United Nations

GA/AB/3678
24 May 2005

Shortfalls in UN Regular, Peacekeeping, Tribunal Budgets Focus of Debate in Fifth Committee

Questions on United States Loan Offer for Capital Master Plan also Addressed

NEW YORK, 23 May (UN Headquarters) -- “Our words on reform will be little more than lip service if we do not pay for the mandates we set ourselves”, the representative of Belgium told the Fifth Committee (Administrative and Budgetary) this morning as, speaking on behalf of the European Union, she appealed to all Member States to match their political will with the necessary financing.

The Organization’s growing expenditures to meet new mandates and security concerns, its record peacekeeping budget and a high level of Member States’ debt to the Organization were the focus of attention in the Fifth Committee (Administrative and Budgetary), as it considered the means of improving the financial situation of the United Nations this morning.  Speakers noted that, as of 30 April, the level of unpaid peacekeeping assessments had stood at $2.2 billion and only 72 Member States had fully paid their dues to the regular budget. Two thirds of the membership had outstanding contributions to one or both International Tribunals -- for the former Yugoslavia and Rwanda -- and a dozen countries had made no contributions. 

Echoing other delegations’ frustration over the persistent nature of the Organization’s financial ills, Belgium’s representative further recalled that every time the financial situation of the United Nations was presented to the Committee, the Union commented on the perilous situation of the Tribunals, the deficit in the regular budget, the grave cash flow of peacekeeping missions, and the need for Member States to comply with their financial obligations. And yet on each occasion -- and the financial health of the Organization is presented to the Committee twice a year -- the following presentation by the Secretariat showed no real difference.

The Union was fully aware of the specific constraints faced by different Member States, she said.  Members of the Union also had worried finance ministries in their capitals wondering where to find the extra cash. But the fact was that the United Nations could not do what Member States wished and expected it to, if Member States did not equip it with adequate resources. Peacekeeping did not come free.  Reimbursement to the troop-contributing countries was already several months behind schedule. The United Nations could not afford to build up debt to the troop-contributing countries, as that might jeopardized their ability to continue to offer troops for peacekeeping.

The representative of Jamaica, who spoke on behalf of the “Group of 77” developing countries and China, also urged all Member States to pay their assessed contributions in full, on time and without conditions, while recognizing the need to extend understanding to those temporarily unable to meet their financial obligations as a result of genuine economic difficulty. The United Nations had responsibilities for peace, security and development. While peace and security had accorded progressive importance, General Assembly-mandated development activities should be adequately funded.

Speaking on behalf of the African Group, the representative of Namibia expressed particular concern regarding the situation of the Tribunals and noted that debt to Member States -- though not as high as in 2004 -- still stood at $549 million, and the reimbursement of Member States that provided troops and equipment to peacekeeping operations had been delayed. Many African countries were troop and equipment contributors and, therefore, expected a more regular payment of the expenses incurred, in order not to jeopardize their continued participation in peacekeeping operations because of late payment of dues.

With full recognition of the importance of implementing Member States’ obligations, Japan’s representative introduced new elements to the discussion, saying that his Government controlled the level of its expenditures by paying close attention to the level of revenues, eliminating duplication and avoiding inefficiencies. That was the golden road to financial health. There was a definite need to make a very conscious effort to enhance the Organization’s budgetary discipline. To grapple effectively with the emerging and compelling challenges, it was necessary to seriously consider the need to thoroughly explain proposals for new expenditures; utilize existing resources efficiently; and strike the right balance between assessed and voluntary contributions.

The representative of the Republic of Korea agreed that, as the United Nations budgets grew, it was all the more important to subject them to detailed scrutiny. By providing a more detailed picture of the purposes and results of expenditures, results-based budgeting would help Member States understand where their assessments were going and what the United Nations was doing. It would also make it easier to convince legislatures and domestic audiences that their United Nations assessments were well spent. He also called on the Security Council to consult with major contributors during the decision-making process for new peacekeeping missions. A more transparent, consultative approach would give Member States a greater sense of ownership.

Also this morning, as the Committee continued its consideration of the Capital Master Plan for refurbishing New York Headquarters, representatives of the Department of Management and the Office of the Legal Affairs provided responses to the delegates’ questions regarding the project’s financing and the legal issues surrounding the interest-bearing loan offer from the United States Government.

Members of the Committee were told that, aside from deciding on the conversion of a $26 million-commitment authority into an appropriation to ensure that design development continued without interruption, during the current session they were being asked to give the Secretary-General the authority to sign for the loan to keep it on the table as an option for the fall session. Signing such an agreement would not represent a commitment on the part of the Organization to use the funds.  In fact, the Organization could decide not to take the loan at all, or seek other financing options. The loan could also be used as collateral for obtaining funds from other sources.

Presenting updated information during the meeting and responding to numerous questions from the floor were United Nations Controller, Warren Sach; Officer-in-Charge of the Capital Master Plan, John Clarkson; Director of the General Legal Division, Office of Legal Affairs, Bruce Rashkow; Director of the Accounts Division, Jayantilal M. Karia; and Chief of the Contributions Service, Marc Gilpin.

Also participating in the debate were representatives of Argentina (on behalf of the Rio Group), China, Russian Federation, Cuba, India, Mexico, Sierra Leone, Venezuela, Egypt, United Republic of Tanzania, Trinidad and Tobago and the United States.

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

Background

The Fifth Committee (Administrative and Budgetary) this morning was expected to discuss the Controller’s report on the financial situation of the United Nations, which was presented to it last Thursday (see Press Release GA/AB/3675 of 12 May) and continue its discussion of the Capital Master Plan for refurbishing outdated buildings at New York Headquarters (for background information, see Press Release GA/AB/3677 of 20 May).

