned equipment claims from troop-contributing countries which must be negotiated, finalized and certified before payment. Finally, there was about $180 million in the Peacekeeping Reserve Fund. The Peacekeeping Reserve Fund was a cash flow mechanism to permit rapid response by the United Nations to the needs of new or expanded peacekeeping operations. That amount was derived from individual commitment authority levels granted by the Advisory Committee on Administrative and Budgetary Questions (ACABQ) or by the General Assembly. Once initial assessments were voted, the Reserve Fund was replenished from active mission cash. Follow-on financing was provided through assessed contributions and voluntary contributions.

Turning to the subject of debt to Member States, he reiterated that it remained the Secretary-General's intention to pay Member States for obligations incurred currently for troops and equipment. Arrears would be paid when assessments were collected. That policy had been followed over the last few years. However, this year there was more uncertainty than usual regarding the Organization�s ability to continue that policy.

Clearly, holding back payments had been a source of precautionary financing for peacekeeping as a whole, he said. Now, with the level of resources required to carry out missions increasing, the consequent level of payments due for civilian support and for use of troops and contingent-owned equipment also increased. In effect, the Organization was adding to its debt levels as the year went on. With large and increasing amounts of unpaid assessments, the conviction that the United Nations could remain current on troop and contingent-owned equipment obligations was fading.

At the beginning of the year, debt to Member States for troops and equipment totalled $800 million, he continued. This year, the Organization had completed payment of its final 1999 obligations of $91 million. It was also able to make further payments from arrears collected in 1999 by the United States and the Russian Federation, which together totalled $71 million. However, for the year 2000, obligations incurred in 2000 were running higher than in the past, and were now expected to be of the order of $365 million.

Partial troop and equipment payments had been made during the course of the year, he said. To date, a total of $84 million had been paid to Member States. An end-October progress payment would also be made for active missions of $86 million. More payments were planned by the end of the year to meet the current year's obligations. However, the remaining anticipated payments were almost entirely dependent on the prompt collection of the current year's peacekeeping assessments. In fact, the Organization may have to divert payment of some arrears collected for that purpose, if it received any. To completely pay out the current year's obligations, another $97 million in arrears would need to be paid. If that could be accomplished, year-end debt would total $736 million.

The Secretary-General would make every effort to pay out sufficient funds to prevent an increase in the Organization's debt to Member States for troops and equipment, but he could not, at this time, give any unequivocal assurance on this matter. If the Secretary-General's efforts were successful, debt could drop to its lowest level in six years. That was a pleasant prospect.

Reimbursements were owed to many States, he continued. India led the list with $80 million owed to it, followed by the United States, United Kingdom, Netherlands and Jordan. In general, debt owed for troops and equipment remained high and fiercely resistant to reduction. First priority here was to contain the present debt level by paying out fully this year's obligations. Second priority was to reduce the current debt level using payments for assessments long in arrears. Both priorities gave way to the need to retain enough cash overall to maintain the Organization's cash liquidity.

He said that overall cash liquidity was affected by assessments, cash availability and debt to Member States. The Organization�s combined cash picture at this point in the year was dependent on when and how much the United States would remit to the United Nations by the end of 2000 for the regular budget. Under those circumstances, it was necessary to continue to develop a combined cash forecast based on the three scenarios of possible United States payment outlined previously.

Scenario 1, which assumed full payment by the United States of its regular budget contribution, showed total cash at $1.034 billion, of which $986 million was for peacekeeping and the Tribunals, and $48 million was for the regular budget. The aggregate was below last year's level, and for two years in succession the United Nations had successfully avoided cross-borrowing at year-end to support the regular budget.

