Crippling budget crisis looms at UN as US forces reform issue

UNITED NATIONS, Wednesday (AFP) The United Nations faces a crippling financial crisis if Washington manages to stall the organization's two-year budget until management reforms are agreed, a senior UN official said.

Warren Sach, a UN assistant secretary general and controller, told reporters that a US proposal to tie the budget process to reforms would "create a serious problem in terms of cash flow situation in 2006."

The United States proposed a week ago that the body set an interim budget only for three or four months pending a resolution of a stalemate over management reforms Washington strongly supports.

The longer term budget would be stalled until the reforms are agreed, according to the proposal made by John Bolton, the US ambassador to the United Nations.

"Reform should drive the budget process, not the other way around," Bolton said.

The UN General Assembly's budgetary committee is currently debating a proposed regular budget totaling 3.8 billion dollars, including around 73 million dollars for reform activities decided by the UN world summit.

Sach said that the US proposal for a three-month budget would leave cripple the UN's cash flow. "If you only have a quarter of the year's provisions you have a situation where the incoming would be 170-180 million dollars against a requirement of 450-500 million dollars," Sach said. "That would leave us in the regular budget in the first quarter short by about 320 million dollars for 2006, and the options to cope with a gap like that would basically be to draw on reserves, cut back on expenditures and borrow from other peacekeeping-type operations," he said.

Spending cuts could affect recruitment, purchasing and travel expenditures, Sach added. Sach said the UN had used up all its working capital funds and was currently dipping into a special account of 200 million dollars set up many years ago to help the liquidity of the organization.

"Unless large payments are made in the balance of this year, we will exhaust our available reserves by the end of December 2005," Sach said.

"We really would need then to borrow from peacekeeping accounts," he noted.

The proposed 2006-2007 regular budget of around 3.8 billion dollars is an increase over 3.16 billion for the 2004-2005 period.

It covers costs of UN programs in political affairs, international justice and law, international cooperation for development, public information, human rights and humanitarian affairs.

The main source of funding is contributions of member states, with the United States being the largest contributor with 22 percent, followed by Japan with 19.5 percent.

In addition to the regular budget, member states are assessed for costs of peacekeeping operations and international tribunals.

The management reforms demanded by Washington, and pushed strongly in the wake of the Iraq oil-for-food scandal, include giving the secretary general greater powers in exchange for greater accountability, creating a new ethics office and establishing a whistle-blower program to root out corruption.

The broader reforms would also set up a more effective human rights council and a peacebuilding commission to assist countries emerging from conflicts.

But the reform package is bogged down over a perceived power struggle between Secretary General Kofi Annan's secretariat and the 191-member General Assembly.

In a letter earlier this month sent to UN General Assembly president Jan Eliasson of Sweden, the Group of 77 nations - now supported by another 66 countries including China - balked at a number of Annan's reform proposals, fearing an erosion of power wielded by member states.

Annan earlier this month urged member states to approve a budget before the end of the year.

"I hope we will not have a situation where a budget is not adopted by the end of the year," he said, saying failure to do so would create "a serious financial crisis" and would make it impossible to plan ahead.

Meanwhile Japan, miffed by its failure to gain a permanent seat on the powerful UN Security Council, is threatening to slash its UN contribution.