Statements

At the opening of the meeting, the United Nations Controller, WARREN SACH, updated the Committee on the latest developments.  He said that, while by 31 January 35 Member States had made their payments to the regular budget of the Organization in full, that number had grown to 72 by 30 April. Three payments had been received in May: Botswana, Cape Verde and Romania had made their payments, so now the total number of countries paid in full was 75.  In peacekeeping, there had been payments by France and the United Kingdom, which he had had mentioned in his oral presentation last week, and Honduras had been added to the list.  Hence, the number of Member States fully paid for peacekeeping was now 26, rather than the 23 indicated in the report before the Committee.  Regarding the payment of all assessed contributions, including the Tribunals, he said that Italy had been added to the list, along with France and the United Kingdom, whom he had mentioned in his oral presentation.

MAYSSA HALLOWAY (Belgium), speaking on behalf of the European Union and associated States, said that each time the Committee was presented with the financial situation of the United Nations, the Union made a statement drawing attention to the perilous situation of the Tribunals and the risk to the completion strategy if Member states did not comply with their financial obligations.  On each occasion, the Union also drew attention to the grave cash flow situation faced by the peacekeeping missions and urged all Member States to make a serious effort to make their payments on time.  On each occasion, the Union commented on the deficit in the regular budget.  And yet on each occasion, the following presentation by the Secretariat showed no real difference.

Perhaps there had been a slight improvement in the cash situation, she continued, perhaps a few more Member States were fully paid at the end of April, perhaps the deficit in the Tribunals was not as severe as in the previous year.  But, the reality was that the Organization was more than a third of the way through the year, and yet only 72 Member States were fully paid to the regular budget.  Everybody affirmed that peacekeeping was a vital function of the United Nations, and yet arrears were already up to $2 billion, without counting the missions approved in March.  Attempts to discuss incentives and disincentives were dismissed out of hand.

The Union was fully aware of the specific constraints faced by different Member States, she said.  Members of the Union also had worried finance ministries in their capitals wondering where to find the extra cash.  But the fact was that the United Nations could not do what Member States wished and expected it to do if Member States did not equip it with adequate resources.  Peacekeeping did not come free.  Reimbursement to the troop-contributing countries was already several months behind schedule.  The United Nations could not afford to build up debt to the troop-contributing country in case that jeopardized their ability to continue to offer troops for peacekeeping.

So once again, the Union ended its statement with a renewed appeal to all Member States to match their political will with the necessary funds, she concluded.  “Especially in the light of this very important year to the UN, our words on reform will be little more than lip service if we do not pay the mandates we set ourselves”, she said.

NORMA TAYLOR ROBERTS (Jamaica), on behalf of the “Group of 77” developing countries and China, noted that data and estimates presented to the Committee up to 31 December 2004 had indicated an improvement in the cash position of the regular budget, the Tribunals and peacekeeping accounts.  The situation, however, did not allow for complacency as the Organization’s overall financial position for 2005 was not very positive as demonstrated by the four major indicators, namely, assessments authorized, unpaid assessments, available cash, and amounts owed to Member States.  Regarding the Tribunals, she welcomed that outstanding assessments for 2004 were down significantly.  Unfortunately, the Tribunals were not out of the danger zone, as they were expected to end the year with negative cash balances.  It would be necessary to cross-borrow from peacekeeping operations to provide supplementary financing.  That would also be the case for the regular budget, although the amount of unpaid assessments for 2004 showed a reduction over the previous year.

The surge in peacekeeping operations, she continued, had resulted in a substantial increase in the peacekeeping budget, with the level of assessments in 2004 more than doubled to over $5 billion.  New and expanded operations had, understandably, put an additional strain on Member States.  On amounts owed to troop and equipment contributors, the Group regretted that, according to the current projection for 2005, debt to Member States would be $79 million higher than at the end of 2004.  The Group was aware that that constraint was in part due to delays in the signing of memoranda of understanding and looked forward to improvement in the management of that procedure.  It was also aware of the direct link between reimbursements by the Organization and the payment of assessed contributions.  In that connection, the Group reaffirmed the legal obligation of Member States to bear the Organization’s expenses in accordance with the United Nations Charter.

While recognizing the need to extend understanding to those temporarily unable to meet their financial obligations as a result of genuine economic difficulty, she urged all Member States to pay their assessed contributions in full, on time and without conditions.  The United Nations had responsibilities for peace, security and development.  While peace and security had accorded progressive importance, General Assembly-mandated development activities should be adequately funded.

SILUKA BRENDAN KABUKU (Namibia), on behalf of the African Group, welcomed the slight improvement of the Organization’s overall financial situation in 2004, but expressed concern about outstanding contributions, particularly to the Tribunals and the peacekeeping budgets.  The situation of the Tribunals, though somewhat improved, remained of concern especially in the light of the projected risk of a negative budget balance by October 2005.  Two thirds of the membership had outstanding contributions to one or both Tribunals and a dozen countries had made no contributions.  The Tribunals” financial stability was at stake with heavy reliance on cross-borrowing, thereby affecting ongoing activities, as well as the planning of future activities.  In that context, the Group welcomed the lifting of the recruitment freeze for both Tribunals.  Stressing the need for the Tribunals to speed up their activities and complete their mandates, he said the only way to achieve that was by making full and timely payment of the assessed contributions by all Member States.  Emphasizing the importance of the work of the International Criminal Tribunal for Rwanda, he was concerned by that the actual budget had ended 2004 with a negative cash balance of $5 million.