Scenario 2 projections would mean combined cash of $934 million, of which $986 million was for peacekeeping and the Tribunals, with a regular budget deficit of $52 million. That scenario meant a return to a deficient regular budget cash position and, of course, cross-borrowing from peacekeeping accounts. Scenario 3 would mean combined cash of $766 million, of which $986 million was for peacekeeping and Tribunals, with the regular budget in deficit of $220 million. That scenario was considered highly unlikely, since it assumed no payment would be made by the United States for its current year's assessment. However, if it occurred, it would mean a substantial deficit in the regular budget and, therefore, a resultant drop in combined cash, to the level of 1998.

In conclusion, he said that, for the regular budget, even with an increasing number of Member States paying in full, the year-end cash position still depended on one Member State. For the Tribunals, there were increasing annual budgets, accompanied by larger unpaid assessments. For peacekeeping, there were increasing assessments, larger unpaid assessments, and available cash was limited. On debt to Member States, the situation remained intractable.

The presentation had been all about money -- where it would come from, how it would be used, where the balances now stood, where they were headed and how much was needed. From a management perspective, the aim was to manage money wisely. The Organization had value to repay to Member States for the money entrusted to it. Paraphrasing Derek Bok -- the past President of Harvard University -- if you think peace and development are expensive, try war and poverty, he said.

OLUSEGUN APATA (Nigeria), speaking on behalf of the "Group of 77" developing countries and China, said that, at their annual meeting in New York in September 2000, the Ministers for Foreign Affairs of the Group reiterated their deep concern over the difficult and chronic financial situation of the United Nations, primarily caused by the failure of some Member States, in particular the major contributor, to pay their assessed contributions to the regular and peacekeeping budgets. The Group reaffirmed the legal obligation of Member States to bear the expenses of the Organization in accordance with the Charter, and to pay their assessed contributions on time, in full and without conditions. The Group, however, recognized the need to extend sympathetic understanding to those that were temporarily unable to meet their financial obligations as a consequence of genuine economic difficulties.

He also expressed concern at late and irregular reimbursements to developing countries that provided troops and equipment to peacekeeping missions. That extraordinary practice could not be allowed to continue indefinitely, since it amounted to a subsidy from, and placed undue financial stress on, those developing countries. Given the crucial importance attached by the Group to the deterioration of the financial situation, it asked the Secretary-General to formally report on the financial situation of the Organization to the General Assembly. The Group would continue to participate constructively in collective efforts to resolve the persistent financial difficulties of the Organization.

JEAN-DAVID LEVITTE (France) speaking on behalf of the European Union and associated States, said that on 30 September the total sum due to the United Nations from Member States was nearly $3 billion. That sum merged two figures of a different nature arrears of some $1.8 billion owed at the end of 1999, and sums assessed for 2000 not yet paid amounting to $1.2 billion. The amount was equal to the cost of one full year of operations. No organization could function without a severe crisis if it was dependent on funds that reached it one year late. The situation could prompt the United Nations to resort to questionable financial practices, including loans from the peacekeeping budget to finance the regular budget. It was indispensable that each Member State fulfilled their Charter obligations to pay on time and without conditions.

The missing $3 billion, if invested prudently, would yield some half a million dollars a day, he continued. The cost of the financial crisis would rest with troop-contributing countries and the Organization itself. The United Nations was plunged into a situation of medium-term instability and must face the administrative costs of handling the crisis. The situation only benefited those States in arrears, in particular the United States. The United Nations financial crisis was reflected in a massive transfer of the burden from the largest contributor to troop-contributing countries and good payers, to the detriment of the Organization. The agenda that the Fifth Committee n Summit, in particular the commitment to eliminate poverty. If a permanent member of the Security Council refused to assume its special responsibility, how was it possible to call on all Member States to meet their financial responsibilities. Those of the largest contributor were massively unmet.

