Cash-strapped UN can't afford its heating bill

The signs started popping up at the United Nations Palais des Nations in Geneva in early October: “Escalator closed due to the high cost of energy and the liquidity crisis.” Then, the heat was turned down, the outdoor lights dimmed, and a freeze was imposed on new hires. Even the pizza oven in the cafeteria was shut off. For two and a half weeks in December and January, the U.N. announced its Swiss headquarters would be closed — “Another step in our efforts to save energy,” a U.N. spokesperson, Rolando Gomez, explained. “We’re like a government that can’t pay for its public goods,” a senior Geneva-based diplomat told Devex on WhatsApp. The U.N. is facing its worst cash crunch in years as two of the highest-income countries — the United States and China — delayed the payment of hundreds of millions of dollars in dues to the U.N. to administer its operations. While Beijing recently paid down its debt, erasing a bill that swelled to $400 million in April, the U.S. remains stuck in the red, owing $500 million in administrative budget dues with less than two weeks left in the year. It also owes over $1.1 billion in peacekeeping back dues, but we’ll come to that later. The U.S. Congress — lurching from one budget crisis to the next — is unlikely to release funds to pay the remainder of U.S. 2023 dues to the U.N. before Feb. 2, when postponed budget negotiations are set to conclude. Sources say it could take some time between late February and the end of May before the U.S. pays up, as much as 16 months late. Budget gimmickry The U.N. treasury has long been stretched around the holiday months. In the 1980s, U.S. President Ronald Reagan’s budget director, David Stockman, devised a budgeting gimmick that created the illusion of cost savings: He deferred U.S. payment of dues for the U.N. administrative budget from the beginning of the U.N.’s fiscal year, which started in January, to the U.S. fiscal budget, which begins in October. Thus began the modern history of U.S. delinquency. That means the U.N., which expects to be paid in full in January, must wait until at least October to get paid from its biggest donor, which is responsible for 22% of the U.N.’s $3.4 billion regular budget in 2023. Closing the gap, and getting the U.S. to pay on time, would now require Congress to authorize two years of funding at once, something that appears unlikely. The current budget crisis dates back to the early 1990s when Presidents George H.W. Bush and Bill Clinton approved massive increases in U.N. peacekeeping, part of an ambitious, but ultimately flawed, effort to halt atrocities from the Balkans to Somalia and Rwanda. The soaring costs — combined with dwindling support for the U.N. on both sides of the aisle in Congress — resulted in pressure to rein in expenditures. While Republicans are typically keen to slash U.N. funding, it was a Democratic-led Congress that passed the Foreign Relations Authorization Act of 1994-1995, capping the U.S. share of contributions to U.N. peacekeeping at 25%. It was signed into law by Clinton. But the U.N. maintained that the U.S. law had no bearing on Washington’s financial obligations and that it was required to pay its bill in full. It continued to charge the U.S. for its full assessment, which surpassed 30%, setting the stage for U.S. arrears to climb by hundreds of millions each year. U.N. member states are billed based on their relative wealth. In 1999, then Senators Joe Biden and Jesse Helms, the ultra-conservative North Carolina chair of the Senate Foreign Relations Committee, joined forces to try to compel the U.N. membership to make up the difference, writing the Helms Biden Act. The Senate leaders sought to enforce a new bargain with the U.N.’s membership: Agree to cap U.S. contributions to the U.N. regular budget at 22% — the U.S. was assessed 25% at the time — and the U.N. peacekeeping budget at 25%, and the U.S. would make good on some of its $1.2 billion in arrears. The job of selling the deal fell to the late U.S. diplomat, Richard Holbrooke. In 2000, Holbrooke brokered a deal to cap contributions for the regular budget at 22%. He tried unsuccessfully to secure support from foreign governments for a 25% ceiling on contributions to the U.N. peacekeeping budget. As one of five permanent members of the U.N. Security Council, the U.S. is required to pay a premium on peace operations. At the time, the U.S. was assessed more than 30% of costs for U.N. peacekeeping. The Trump administration decided to unilaterally enforce the 25% ceiling, setting the stage for the return of a nearly $1 billion debt, and raising concerns about the prospect of the U.S. losing its vote in the U.N. General Assembly. Article 19 of the U.N. Charter states that accruing arrears equal to or exceeding the contributions due over the preceding two years can risk losing their voting rights unless they can demonstrate that circumstances beyond their control resulted in their failure to pay. The U.S. nearly lost its vote in 1999, but it has since paid enough to avoid triggering the penalty, said Jordie Hannum, executive director of the Better World Campaign, the advocacy wing of the U.N. Foundation, which was established by CNN founder Ted Turner in part to address U.S. delinquency. “The U.S. has been close,” he said in an email exchange. The loss of the vote in the General Assembly is “usually reserved for countries that pay no dues for two years, and even then, the UN will give a country some latitude,” Hannum added. “For example, Saudi Arabia didn’t pay its peacekeeping dues for several years and were about to lose their vote at the end of the year, until they made a partial payment. They are no longer in jeopardy of losing