Although the peacekeeping budget level was at its highest ever, he said the Group was convinced of the immense long-term benefit of the peacekeeping operations.  In spite of financial constraints in many African countries, the Group was honouring its share of the burden.  It was alarming to note that only some 20 Member States had fully paid their assessed contributions to peacekeeping budgets by the end of 2004, and even less had paid in full by the end of April 2005 -- a situation which was detrimental to the crucial activities of the ongoing peacekeeping operations. The Group supported, therefore, the Secretary-General’s proposal to retain the $93 million available in the accounts of closed missions.  The regular budget was not in any better shape either, with few countries having paid their contributions in full by the end of 2004.  At the same time, however, more contributions had been made as the unpaid amount had dropped to $375 million by the end of 2004 from $442 million by the end of 2003.  The Group was encouraged with that positive trend.

He appealed to all Member States to pay their assessed contributions in full and on time to the various United Nations accounts. He further appealed to donor countries not to link their voluntary contributions to their assessed contributions.  If the United Nations financial needs were increasing, the need to improve the socio-economic situations of developing countries, in general, and African countries, in particular, were increasing urgent.  Those efforts would lead to greater stability and a decrease in peacekeeping activities.

He noted that debt to Member States -- though not as high as in 2004 -- was still $549 million, and the reimbursement of Member States that provided troops and equipment to peacekeeping operations had been delayed.  Many African countries were troop and equipment contributors and, therefore, expected a more regular payment of the expenses incurred, in order not to jeopardize their continued participation in peacekeeping operations because of late payment of their dues.  While the Group was concerned about the Organization’s current fragile situation, it also noted that some Member States had genuine financial difficulties, which prevented them from paying their contributions in full and on time.  Member States should remain sensitive to such unfortunate situations.

ALEJANDRO TORRES LEPORI (Argentina), on behalf of the Rio Group, expressed concern over the fragile situation of the United Nations.  While some improvements could be seen, serious problems persisted.  Since the assessments did not fully reflect the countries’ capacity to pay and due to the increase of the increased financial burden, particularly for peacekeeping, some Member States had fallen behind in payments, which made it difficult to put the Organization on a stable financial footing.

Countries of the Rio Group did their best to make payments on time and in full, he said.  Some, at the price of tremendous sacrifice, had made their payments, but others found it difficult to meet their financial obligations to the United Nations in view of persistent economic crises and the conditions beyond the control of their nations.  Such delays should not be construed as the lack of interest, however.

He added that the Group was satisfied over the slight improvement in payment for contingent-owned equipment.  Aware that it depended not only on signing of memorandums of understanding, but also on the payments by States, members of the Group would do their best to pay their dues.  He hoped the financial situation of the Organization would significantly improve over the course of the current year.

TOSHIRO OZAWA (Japan) said that the fragile financial situation of the United Nations was the accumulative result of increased expenditures arising from additional mandates, as well as Member States’ failure to pay their dues.  At the same time, it was important to keep some other elements in mind.  With full recognition of the importance of implementing Member States’ obligations, he wanted to pose three questions to what Mr. Sach had said.  When additional expenditures were proposed, had they been explained thoroughly?  Were sufficient efforts made to utilize existing resources efficiently and effectively?  Was the Organization striking the right balance between assessed and voluntary contributions?

With regard to the first question, it was clear that the draft budget should be explained comprehensively and thoroughly, particularly so when it entailed additional expenditures.  The level of assessments for peacekeeping operations in 2004 had risen to over $5 billion, more than twice what it had been in the previous year.  As for the regular budget, it had been expanding significantly in recent years, due in part to additional expenditures for safety and special political missions.  Nonetheless, Japan had been paying its contributions in full, with no conditions.  That was by no means an easy feat, as the country’s taxpayers were demanding scrutiny of all items of expenditure growth with increasing vigour.

Some budget proposals for peacekeeping had been sub-standard with respect to accountability, he continued.  He understood that the Secretariat faced certain constraints, but such lapses could prevent Member States from responding effectively.  He hoped that the Secretariat would not consider its accountability to the Member States lightly, and took it as seriously as the governments did towards their taxpayers. He shared the concern expressed by the Advisory Committee on Administrative and Budgetary Questions (ACABQ) with regard to the tendency of the Secretariat to try to introduce policy changes without full explanation in the context of the budget.

Turning to the question about efficient use of existing resources, he said that the Secretariat had been requested to submit at the current resumed session a report on the review of the management structure of all peacekeeping operations.  If the Committee had that report, it could have considered how each mission could operate more effectively and efficiently.  On another point, he said that the United Nations had invested heavily in communication and information technology in order to build up its peacekeeping capacity, but the Member States had rarely heard about any resulting reductions in posts.  Furthermore, the ACABQ observed that there appeared to be little, if any, Headquarters involvement in the monitoring of the evolution of structures in individual missions.  He could not help but wonder if the Secretariat was striving for the optimal use of resources.

As for the regular budget, the Assembly had requested the Secretary-General to commence with redeployment of up to 50 posts on an experimental basis during the course of the current biennium, he said.  Little had been achieved in that regard.  It was regrettable, because such flexibility would help the Secretariat address new needs in a more efficient and expeditious manner.  He requested the Secretary-General, once again, to make additional efforts to utilize existing resources through more active redeployment.

Turning to the balance between assessed and voluntary contributions, he said that the issue should be considered carefully.  Increased assessments would not by themselves result in better outcomes.  Proposals to use assessed contributions to finance activities that had been traditionally financed through voluntary contributions required careful and serious consideration.  The unintended consequences of that could be detrimental to the United Nations system as a whole.  Assessed and voluntary contributions had different roles and characteristics, and the political support given was also different.  It was important to remember that assessed contributions were not subsidies.  He also touched upon the international Tribunals, welcoming the improvement of their financial situation.  In that regard, he once again reiterated his understanding that the Tribunals for Rwanda and the former Yugoslavia would maintain an unwavering commitment to the completion of their work in accordance with the respective exit strategies.