The agenda of the Fifth Committee offered the necessary tools to make progress towards emerging from the financial crisis, he said. In 1996, the European Union had proposed a series of measures, including revision of the scales, increased administrative effectiveness and measures to encourage prompt payment of contributions. Awarding of contracts, distribution of administrative surpluses and appointments to high-level posts should take into consideration the way in which Member States fulfilled their obligations. Many States were currently subject to sanctions under the terms of Article 19 of the United Nations Charter. As the Committee on Contributions recently noted, many other States had made the minimum contribution needed to avoid the application of the provisions of Article 19. The fact that such a large number of Member States were on the border line was a source of concern, since contributions should be paid to the United Nations in full. The way in which Article 19 was interpreted departed from a literal reading of the Charter. The Union did not blame those countries confronting grave financial difficulties. However it was regrettable that certain Member States, which were not among the smallest contributors, handled their finances in a way that was unfavourable to the Organization. The Union remained determined to work to bring the United Nations out of the financial crisis it was confronting and was open to all proposals pursuing the same objective.

OLE PETER KOLBY (Norway) said that the United Nations continued to be an under-resourced organization. Norway was concerned about the financial situation of the United Nations. In spite of some good news, the arrears for the peacekeeping budgets and the regular budgets still exceeded the total amount of the regular annual budget. He called on all Member States to meet their Charter obligations and pay their contributions in full, on time and without conditions. Peacekeeping was a core task for the United Nations and a major reason why the Organization was formed. At a time of increasing commitments to peacekeeping activities, it was of the utmost importance to ensure adequate financing. Norway reiterated its concern that the Organization still owed troop-contributing countries some $1 billion.

The present financial situation had a negative impact on areas that were fundamental to the activities of the United Nations, he continued. To rectify the situation it was imperative that Member States paid all outstanding contributions. Norway supported the revision of the regular budget and peacekeeping scales, as well as the establishment of a set of incentives and disincentives. He favoured tightening the application of Article 19 of the Charter. Norway emphasized the collective responsibility of all Member States to finance the United Nations. Reaching consensus on the scales of assessment and assuring the financial solvency of the Organization should be the Fifth Committee�s first goal.

He said that he did not support the concept of zero nominal growth for the regular budget or for the budgets of the specialized agencies. The United Nations budget for the biennium 1994-1995 was $2.6 billion, which was actually higher than the 2000-2001 budget. Over the last six years, the world�s real Gross Domestic Product (GDP) had increased by some 20 per cent. That illustrated the negative real growth of the United Nations regular budget during that period. Zero nominal growth had become increasingly detrimental to reform and made it difficult to fund priority activities. As long as the regular budget was kept within the straitjacket of zero nominal growth, the United Nations system was dependent on voluntary contributions from a group of countries that remained disappointingly small. It would be unfortunate to tilt the balance in resourcing of the United Nations further in the direction of voluntary contributions.

CARLOS DOS SANTOS (Mozambique) associated Mozambique with the position of the Group of 77 and China, and said that his country attached great importance to the financial situation of the United Nations -- both as a Member State and a beneficiary of the Organization�s development activities. The principles of the Charter had proven to be timeless and universal, and that had been confirmed by the world leaders at the Millennium Summit. The leaders had also resolved to ensure that the Organization received adequate resources to carry out its mandate.

He went on to say that he remained deeply concerned at the continued financial crisis of the Organization, which was mainly caused by the non-payment of dues by the leading contributor. Because of the difficult situation, the United Nations had been forced to resort to cross-borrowing from peacekeeping funds. That should not be allowed to continue indefinitely. To reverse the situation, all Member States must pay their assessed contributions in full and on time and, most importantly, without conditions. That was a legal obligation of all Member States under the Charter. Promises were not enough in that respect.

MARY JO B. ARAGON (Philippines), speaking on behalf of the Association of South-East Asian Nations (ASEAN), said that the financial situation of the United Nations remained critical at a time when the Organization was being asked to do more. The ASEAN was concerned that the continuing financial crisis was undermining the Organization�s ability to implement fully, efficiently and effectively the programmes and activities mandated by Member States. The financial crisis was principally due to the late or non-payment of assessments by some Member States, in particular the major contributor. While she welcomed a review of the scale, the scale had not caused the financial crisis. The ASEAN reaffirmed the legal obligation of Member States to pay their arrears without delay, and their contributions in full, on time and without conditions.