their vote.” Over the years, the U.N. has devised workarounds — including the establishment of a pair of reserve funds – the $250 million working capital fund and the $200 million special account — to weather the cash flow crisis wrought by late payments. However, the U.S. has increasingly made its payments even later. Faced with a Republican-controlled House that seeks draconian cuts in contributions to the U.N., the Biden administration this year has been able to meet a portion of its contributions to the U.N. and its related agencies, including the World Food Programme and Unicef. So far, the Biden administration has been able to make $200 million of the $700 million it owes for 2023 in October and November. It wasn’t supposed to be like this Biden came into office vowing to clear its U.N. books. The government has succeeded in covering more than $400 million in unpaid arrears on the regular budget that mushroomed during Trump’s time in office. The current administration faces $222 million in back payments, the lowest level since 1984, and a fraction of the $639 million it inherited when it came into office. But it has not put a dent in its outstanding peacekeeping dues, which is over $1.1 billion. The U.N. approved more than $6.1 billion this year to fund its nine peace operations, plus $590 million to underwrite the cost of shutting down a large peacekeeping mission in Mali. Each year, the administration appeals to Congress to cut a check to begin paying down that debt. And each year, Congress balks. For the first time, the Biden administration has requested Congress to authorize the release of $40 million at the start of the year in the fiscal 2024 budget. It’s unclear whether it will succeed. “Under the Biden Administration, the U.S. is committed to reducing its arrears to the UN and making its dues payments earlier,” Chris Lu, U.S. ambassador to the U.N. for management and reform, told Devex by email. “We also have worked closely with the UN to improve liquidity reserves and institute budgetary reforms to improve its financial condition.” The issue this year was compounded as other recent high-income donors, including China and Japan, have mimicked the U.S. practice of making their payments later and later in the year. Other countries, including Argentina, Brazil, and Venezuela, have struggled to meet their payments. China — once assessed a tiny share of the regular budget — paid its dues on time and in full until 2018. In recent years, as China has emerged as the second largest contributor to the U.N. budget, owing some 15% of the regular budget and nearly 19% of the U.N. peacekeeping budget, it has been slower to pay. To encourage countries to pay, the U.N. has created an honor roll, recognizing governments that pay in the first months of the year. By April, China was $446 million in the red; Japan, $182 million; Argentina, $68 million; and Brazil, $59 million. But China cleared the decks with a $446,229,213 payment on Nov. 14; Japan made good with a $234,991,889 check on May 2; and Brazil caught up with its debt this month. “We very much thank our friends in Brasilia,” Stéphane Dujarric, the U.N.’s chief spokesperson, told reporters earlier this month at U.N. headquarters in New York, where the escalator is still operating. “That takes us to 140 paid-up Member States. Only 53 to go, with slightly more than 15 days until the end of the year. But there is always hope.” Unpredictable funding The U.S. is by far the largest contributor to the U.N., providing more than $18 billion in voluntary and assessed contributions to U.N. activities, including peacekeeping, humanitarian, climate, human rights, and development programs. That’s more than twice as much as the second-largest donor, Germany, and about eight times as much as China, the world’s second-largest economy. The cash flow crisis in Geneva is largely focused on the U.N. regular budget, which covers the organization’s administrative activities. The financial burden in the U.S. peacekeeping arrears largely falls on countries that contribute troops to U.N. peacekeeping operations, and don’t get reimbursed on time for expenditures. A range of other U.N. agencies, including WFP, which has had to sharply cut the rations it provides to many of the world's vulnerable, are facing their own financial trials. The U.N.’s Geneva headquarters has been hit hardest, even though it spends only 2.2% of the regular budget costs, or $78 million a year. Some blame may rest with the Geneva office, which sources say underestimated its energy costs, and has been ordered by the U.N. budget officials in New York to tighten its belt in the final weeks of the year. Gomez, the U.N. spokesperson from Geneva, said the office is “facing a budget shortfall regarding the electricity costs where its budget allocation did not match the increase in prices.” He said the “19-day closure of most of the Palais des Nations would save the U.N. about $142,000.” But Gomez added that the funding challenges “are worsened by the impact of the ongoing liquidity crisis.” ”While I am concerned that the current liquidity crisis is indeed having an impact on our operations, I am confident that the measures we took can mitigate these negative effects,” said Tatiana Valovaya, director-general of the U.N. office in Geneva. “And I join the call of the UN Secretary-General for sufficient and predictable funding for an efficient delivery of our mandates.” In New York, the picture was mixed. “This year we’ve had the most member states pay in full since 2001 but the lowest collection in the last five years,” U.N.’s Dujarric told Devex by text. “That being said, having taken savings measures throughout the year we can cover costs through the end of the year.”