His Government controlled the level of its expenditures by paying close attention to the level of revenues, eliminating duplication and avoiding inefficiencies, he said.  That was the golden road to financial health.  In the United Nations, however, revenue was based, in principle, on mandatory contributions and there was, therefore, a reasonable expectation to regard revenue as a given.  However, that expectation did not pass the reality test.  There was a definite need to make a very conscious effort to enhance the Organization’s budgetary discipline.  To grapple effectively with the emerging and compelling challenges, the three questions he had raised needed to be given very serious consideration.

SUN XUDONG (China) said the Organization’s financial situation had improved in 2004, thanks to the earnest fulfilment of the majority of Member States of their financial obligations to the United Nations. By 31 December 2004, 124 Member States had paid their assessed contributions for that budget year, and 88 had paid in full their contributions to the Tribunals.  That was a positive development.  If all Member States met their financial obligations faithfully, on time and without conditions, the bulk of the United Nations revenues could be ensured.  It was only in that way that the United Nations would be able to implement its many important mandates.  China wished to see continued improvement in the United Nations financial situation.

He noted that the peacekeeping budget for the 2004-2005 biennium had reached some $5 billion due to the creation of new missions, including the United Nations Mission in the Sudan (UNMIS), as well as the expansion of the United Nations Organization Mission in the Democratic Republic of the Congo (MONUC).  Such a large budget had created certain difficulties for Member States in the timely payment of their assessed contributions.  Only 21 Member States had paid their assessed peacekeeping contributions by December 2004, with unpaid assessments at a high of $2.57 billion.  Given that the peacekeeping budget cycle started on 1 July and ended on 30 June, that amount did not accurately reflect the true financial picture of the ongoing peacekeeping fiscal year.  According to the Secretariat’s statistics, China’s unpaid assessments for 2004—2005 was $108 million as of 31 December 2004, he added.  In that regard, he wished to make a clarification.  Having actively and earnestly fulfilled its financial obligations to the United Nations, China gave priority to the timely payment of all its assessments, including peacekeeping assessments.  According to its statistics, China had made payments in the amount of some $82 million towards its peacekeeping assessments between 1 January and 18 May 2005.  While China had fulfilled its obligations, it also hoped that all other Member States effectively met their financial obligations to the Organization, he said.  China was ready to contribute to strengthening the United Nations role.

SHIN KAK-SOO (Republic of Korea) said the United Nations financial situation showed a mixed picture. The improved cash flow expected for 2005 was certainly welcome. While outstanding assessments for the international Tribunals were down, the Tribunals were expected to reach a negative cash balance by the fourth quarter of the year. As for the regular budget, although outstanding assessed contributions had dropped by 19 per cent, the number of Member States that had paid their contributions in full had decreased over 2003. The financial situation of peacekeeping operations also remained precarious as costs continued to rise dramatically.

The financial situation of the Tribunals also remained a source of concern, he said.  While more Member States had paid their assessments by 31 April, a difficult fourth quarter was expected.  Even that gloomy forecast might be over-optimistic. Those who committed international crimes must be brought to justice.  Nevertheless, the Rwanda and Former Yugoslavia Tribunals had been costly, and that expense might divert resources from other vital United Nations missions. That was why the Republic of Korea was anxious to see the Tribunals complete their trials by 2008 and their appeals process by 2010 as planned.  Meeting that schedule would require diligent effort on the part of those involved in the Tribunals.  Until then, he hoped that Member States would do their part by paying their assessments on time and in full, recognizing that by doing so, they would not only be supporting the cause of justice, but also reducing substantially the overall cost of United Nations operations.

The most significant cost continued to be peacekeeping operations, he said.  From the $2.8 billion budget initially approved for the 2004-2005, the assessment had climbed to $4.4 billion, and further increases were expected, bringing the total to around $5 billion per year for the next year or two.  While he welcomed the increasingly active peacekeeping role of the United Nations, he remained concerned over the growing burden that those rapidly escalating costs had been placed on Member States.  While the Republic of Korea was strongly committed to the United Nations and had always paid its regular budget and Tribunal assessments on time and in full, due to a combination of rising peacekeeping costs and its rising share, his country had not always been able to meet its peacekeeping budget obligations.  Should the peacekeeping budget stabilize, the Republic of Korea would be able to pay future assessments in full.

While he hoped that no new peacekeeping missions would be needed in coming years, the United Nations must be prepared to face whatever situation developed, he said.  He called on the Security Council to consult with major contributors during the decision-making process for new peacekeeping missions.  A more transparent, consultative approach would give Member States a greater sense of ownership.  As the United Nations budget grew, it was all the more important to subject them to detailed scrutiny.  In that regard, results-based budgeting was a valuable tool to provide the vigorous oversight needed at every stage, from planning to implementation to lessons learned.  By providing a more detailed picture of the purposes and results of expenditures, results-based budgeting would help Member States understand where their assessments were going and what the United Nations was doing.  It would also make it easier to convince legislatures and domestic audiences that their United Nations assessments were well spent.

VLADIMIR A. IOSIFOV (Russian Federation) welcomed a relative stabilization of the Organization’s financial situation, in particular as far as a certain improvements in the payment of assessed contributions were concerned, especially on behalf of large contributors.  At the same time, he regretted the fact that the Organization had not managed to achieve a significant improvement in the payment of dues.  He was concerned that, as of 30 April, unpaid peacekeeping assessments amounted to some $2 billion, and the Secretary-General had been forced to resort to cross-borrowing to finance United Nations peacekeeping.  That led to delays for reimbursement to Member States.