She was pleased to note that this year the practice of borrowing funds from peacekeeping budgets to finance regular budget activities had been limited. Yet, because Member States continued to fail to honour their obligations, the prospect of cross-borrowing loomed. That practice had caused delays in reimbursement of claims from troop-contributing countries and added to the financial burden of troop-contributing developing countries. The situation needed to be redressed as a matter of priority.

MOHAMMAD KAMAL YAN YAHAYA (Malaysia) said that it appeared that the financial situation of the Organization remained as gloomy as it had been in previous years. Regarding the assessment for the year 2000, Member States had only paid $517.27 million. As of 30 June 2000, the United Nations had only been provided with approximately half its required budget for the year. He viewed the statistics with dismay, and called on Member States to pay their assessed contribution and settle their arrears on time, in full and without conditions, so as to relieve the precarious financial situation. The United Nations must be given the necessary financial resources to enable it to fulfil its mandate effectively and efficiently.

While he empathized with the countries that were facing genuine difficulties, he urged the more capable Member States to honour their assessed contribution and settle their arrears. Contrary to the perception of some Member States, he did not think that the bleak financial situation of the United Nations was linked to the scale of assessment. The scale was merely a mechanism to apportion the Organization�s expenses equitably among the Member States. The problem lay with the failure of Member States to meet their Charter obligations. It exacerbated the situation when one Member State imposed conditions for the payment of its assessed dues. Such a practice should not be tolerated, as it ran counter to the spirit of the Charter.

Malaysia was also concerned with the practice of borrowing funds from the peacekeeping budget to finance regular budget activities, he continued. That practice had resulted in delays in reimbursements to troop- and equipment- contributing countries. The issue should be redressed urgently. Noting that the Committee on Contributions decided to consider measures to encourage timely, full and unconditional payment of assessed contributions, he reaffirmed his support for a system of incentives and disincentives to encourage Member States to honour their obligations. Recalling Mr. Connor�s statement, he agreed that war and poverty were indeed more expensive than peace and development.

DONALD S. HAYS (United States) said that the Under-Secretary-General for Management had presented a clear picture of the financial situation of the United Nations. As a representative of a major debtor, he wanted to paraphrase Dorothy from the Wizard of Oz. "I wish I were in Kansas today�, he said. The United States did not have any objection to much of what had been expressed today. The discussion indicated clearly that all countries shared a goal of placing the United Nations on a stable financial footing. Significant arrears in the payment of assessed contributions were not simply a matter of some Member States being in a difficult financial situation. It was also a matter of building political will.

Many knew that the United States had a special fund set aside to pay its dues, he continued. He wished that conditions were not part of the package. He could not but endorse the principles of paying in full and on time. Unfortunately, however, it was also necessary to deal with reality. The United States would only be able to pay if solutions to problems were found. His delegation was working hard to build consensus in that regard. In general, the United States behaved very responsibly towards the United Nations. But the situation today was not a comfortable one. This year, the United States anticipated being able to pay all its assessed contributions to the current regular budget, and increase its peacekeeping contributions by 60 per cent.

The United States would work with all Member States towards a pragmatic solution that was as equitable and transparent as possible, he said. Its goal was to pay a large amount of what was owed this year. It was true that his country�s policy had put the United Nations in a straitjacket. The time had come to review that policy, in view of the United Nations evolving priorities. In 1946, the membership of the United Nations had recognized that reliance on one contributor, or a group of contributors, was a source of instability. Such excessive reliance was not in the best interests of the Organization, which was based on the principle of equality of its Members. If all Member States could join together in adjusting the methodology of the scale of assessments, substantial amounts would be paid to the United Nations, and this would allow the Organization to reduce its debt to Member States.

