Financial crisis hits world body: UN banks on empty pledges

NEW YORK - The financial crisis, which has continued to destabilise stock markets and undermine the global banking system, is expected to have a negative impact on the perpetually cash-strapped United Nations and its development activities -- sooner than later.

A group of seven countries -- the Central African Republic, the Comoros, Guinea-Bissau, Liberia, Sao Tome and Principe, Somalia and Tajikistan -- are already on the verge of losing their voting rights in the General Assembly for piling up arrears on their mandatory assessed contributions to the world body.
The assessed contributions for each of these seven countries is only $19,982 per year, the lowest benchmark to the world's poorest countries (in contrast to Sri Lanka, for example, which promptly pays its dues amounting to about $339,700 per year and India which coughs out $8.4 million annually). The rates are fixed under a formula based on the principle of "capacity to pay."

A broker trades sterling swaps on the dealing floor at ICAP, in London on Friday. Europe joined Asia's panic selling of stocks on Friday, knocking the benchmark world equity index to a 5-year trough, while the low-yielding yen jumped as fears grew that policymakers' efforts to contain the global financial crisis won't be enough. Reuters.

The largest single contribution of 22 percent of the UN budget comes from the United States, amounting to $440 million annually. Coincidentally, the US is also the largest single defaulter, but maintains a threshold to avoid losing its voting rights in the General Assembly. But the seven defaulters have been accumulating their arrears for more than two years -- and long before the crisis in the US economy last month and its subsequent negative fallout on Europe and the rest of the world.

At a meeting of the UN's Administrative and Budgetary Committee last week, there was a plea from the African Union that all seven countries should have their voting rights restored because the cash crisis facing them was beyond their control (a concession provided by Article 19 of the UN charter).

But the Committee was also warned that if the current economic recession hits developing nations, more and more countries will be defaulting in their payments to the world body and losing their voting rights.
Although all membership dues to the UN are mandatory, the funding for UN agencies such as the UN Children's Fund (UNICEF), the UN Development Programme (UNDP) and the UN Population Fund (UNFPA) are voluntary. The bulk of the funding for these agencies, which are involved in social and economic development, comes primarily from the US, Japan and the Western European countries.
If the crisis continues, it is likely that at the upcoming annual pledging conference next month (where countries pledge their funds to the various UN agencies) most donors would reduce funding arguing that their countries are going through a recession.

Since self preservation is the first national priority in any domestic crisis -- Iceland being the first country as a whole to go bankrupt while other nations have suffered only the bankruptcies of their financial institutions -- the UN will be only a secondary concern in the current environment.

Another major casualty will be official development assistance (ODA) which is based on 0.7 percent of gross national income (GNI). So far, only five out of 22 rich countries have met or surpassed the target: Denmark, Luxembourg, the Netherlands, Norway and Sweden. But with most GNI's expected to decline next year, so will ODA.

Secretary-General Ban Ki-moon tried to put a positive spin on the negative fallout when he told reporters last week: "Everyone has felt the earthquake on Wall Street. But it has not shaken our resolve."
He said banks may be failing. "But the world's bottom billion can bank on us. We showed that last week. The global financial crisis may have over-shadowed our work, but it did not dominate it."

As proof, he pointed out that despite the market turmoil, the UN was able to raise an additional $16 billion in pledges, mostly to fight hunger and poverty worldwide. The generosity of these commitments was encouraging, given the economic climate. But the perennial question at the UN is: how many of these pledges are really delivered? In most instances, there is a huge gap between promises and delivery.
At last week's press conference, one of the reporters pointedly told the Secretary-General that the French Foreign Minister had said that if any of the rich G8 countries -- the US, Britain, France, Italy, Germany, Japan, Canada and Russia -- says they are going to meet all their pledges during this financial crisis, they are lying.

"Has anybody handed you a cheque that actually gives you optimism that you are going to get the $16 billion? And what is the first threshold that you are going to reach when you understand whether you are going to get those pledges or not?" the Secretary-General was asked.

In response, the Secretary-General said the $16 billion was pledged while world leaders were discussing measures to address the global financial crisis. "Therefore, first of all, I am very much encouraged even during the crisis of these financial problems, that the leaders are committed to see the realization of the Millennium Development Goals."

That is a very important commitment, demonstrated by the leaders, he added. And that is the real good demonstration of their leadership. "I hope that this will be implemented."

Question: Are you sure this can be implemented? Are you going to see the money? There are so many pledges that have been taking place all the time, and they never happen actually.

Secretary-General: There are many monitoring mechanisms, when the member states make a commitment. It is true that there are always gaps between commitment and actual following of the funds. There is a time gap, but we have some monitoring mechanisms within the UN system. One important occasion will be the Doha Conference on Financing for Development (scheduled to take place in Qatar in late November). There, we will also have a very important occasion to discuss this issue on how to fund mobilized financing in addressing global challenges.

But in reality, the UN is likely to see very little of this money to fight hunger and poverty eradication thereby undermining the UN Millennium Development Goals with its 2015 deadline.