Continuing, he noted considerable growth in all United Nations budgets, because of the need for the international community to react to new challenges, in particular through increased peacekeeping activities.  Under those conditions, it was particularly important for all Member States to meet their obligations fully and on time.  Of course, in assuming that financial burden, the Member States could require rational financial planning from the Secretariat, as well as a realistic assessment of needed resources. Strict financial discipline when executing the budget was now needed more than ever, as well as accountability.  The Russian Federation paid its contributions on time and in full, and he called on all countries to meet their obligations pursuant to the Charter.

PABLO BERTI OLIVA Cuba) regretted that, under the current practice, delegations did not have sufficient time to consider the report on the financial situation of the United Nations, which deserved a substantive discussion.  The situation presented to the Committee was alarming.  While certain progress had been made, his delegation was concerned, particularly in view of the fact that recent fundamental changes in the regular and peacekeeping scales of assessment had brought about considerable increases in the assessments of many countries, particularly developing ones.  Those countries, including his own, were making efforts to comply with their obligations under the Charter, despite the economic difficulties they were experiencing.

He also noted that, despite seeming improvement compared with 2003, as a result of cash deficits in the regular budget, a group of troop contributors from developing countries had been deprived of timely repayment of debt by the United Nations.  That created a vicious cycle that prevented them from making their payments to the Organization on time.  He also noted the persistence of the indebtedness of the Organization’s principal contributor, which had amounted to roughly 68 per cent of that country’s regular assessment and 28 per cent of its peacekeeping assessment on 31 December.  He hoped the Assembly would monitor that Member State’s payments and, if necessary, raise the ceiling of the scale of assessments for 2007-2009.

Turning to the specific situation of his country, he said that as a consequence of a genocidal blockade imposed by the United States for more than four decades, Cuba could not use the United States dollar in its international transactions.  Thus, it was subjected to monetary fluctuations of the market.  Also, due to the blockade restrictions, Cuba had to engage in transactions with participation of third countries.  Together with the country’s economic problems, that had had an impact on Cuba’s pattern of payments this year.  However, the country was determined to meet its financial obligations in full, on time and without conditions.

JAIDEEP MAZUMDAR (India) said the Secretary-General’s statement on the financial situation was a source of concern for several reasons.  On the regular budget, it was alarming that as many as 67 Member States had not paid their assessed contributions even a year after they had become due.  There had been a downward trend since 2000 in the number of Member States who had paid their contributions to the regular budget during the year of assessment.  The only bright note was that, in absolute terms, the amount outstanding had come down from $442 to $357 million, despite an increase in assessments.  That pointed to the fact that the problem lay with a growing number of developing countries who were increasingly finding it difficult to make payments.  When the Committee revisited the issue of the scale of assessments, it would have to address whether the burden of such Member States could be reduced in order to put the finances of the United Nations on a sounder footing.  The cash position with regard to the regular budget was projected to deteriorate through the rest of the year, requiring cross-borrowing from the closed peacekeeping mission accounts.  That was one reason why it would be imprudent to drawn down such balances in the form of a return of monies to Member States.

On peacekeeping, the level of unpaid assessed contributions -- at $2.2 billion as of 30 April -- was unconscionably high, he said.  He was concerned about the financial situation of certain missions, in particular Kosovo and Western Sahara.  Outstanding assessed contributions to those missions were overdue for long periods of time.  Unless checked, those missions would suffer the same fate as some closed missions, where there was no cash available to pay nearly $100 million owed by the United Nations to troop-contributing countries.  The General Assembly had decided on the solution to the issue, and he appealed to Member States that had not paid their assessments to those missions not to stand in the way of a solution.  The Secretariat had to be more proactive in seeking to resolve the issue.  He was also concerned about the status of current dues to troop-contributing countries.  Of particular concern was MONUC, which was far behind other missions in that respect with regard to both troop cost and contingent-owned-equipment reimbursement.

He regretted that on an agenda item of such crucial import as the United Nations financial situation, Member States were reduced to making formal statements with no opportunity for detailed interaction and decision.  He called on those who had opposed the treatment of the agenda item in the same way that the other agenda items were dealt with to present arguments as to why that should be the case.

DIEGO SIMANCAS (Mexico) expressed concern at the record peacekeeping budget.  Mexico was firmly resolved to providing the necessary resources for peacekeeping operations.  His Government had made considerable efforts to make progress in meeting its financial obligations in the first months of 2005.  Mexico had settled a considerable portion of its contribution to the regular budget and had settled all its outstanding arrears regarding completed operations.  Likewise, Mexico had settled almost all of its commitments towards active peacekeeping budgets.  In the case of the peacekeeping budget, he hoped that strict discipline would be imposed, so that the operations could complete their missions.

JAYANTILAL M. KARIA, Director of the Accounts Division, responded to questions from the floor.  To the point raised by Namibia regarding the level of the budget of the Rwanda Tribunal, which had ended 2004 with a negative cash balance of $5 million, he said that, unfortunately, that had been the case.  In terms of 2005, the projection was similar, based on the current pattern of receipts.  Of course, the actual situation would depend on the level of contributions received.  In that connection, he thanked Egypt for the $10,000 contribution it had announced.

Responding to a question by China, MARC GILPIN, Chief of the Contributions Service, confirmed that as, indicated in the report before the Committee, a significant volume of payments had been received in the first months of 2005, including from China.  By the end of April, only two Member States had owed more than $200 million for peacekeeping.  That excluded China.