The United States remained the largest voluntary contributor to the United Nations, and this year it would contribute approximately $3 billion. Additional funds would be provided next year. He was committed to finding a solution this year to the arrears situation and he urged all Member States to work together towards that end.

GERARD HO (Singapore) said that there was a great paradox surrounding the United Nations, which was the only organization in the world which could pull 150 out of the 189 world leaders to attend a Millennium Summit. Between them, 189 leaders controlled or managed a global economy which now exceeded $30 trillion. Yet among them, those leaders were not able to produce the $1.25 billion that the United Nations needed to keep its finances in order.

One simple, but vivid, analogy to explain that paradox involved a man drowning at sea, he said. A boat came alongside, with leader after leader stepping up to the side of the boat and expressing their deep concern about the drowning man. Then the boat sailed away without throwing a single life jacket to keep the drowning man afloat. That was exactly what had happened at the fortieth session of the Assembly, at the fiftieth session and, regrettably, even at the Millennium Summit. The United Nations should insist that each leader who came to address the General Assembly should first produce a check paying up the amount his country owed to the Organization -� in full, on time and without conditions.

The global community would understand if a poor country was unable to meet its dues, he continued, but it was hard to explain a situation where the richest member of the international community was unable to pay its dues in full, on time and without conditions. Everybody knew the background to that situation. The heart of the problem faced by the United Nations was not financial. There was more than enough money to pay for the regular and peacekeeping budgets if there was the political will to do so. One of the most common excuses for the lack of payment was the United Nations reputation for having a bloated bureaucracy, which needed to be trimmed. However, the bureaucracy had been heavily trimmed, while the workload had gone up significantly. If the workload went up and the manpower was reduced, that could only mean that the productivity of the Organization had increased in the past decade.

The only reasonable way to measure the performance of the United Nations was to compare it with similar organizations, he said. At the United Nations, staff costs accounted for roughly 55 per cent of the regular budget for 1998-1999. For a comparable organization, like the Organisation for Economic Cooperation and Development (OECD), that figure was 75 per cent. He believed it was fair to conclude that the United Nations had made considerable progress in improving its efficiency. That did not mean that there should not be United Nations reform. The point was that there was no correlation between the reform and the financial crisis of the Organization.

A real contradiction was developing at the heart of the Organization, he continued, with many countries insisting on a policy of zero nominal budget growth. At the same time, they wanted the United Nations to do more in handling international crises. If the Organization decided to expand the Department of Peacekeeping Operations, could it do so under the constraints of the zero growth? Which department would be cut or trimmed to give more resources to that Department? Who would make those decisions and on what grounds? Those were not financial, but political questions. The policy of zero nominal budget growth reflected a political decision to keep the United Nations tightly constrained in a box. But if Member States valued it so little, why had so many leaders come to the Millennium Summit to sing its praises?

SUN MINQIN (China) said that the United Nations financial situation allowed for no optimism. China was concerned at the financial difficulties still afflicting the United Nations. She agreed with the statement made by the Group of 77 and emphasized that failure of Member States to pay their contribution and peacekeeping assessments was the primary cause for difficulties facing the United Nations. Quite a few countries were still trying to meet their financial obligations. A major contributor, using domestic legislation as a pretext, was totally disregarding its Charter obligations. Such a failure in meeting legal obligations was unacceptable. While the methodology for apportioning expenses had no bearing on the financial crisis, appropriate adjustments could be made to the current methodology to make it better reflect the capacity of Member States to pay. The only viable solution to the financial crisis, however, was to make sure that all contributors in arrears paid their assessed contribution on time.

The financial crisis had had a negative impact on the normal functioning of the United Nations, she said. The quality of the work of some departments had been affected, including the delivery of some programmes. A firm, strong and stable financial foundation was the basic provision needed for the United Nations to be able to fulfil its mandates. China appealed to the full membership to honour their obligations, out of sense of political responsibility for the Organization.

