The Fragile Financial State of the UN
by Anthony McDermott, International Peace Research Institute, Oslo, Norway November 1998

The money owed by member states to the UN system remains its perennial curse and has become the focus of this year’s discussion of the UN’s financial condition. It has overshadowed the question whether the proposals for UN reform put forward by Secretary-General Kofi Annan in July 1997 are yet showing signs of being effective or credible. This had been the yardstick by which the US administration, and in effect this means the Republican-dominated Congress with its anti-UN cohorts led by Senate Foreign Relations Committee Chairman Jesse Helms, had measured its willingness to pay its assessed dues.

The UN’s regular budget expenditures for the biennium 1998-99 total $2.53 billion, compared with $2.54 billion for 1996-97. If this sum appears large, note that Americans spend some six times that amount annually on health care alone. With arrears impacting on cash flow and the UN’s cash flow typically diminished during the second half of the year, the UN survives financially largely thanks to peace-keeping. The peace-keeping budget has no simple money-in/money-out arrangement: money flows through different channels, into different accounts and according to different financial years.

By 30 September 1998, member states owed $1.8 billion overall from ordinary assessed contributions to UN for peace-keeping, of which $0.50 billion was for the current period and $1.3 billion from previous years. One device by which the UN survives is by obtaining on credit the services and materiel for peace-keeping operations from troop-contributing countries. The sums owed to these member states have totalled $789 million (1994), $1.16 billion (1995), $867 million (1996) and $884 million (1997) with $864 million projected for 1998. The countries most affected in 1997 were Belgium, Britain, Canada, France, India, Italy, the Netherlands, Pakistan and the US. These ‘free’ contributions have caused considerable resentment.

The peace-keeping budget has several accounts, some of which run surpluses at different times of the year. Little goes to reducing the overall peace-keeping arrears as there has rarely been enough in the peace-keeping budget to do more than keep the level of the amount owed. The surpluses in the peace-keeping current account for some years have been used to bail out the deficits of the regular budget which could reach $247 million by the end of 1998. The problem is that peace-keeping expenditure, after a peak in 1995 of $3.4 billion, is decreasing. In 1996-1997, it amounted to $1.14 billion. For 1997-1998, appropriations were approved by the General Assembly at $853 million and for 1998-1999 a mere $636.7 million.

Although the number of operations – 17 in July 1998 – remains high, the size of the troop deployment has dropped dramatically from 77,783 at the end of 1994 to 14,453 in mid-September 1998. As a consequence the cash flow surplus has fallen (at the year end) from $677 million in 1996 to $669 million in 1997 and a further fall to $528 million is projected for 1998 – lower than earlier estimates. Some 32% of the peace-keeping surplus, a higher proportion than before, will go to the regular budget, but peace-keeping is a shrinking resource.

In his reform proposals, Annan proposed results-based budgeting and the establishment of a $1 billion Revolving Credit Fund. The latter was intended to tide the system over during shortfalls caused by the late payment of assessed contributions. Both have had their introduction deferred. The reductions in the size of the regular budgets have been more to impress those who would like to have the UN run like a corporation. The strongest proponent of this view is Joseph E. Connor, the Under-Secretary-General for Management with a strong background in business. Given that the UN is the product of its 185 members, this is an unrealistic goal which has caused administrative problems through attempts to make savings by not filling vacant jobs.

In all this, the US factor is a paradox. By the end of September, the US owed around $0.547 billion from current arrears to the 1998 regular, International Tribunals and Peace-keeping budgets, and $1.029 billion from previous years. Although there is dispute with the UN about what is owed precisely when, this brought the US arrears theoretically over the two-years’ accumulated arrears penalty limit. Failure to pay at least enough to stay under that limit could, under Article 19 of the UN Charter, have led to the US losing its right to vote in the UN General Assembly. On 19 October, the US Congress however passed a bill to provide an additional $250 million for the UN, enabling it to avoid that penalty.

The amount the US owes is, seen in the perspective of US national accounts, insignificant. Its arrears are embarrassing to those Americans not of the Helms unilateralist persuasion and even Annan has apparently become disillusioned with Washington, as protestations of support for the UN in the Administration and Congress fail repeatedly to turn into tangible support. A survey conducted by Wirthlin Worldwide for the United Nations Association of the USA showed that 72% of the American public viewed it as ‘very important’ that the country remained an active member of the UN, which they ranked higher than NATO, the World Bank and WHO. This was up from the 54% of the 1995 and 1996 survey results. Americans favoured the US paying its dues by three to one.

Not that this is much consolation for the UN and Connor’s office, whose statistical briefing statements have, all year, devoted one page to the mantras: ‘cash position is weak and getting weaker’; ‘the ability to cross-borrow is drying up’; and ‘debt to Member States has become resistant to change’. Sad, familiar and true.

Anthony is the author of the forthcoming book The New Politics of Financing the UN.
For further details, please contact him by email: anthony@prio.no.

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