Introduction of Report

JOHN CLARKSON, Officer-in-Charge of the Capital Master Plan, introduced a reissued report of the Secretary-General on the matter (document A/59/441/Add.1), saying that three letters received from the host country would be issued as three annexes to the report.  The document had been reissued for technical reasons.

A number of questions had been raised on the legal issues surrounding the loan, and answers would be provided by the representative of the Office of the Legal Affairs.  As for the third annual progress report to be introduced at the sixtieth session, it would include detailed assessments of possible relocations during the period of the refurbishment, including UNDC5, commercial space and other options.  The real estate market was constantly changing, and new information would be used to make assessments.  Full details of possible funding arrangements would be included in the report, which would include the latest estimates of construction costs.  A breakdown of past expenditures had been prepared and would be provided in informal consultations.

On the advice of the programme management firm, several major design issues had been addressed early in the process, he continued.  As a result, schedules for other parts of the design work had been pushed back, which was reflected in delayed disbursements.  That process would result in a more integrated and smooth design development process, maintaining the 2007 schedule for completion of the design work.  Throughout the process, the design assumptions were subject to change, but it was the programme manager’s responsibility to help the United Nations manage those challenges within the budget.  The design teams were also contractually required to remain within the budgets of their work.

Concerning the financial institutions contacted regarding the offer of a loan from the host country, he said that three such institutions had provided advice to the United Nations at no cost.  Concerning the Advisory Board, he added that a broad list of potential participants had been developed, which included financial and construction experts, as well as experts on architectural integrity.  After internal discussions, it had been determined that the best strategy would be to approach potential chairpersons, who would then also be able to advise on the formation of the Board and on other possible candidates.  The Under-Secretary-General for Management had held meetings with prominent candidates, who all expressed support and encouragement for the Capital Master Plan, but declined the offer.  The reasons included that the Board would require enormous knowledge of the Plan itself, as well as a significant ongoing time commitment; the members of the Advisory Board would take on an implied liability, which was seen as undesirable; and such advice was better obtained from working experts in respective fields.  It also might be that, by the nature of the expertise involved, the persons approached could also be competitors for the work involved, and participation in the Advisory Board would preclude that possibility.  A request for expression of interest had been placed for a firm to act as a consultant and adviser on the financing issues.  Construction advice was obtained from a programme management firm, in accordance with the suggestions received.

BRUCE RASHKOW, Director, General Legal Division, Office of Legal Affairs, outlined the contents of the memorandum from the Legal Counsel to the Officer-in-Charge of the Management Department made available to the Committee today.  He said the paper was an effort to respond to the request from Jamaica, at an informal meeting last Thursday evening, to put in writing the explanation he had provided regarding the process by which the proposals had been made by the United States Government and how it would proceed in terms of accepting or implementing the proposal.  He regretted if there was earlier confusion regarding the nature of the process, in part because members had not been aware of the content of the proposals made in the three letters of the United States Government. 

Highlighting important points in the memorandum, he said the essential items in the process were that the United States Government, in a series of three letters, set out the basic terms for the loan it was offering to the United Nations to finance the Plan.  It indicated not only what the basic terms would be, but also indicated that, because of requirements internal to the United States Government, the offer had to be accepted by 30 September 2005.  The United States Government had requested an indication of whether the United Nations intended to accept the offer.  Once made, the United States and the United Nations would enter into negotiations to conclude a loan agreement.  The first step was to indicate whether, in principle, the Organization intended to accept and, if so, what would be the basic terms of a loan agreement thereafter.

He said the proposal was for the United Nations to indicate that it accepted the offer, subject to terms and conditions contained in the three letters from the United States Government, plus several conditions that the United Nations would insist upon before any loan agreement was concluded.  There were, therefore, three letters from the United States Government and two understandings in paragraph 39 of the Secretary-General’s report, including that the agreement did not create for the Organization any legal or financial obligation to borrow any of the $1.2 billion, or in any way restrict the United Nations discretion in deciding whether to borrow such funds, and that the agreement did not restrict the authority and discretion of the United Nations to seek funds for the same purpose from any other source, if it decided to do so.

In addition, as a result of the discussions within the Fifth Committee, the United Nations would add another understanding, he said, namely, that the agreement would permit the Organization to use the commitment of the United States Government to provide funds under the loan as a guarantee or collateral for obtaining funds at lower interest rates other than those provided in the loan agreement and otherwise permit the Organization to financially benefit from the temporary depositing of funds disbursed to the United Nations under the loan agreement in banks or other financial institutions.  With that further understanding, the United Nations would respond in principle that it would accept the loan offer subject to the understandings and conclusion of a satisfactory loan agreement.  If the United Nations was unable to reach agreement with the United States Government reflecting those basic understandings, it would refer back to the Assembly.

PABLO BERTI OLIVA (Cuba) said his delegation had been expecting more than two pages.  For the time being, the information would suffice.  Before adopting any draft resolution, however, the memorandum should become an official United Nations document.  Paragraph 5 of the memorandum indicated that the Administration was ready to accept the terms of the loan as offered by the United States.  He was grateful to the Secretariat for having confirmed what he thought was the situation.

JAMES JONAH (Sierra Leone) expressed thanks for the information given this morning.  He had no difficulty with the legal reasoning put forward.  It was, however, necessary to face the reality on the ground.  The building of the UNDC5 had come to difficulties not because of technical or financial reasons, but for political reasons.  The Committee was discussing the issue without due attention to political factors.  What assurance could members be given that political factors could be resolved by 30 September?

ASDRUBAL PULIDO LEON (Venezuela) said that reference had been made to the possibility for some states to decide not to pay interest, but use other means to pay.  He asked the Legal Adviser how that would be handled.  Would the States deciding to pay directly be exempt from interest, for example?  The note circulated in the room referred to the acceptance of the offer of the loan, but his delegation would not accept a loan with interest, and it was important to reflect that.