Mr. VAIKO, Member of Parliament of India said that discussions on this crucial question came at a time when the total arrears due to the Organization were in the order of $2.1 billion, more than half of that being peacekeeping arrears. That figure, along with the fact that more than 19 countries, including India, were owed amounts greater than $20 million, reflected the seriousness of the situation. If troop-contributing countries were not reimbursed costs incurred by them for contributing troop and equipment after more than five years, as was the case with the missions in Somalia and Cambodia, it would be next to impossible for national parliaments to express their continued support for United Nations peacekeeping. The need to rectify the financial insolvency of the Organization was urgent, for the effective implementation of mandates for peace and security.

The Secretary-General�s proposals for restructuring the Secretariat through a new human resource management strategy, for implementing the recommendations of the Brahimi Report, for implementing the Capital Master Plan and for developing a new information technology strategy were all basically forward-looking proposals. While they warranted serious consideration by the membership, given the current financial crisis, he could not imagine how these proposals could be implemented. The problems which some Member States had in meeting their obligations to the Organization were understandable, but they were not the cause of the crisis the United Nations was facing today. The continuing financial crisis had not emerged overnight and was not the result of defects in the scale methodology. The crisis was due to one Member State not demonstrating its commitment to service its arrears against a specified time schedule.

During the recent debate on the two scales, it had been said that inadequacy of resources had adversely impacted on the United Nations ability to service the requirements of Member States, he continued. In that regard, the Committee would have to make do with whatever inputs were available to it. The situation was no different from the other Committees of the United Nations, where developed countries insisted on the inclusion of the phrase �within existing resources� in drafting important mandates in the economic and social sectors. If all Member States were to work collectively towards the comprehensive reform of the Organization, it should be possible to ensure that the United Nations was of continued relevance to its membership. Any solution required that all Member States jointly pledged to pay their assessed contributions and arrears in full and without conditions, and according to a specified schedule. Reform would only be possible if all were willing to abide by their commitments and display unconditional support of the Organization.

ARATA FUJII (Japan) said that he agreed that every Member State must pay its assessed contributions. Having said that, however, he did not think it practical to make any comments on the substance of the Secretariat statement heard today, since the material had just been presented to the delegates. The Committee should take note of the statement without any further comments.

EVA SILOT BRAVO (Cuba) supported the statement made by Nigeria on behalf of the Group of 77 and China. She also agreed that the matter could not be considered right after information had been presented without due time allowed to study of the matter. That applied to all subjects under consideration. She expressed appreciation for the valuable information presented today and added that it was regrettable that the financial situation of the Organization had not improved significantly.

Some of the largest contributors owed 81 per cent of the total arrears, she continued. However, a larger group than in the past had paid their contributions in full. The situation regarding peacekeeping was difficult. Following the trends in the Secretariat statement, one could also note an increase in both the assessed and unpaid contributions for the Tribunals. An important portion of that debt was owed by several major contributors. Under all three scenarios presented, the situation was not very encouraging. The roots of the crisis lay basically with the non-payment of dues by the largest contributor. Continuing, she drew attention to the so-called policy of zero growth of the budget. It was aimed at keeping the Organization in a difficult situation. There was also a constant increase in calls for reform measures, against a backdrop of thinking that it could help the financial situation. However, so far reform had not gone side by side with any financial improvements. Thus, there was no proof that reforms would lead to the improvement of the financial situation. Even with the reform of both scales, there was no guarantee of any improvement in the financial situation of the United Nations, which remained truly uncertain.

She said that there were also doubts as to how the United Nations would be able to handle the administrative implications of the Brahimi Report. The cost of mandated activities was growing, against a backdrop of a lack of the responsible behaviour towards the Organization that would allow it to move forward. With a comparatively small budget, the Organization was unable to carry out its mandated activities. She hoped to see better prospects in the future, but unfortunately that was not the case today.

