Monitoring Policy Making at the United Nations |
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Backgrounder No. 1
Published January 1996
A graph on cash flow in the UN General Fund, published in the December 8th New York Times, shows the dramatic deterioration in the UN's financial condition in the last half of 1995, when cash flow balances in the General Fund fell to a record low. According to Joseph Connor, Under-Secretary General for Management and Administration, the 1995 shortfall, combined with ongoing arrears by the United States, have placed the organization in a condition of "virtual bankruptcy."In early 1996, as the new year's assessments come due, many major UN members are making payments, bringing the UN's cash- flow temporarily to a more manageable level--at least for the early months of the year. But UN financial planners expect a drop-off thereafter, as incoming assessments fail to cover a monthly rate of spending of about $100 million. In spite of emergency measures, the UN may exhaust its resources as early as May or June, 1996. On January 22, an official UN press release warned that the organization is now "on the brink of financial collapse."
The General Fund, pictured in the graph, includes the Regular Budget and two reserve funds--the Working Capital Fund and the Special Fund--which in 1995 totaled about $250 million. Each year, as some member states pay their assessments in the early months, the balance rises. Spending then draws the balance down as later payments come in. Very late payments, mainly from the United States, spike the graph upwards in the fall. But in 1995, when the US paid relatively little, a small uptick did not halt the long downtrend.
When the graph falls to zero, regular income and all reserves are entirely exhausted. At this point, the Secretary-General takes extraordinary steps to conserve cash. He cuts temporary employees, reduces travel and freezes many new contracts and purchases. As translation services shrink, meetings must be canceled. In previous years this crunch hit briefly in August and September, just prior to late-year payments from the United States. The worst previous crisis struck in September 1992, when balances fell briefly to negative $75 million before US payments began. This year, at the end of December, balances stood at negative $195 million.
In 1995, the US paid far less than usual, because of Congressional cuts in UN funding appropriations as well as the general budget impasse in Washington. At the same time, the Clinton administration did not seek alternative means to resolve the crisis, calling instead for dramatic downsizing of the UN as a condition for further US payments. As a result, the UN General Fund entered a negative phase in early August and kept falling most months thereafter.
Having exhausted all reserves, the Secretary-General then borrowed from the peace-keeping accounts, holding back sums owed to countries providing forces for peacekeeping operations. By year's end, the General Fund owed these accounts $176 million and the organization was seriously behind in payments to suppliers as well.
On December 31, the US owed $414 million to the regular budget as well as $817 million more for the peacekeeping budget. Many other member states had arrears to the UN, but all combined owed less than the US alone. For the regular budget, the US owed 71% of all outstanding assessments. At the UN 50th Anniversary celebration in October, many heads of state called the situation unacceptable and warned that unless the US paid its dues, the UN was headed for the abyss. Even close allies like Britain expressed their exasperation. As Prime Minister John Major said: "It is not sustainable for states to enjoy representation without taxation."
UN leaders will make major statements in early February to disclose their projections for 1996 and to call on member states to pay their arrears. Major staff layoffs were announced in late January. High officials are said to be drawing up contingency plans for a complete shutdown of the organization sometime later in the year if the US continues to withhold its payments or if major new alternative financing is not found.
This Backgrounder produced by GLOBAL POLICY FORUM.
Written by James A. Paul
First released: January 23, 1996