Mr. SIMANCAS (Mexico) said that the note talked about accepting the loan, but contained no reference to the 5.54 per cent interest rate.  The Organization had accepted loans in the past, but the issue of interest was new.  He was, thus, surprised that such a fundamental issue had been set aside and ignored in the exchange between the Department of Management and the Office of Legal Affairs.  Only in paragraph 4 of document A/59/441/Add.1 was a reference made to the fact that, at 5.54 per cent, the total principal and interest repaid over the life of the loan would amount to some $2.5 billion.  He wanted to hear why no attention had been paid to such an important matter.

TAKESHI MATSUNAGA (Japan) asked what exactly was meant by the terms of the agreement.  What was the difference between the terms set out in the three letters of the United States Government and the terms of the proposed agreement?  Would the terms of the agreement that had to be fixed by the end of September include such details as the total value of the loan the United Nations intended to use and the repayment period?

YASSER ELNAGGAR (Egypt) asked what percentage of funding would be needed at the beginning of the construction project.  The answer to that question would impact on the clarity of the discussion on the matter.

Mr. IOSIFOV (Russian Federation) referred to the document circulated in the room on the legal component of the offer made by the host country.  According to paragraph 2 of that paper, three letters from the host country set out the basic terms of the agreement.  It appeared that it was mainly there that the specifics of the offer could be found.  At the same time, looking at the first and last letters, it seemed that their scope and content were different.  He wanted to receive more specific details from the Department of Legal Affairs --in which of the three letters was the offer presented in specific terms?

Mr. MAZUMDAR (India) said he had a question regarding paragraphs 3 and 4 of the memorandum, including the necessity to conclude an agreement by 30 September 2005.  If that were the case, could the Secretariat provide for the Committee the shape that such a negotiated agreement would take?

Mr. SUN (China) noted that according to paragraph 3, if the United Nations decided to accept the loan, it would enter into negotiations with the United States Government.  Looking at the Secretary-General’s report, however, the Secretary-General requested the authority to enter into agreements to keep the offer as an option.  What was the difference between paragraph 3 of the memo and the reference in the Secretary-General’s report in paragraph b of the recommendations, legally speaking?

JOHN NG’ONGOLO (United Republic of Tanzania) asked the Secretariat to elaborate on the amounts Member States would have to pay in assessed contributions so that they could have concrete data on which to make a decision.

Responding to the many questions from the floor, Mr. CLARKSON said that, in terms of legislative approvals by the State of New York on the construction of UNDC5, to date, the United Nations Development Corporation (UNDC) and New York City were working very hard to obtain the necessary legislative approvals, but nothing had been approved.  The deadline for UNDC5, however, had no relationship to the loan agreement.  On the percentage of funding to be available before construction commenced, the percentage of the construction costs would be about 50 per cent.  Details of the loan agreement had been provided in section two of the Secretary-General’s report.  Regarding the decisions to be made in terms of a loan agreement, the offer from the host country was of a maximum amount of $1.2 billion.  If that amount was not required, the United Nations would not have to drawdown any amount not needed.  Paragraph 13 of the Secretary-General’s report provided estimated project costs.

Also responding, Mr. RASHKOW first addressed the question of some States paying the loan amount at the time the loan was incurred as a way to avoid paying interest.  The loan agreement was between the United States and the United Nations and did not deal with how the United Nations organized itself internally to repay the loan.  How the Organization paid the loan was a matter for the General Assembly and the Organization to decide separately from the issue of borrowing money from the United States Government.  On the question of whether the letters said something different, he did not think that was the case.  All three letters reflected the offer of a $1.2 billion loan, the fact that the maximum interest would BE 5.54 per cent, a 30-year repayment schedule, and a five-year grace period.  Those were the clear terms.  One of the letters indicated that the United Nations might choose to borrow a lower amount or payment in shorter terms.

The United States Government had asked the Organization to indicate whether it intended to accept the loan offer in principle, he said.  If the United Nations did that, subject to conditions, then it would have to enter into negotiations to conclude a loan agreement.  The loan agreement had to be signed by 30 September.  The loan agreement would seek to implement and reflect the basic terms set out in the three letters from the United States, plus additional understandings set out not only in the Secretary-General’s report, but also the additional understanding referred to in paragraph 6 of the clarification. All of those basic understandings would be incorporated into a loan agreement, along with certain technical provisions.

Mr. MATSUNAGA (Japan) asked for more information on what would happen if the loan agreement was not concluded by 30 September.

Mr. JONAH (Sierra Leone) said he was surprised by the assertion that there was no relationship between the Capital Master Plan and arrangements for UNDC5.  Actually, the first letter of the United States made that linkage.  He also noted that, when the United States Congress approved the Government’s offer, the UNDC was part of the understanding.  After the decision was made to search for swing space in Brooklyn, statements were made in Congress that, in that case, the United States would have to reconsider the loan offer.

Mr. SIMANCAS (Mexico) said that his question had been simple -- why the note of the Under-Secretary-General for Legal Affairs to the Officer-in Charge of the Department of Management had mentioned an offer to accept the loan, but did not refer to the fact that it would amount to some $2.5 billion at an interest rate of 5.54 per cent?  Perhaps the answer could be provided in informal consultations, but he expected to receive an answer.

Mr. MAZUMDAR (India) said that as the Committee or the Assembly would not revert to the final negotiated agreement between the United Nations and the United States before 30 September, the Fifth Committee now had the last opportunity to look at what would be negotiated.  Today, the Secretariat had provided members of the Committee with a good understanding regarding the constituent elements of the agreement.  Would it be possible for the Secretariat to present the agreement to be negotiated to the Committee before the end of the session?  What would that agreement look like?