ANA MARIA MOGLIA (Argentina) said that since 30 September 2000, Argentina had made a payment of some $2.61 million towards its arrears for the regular budget. The amount still outstanding, therefore, was lower than the figure which appeared in Mr. Connor�s statement. In spite of serious budgetary restrictions, Argentina wanted to reiterate its commitment to fulfil its obligations to the Organization.

ABDELMALEK BOUHEDDOU (Algeria) said that there were, in fact, several possibilities facing the United Nations, including a negative cash balance on the regular budget, a possible need for using loans before the end of the year, and the persistence of debt by the United Nations to troop-contributing countries. The stability of the Organization depended on regular payment by all Member States of assessed contributions in full. While he was pleased that many Member States had paid their contributions, non-payment was nevertheless a serious threat to the United Nations budget. The precarious financial situation was likely to undermine the Organization�s ability to discharge its mandates.

The funding crisis began in 1995, he said. Year 1999 had been a positive year, in that it had not been necessary to resort to cross-borrowing. He was, however, concerned about the possibility of returning to that practice. He supported the proposal made by Cuba that the Secretariat statement on the financial situation of the United Nations be distributed in advance of the meeting in future, so as to enable Member States to better prepare their responses.

HENRY FOX (Australia), also speaking on behalf of Canada and New Zealand, said that as the statement had been just circulated, he would not comment on its substance. In the future, he also would like the statement to be circulated in advance.

RENATA ARCHINI (Italy) said that Italy�s position had been made very clear in the statement by France on behalf of the European Union. The presentation of information in today�s meeting was very welcome, but she had been only able to take a quick look at the statement. In the future, she would like to have an opportunity to further discuss the matter.

She said that it was puzzling that Italy had been mentioned among the debtors for 1998-1999. She wanted to know how the figure, which exceeded Italy�s actual arrears, had been arrived at. Italy was also mentioned in one of the tables regarding unpaid Tribunal assessments. According to the information she had, Italy had paid those amounts in July. She wanted to take another look at the figures to reconcile her books with those of the Organization.

Mr. MOHAMMAD KAMAL (Malaysia) sought clarification regarding the statement that the United Nations debt to Member States was intractable. He asked what that meant.

Responding to questions posed by delegations, Mr. CONNOR said that there was an issue as to whether the Committee wished timely or formal information. He had chosen to present information that had not been know as recently as last Sunday evening. It was his practice to prepare a formal paper for distribution following his presentation to the Committee. He would be willing to answer further questions or make any other comments to the Committee after it had reviewed the formal paper.

As to the comments by the representatives of Argentina and Italy, he said that the information available to him was as of 30 September, as opposed to information that might have been available to them in their missions. The word �intractable� meant �did not move much�. For five years, United Nations debt to Member States had not moved much. It had become intractable. A hard core of debt was owed by the United Nations to troop-contributing countries of $800 to $900 million, which was why he had characterized it as �intractable�. He would love to change that word, to make it �tractable�.

The Fifth Committee Chairman, GERT ROSENTHAL (Guatemala), said that the discussion could be taken up again after the formal note was submitted by the Secretariat.

Procurement Reform and Outsourcing Practices

NIKOLAI V. LOZINSKI (Russian Federation) said that he appreciated the progress that had been made in ensuring greater transparency in procurement procedures, and a broader geographical basis for procurement activities. He fully agreed with the comments of the ACABQ on that question and thought it important that future reports indicate areas where additional efforts were necessary to improve the procurement process. He was surprised by the brevity of information provided on measures taken to improve procurement in the field. The problems of procurement in peacekeeping missions were real and obvious, and had often been referred to by the Office of Internal Oversight Services. He hoped to see a deeper analysis of the problems of procurement in the field, as well as concrete plans to eliminate them.

FIKRET DEMIR (Turkey) said Turkey attached great importance to procurement reform, and believed that transparency and accountability were essential in that respect. He had studied the reports before the Committee and commended the Secretary-General and his team for their efforts to improve procurement process at Headquarters. However, he had difficulty understanding the reasons given for not reading out price information from responses to invitations to bid at public openings, which was mentioned in paragraph 10 of the report of the Secretary- General on procurement reform (document A/55/127).