Mr. OLIVA (Cuba) requested that the document circulated to the Committee today be published as an official United Nations document.

Mr. RASHKOW responded to a question by China regarding the difference between the recommendations in paragraph 39 of the Secretary-General’s report and the memorandum issued by the Office of Legal Affairs.  In addition to the understandings in paragraph 39, the Office of Legal Affairs, in paragraph 6 of its memorandum, elaborated on some additional points.  The United Nations, if it accepted in principle to negotiate a loan agreement, would base its actions on the additional understanding in that paragraph to better protect the interests of the Organization.

To questions from the representatives of Mexico and India, he said that the amount outside the maximum amount of the proposed loan had not been specifically mentioned, because the Office had not mentioned any particular terms referred to in the United States letters, which set out all the details.  Reference was made in paragraph 5 of the memorandum to the fact that the agreement would include the terms set out in the three letters from the United States Government, including the $1.2 billion loan offer and the interest of 5.54 per cent.  As indicated in the Secretary-General’s report A/59/441/Add.1, the Administration was prepared to accept those terms.  However, the letter would also include the two understandings set out in paragraph 39 of the report, plus an additional understanding in paragraph 6 of the memorandum.

Turning to the request from India’s representative, he said that before entering into negotiations, one agreed on the basic terms and understandings to be reflected in the agreement.  The agreement would also set out technical terms, not inconsistent with the basic terms.  The paper before the Committee contained a description of the fundamental framework, and negotiations on the legal loan agreement would follow.  It would be difficult to place before the Committee the content of the loan agreement before it was negotiated.  He would hesitate to provide anybody with drafts of negotiations in process, because at the end of the process, the text could be different.

The Chairman of the Committee, DON MACKAY (New Zealand), said that the document circulated this morning would be available as an official document.

Mr. CLARKSON provided clarifications to a remark by the representative of Sierra Leone regarding the relationship of the loan offer and the new building offered by the State and City of New York.  The deadline for the loan had been set on 30 September.  That deadline did not apply to the new building.

Mr. MAZUMDAR (India) said it was important to bear in mind that Member States were being asked to sign onto an agreement with a blindfold.  The Organization was also in a unique position in which one party was one both sides.  He hoped to be given in informal consultations the technical parameters on which the United Nations would have to sign an agreement.

Mr. MACKAY (New Zealand), Committee Chairman, said most of the technical issues that accompanied a loan agreement were fairly standard, although in the current case the loan was between an international organization and a State.  He assumed that additional technical conditions would not derogate from the fundamental provisions of a loan agreement.  The situation was also slightly unusual in that, assuming approval was given, the Organization would need to negotiate with the United States, also a Member, some points of detail.  There might be a question as to how much detail the Legal Office would wish to make available simply as a matter of conducting negotiations.  The Secretary-General was requesting the opportunity to keep the United Nations options open, and was not seeking permission to go beyond that.

RAJIV RAMLAL (Trinidad and Tobago) said it was important to address the matter raised by the delegation of Sierra Leone.  Looking back, the Secretary-General had stated in his first progress report that there were three factors, including the availability of funding and swing space.  There was an inherent interconnection between those factors.  The present proposal represented a fundamental departure from the initial considerations, including the importance of ensuring the implementation of the Plan in a cost effective manner, minimizing the impact of the costs of the project and the disinclination to resort to commercial borrowing.  The Secretary-General maintained the view that an interest-free loan would be most advantageous.  There was a clear recommendation that members should accept the offer.  Did the option represent a fundamental departure from what had been thought of as recently as September 2004 as the most advantageous offer?  It was important for the Assembly to have a clear idea of what it would have to decide upon.

HOWARD STOFFER (United States) said the representative of Trinidad and Tobago had raised valid questions to be discussed in the fall session.  In the current session, aside from deciding on the $26 million for the construction phase, the Committee was being asked to give the Secretary-General the authority to sign for the loan, so that the loan was on the table as option for the fall session.  The two conditions referred to in the letter of the Office of Legal Affairs that the United Nations would want to include were acceptable to the United States:  that the United Nations did not need to draw on the loan; and that the United Nations was free to seek financing wherever it wished, irrespective of the loan.

Also, he continued, it would not a negotiation between the United Nations and the United States -- it would be drawing up a long agreement.  The terms of reference for the loan agreement had been laid out in the various reports of the Secretary-General.  That was what a loan agreement would look like.  The United States was prepared to show a copy of the 1948 agreement, when money was needed to construct a Headquarters at the current site.  Moreover, 5.54 per cent was the maximum interest rate.  At the shorter periods of time, the lower rate of interest equalled the prime rate given by the United States Federal Reserve to United States banks.  One of the key elements was that the loan would always represent $1.2 billion in collateral.  If construction were started in 2007, which was the Secretariat’s goal, it would have to have up to 60 or 70 per cent in the bank for construction companies to start the job.

Regarding the United States Congress, he said the Congress had guaranteed that a loan would be available in its 2005 budget, which expired on 30 September.  If the Secretary-General was allowed to draw up -- not negotiate -- a loan agreement, it would need to be done by 30 September when the United States fiscal year ended.  There was nothing in the budget for 2006 that provided for a loan.  There was no connection between the loan and the UNDC5.

Mr. CLARKSON said that the Committee was not asked to make a decision on the financing of the Plan, but to keep the option for financing open.  The Secretariat would come back to the Committee with its recommendations to finance the Plan during the sixtieth session.  The decision that was required now was to keep the option of the loan open.

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