He said that, according to the report, experience had shown that reading out of price information, where price was not the sole determinant, �leads to unnecessary delays in the procurement process�. Yesterday, Mr. Niwa had said that the practices of other bodies were the same. However, the statement that other funds used that practices was not sufficient. He would like the practice of reading prices and other decisive elements at public bid openings to be revived. He agreed that the Procurement Division of today was clearly different from that of the past. There had been significant progress, and the Division should set an example through greater transparence and accountability in procurement decisions.

HUGH T. DUGAN (United States) said the United States supported measures to enhance cost effectiveness of the procurement system. The United States also believed that a well defined mechanism for performance measurement was essential. He requested that language requiring the introduction of such a mechanism be included in the resolution that the Committee would adopt. He believed that problems encountered in peacekeeping procurement could provide valuable insight. The Assembly should ask the Secretary-General to prepare a detailed report on that subject.

ERNESTO HERRERA (Mexico) said that a seminar on procurement had taken place in April in Mexico City. That event was extremely successful, giving providers an opportunity to meet and exchange views with people in charge. Such seminars made procurement activities more transparent. Regarding the work of the Procurement Division, there had been an improvement over the years. In particular, its work on distributing information on bids was impressive. The clarity and simplicity of the Division�s Web site were commendable.

Turning to the report of the Secretary-General on procurement reform, he approved of the format of that document. The degree of improvement in the work of the Division had been considerable. Depending on the workload, it might be necessary to expand personnel training of the Division, and procurement in the field deserved special attention in that respect. He also wanted additional information on some aspects of external procurement.

Responding to the comments from the floor, Assistant Secretary-General for Central Support Services TOSHIYUKI NIWA said that a future report was needed on reform in the area of procurement. It had taken some time for the Fifth Committee to consider the item, and he wanted all points to be addressed before the report was presented. In the future, it would be necessary to identify key areas for action, for the Organization was now moving into phase two of its procurement reform.

Regarding measures to improve procurement in the field, he noted the comments received and said that he would convey them to his colleagues in peacekeeping. The report under consideration dealt with a previous crisis in Angola, and indeed it was extremely important to look at the human capacity aspect of procurement both at Headquarters and in the field. In the final analysis, procurement reform hinged on three things -� people, people, and people. That led to the issue of training, which was very important.

On the issue of transparency, responding to a comment concerning reluctance to announce prices at public bid openings, he reiterated that price was not the key determinant. All contracts awarded were posted on the Internet, and that ensured transparency, as all the important details were there. The Secretariat was trying to clean up its own financial rules related to procurement to bring them up to date. There was also an effort by the Common Services Task Force to come up with simplified and more organized rules for procurement. Price was not the only factor in awarding contracts. Several other factors must be taken into account. Further discussion of financial procurement rules in informal consultations would be useful.

As for performance measurement mechanisms, all kinds of indicators were being considered, he said. It was very difficult to come up with an objective measurement of the difficult process involved. However, the best assessment of the performance of the Procurement Division rested with tracking the process from A to Z. Some time was needed to test the newly introduced tracking mechanism to see if it produced tangible results. As far as training was concerned, more needed to be done. Resources were stretched thin, however, for there had been an increase in procurement activities, but staffing was limited.

Mr. VAIKO (India) thanked Procurement Division for their transparency and for the update of the Division�s Web site, which would help all developing countries, including India. He looked forward to further discussion in informal consultations.

Ms. ARAGON (Philippines) said that she was encouraged by the increasing level of procurement from developing countries. With respect to procurement from developing countries, companies would like to be ensured of quick payment by the United Nations. She wanted to know the period in which the United Nations was able to pay suppliers for various goods.

Assistant Secretary-General NIWA said that procurement contracts stipulated that the payment period was 30 days. From time to time, however, it took up to 60 days for payments to be made.

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