FAO FINANCE COMMITTEE: WEAK FINANCES; SHARP

UNCLAS ROME 001765

SIPDIS


STATE FOR IO/EDA KOTOK AND BEHREND
USDA/FAS FOR REICH, HUGHES AND CHAMBLISS
USAID FOR FFP LANDIS AND THOMPSON
IO FOR ABRAHAMS AND JACOBS

FROM THE U.S. MISSION TO THE UN AGENCIES IN ROME

E.O. 12958: N/A
TAGS: AORC EAGR EAID FAO WFP
SUBJECT: FAO FINANCE COMMITTEE: WEAK FINANCES; SHARP
CRITICISM

REF: A) Rome 1735 B) Rome 1742 C) Rome 1752


1. Summary. In addition to issues discussed Refs A-
C, FAO's May 9-13 Finance Committee considered the
organization's weak financial health (the organization
expects to have to borrow $40 million as early as
August),strongly criticized the Secretariat's tepid
response to the decentralization evaluation tabled in
the summer of 2004, and discussed issues of importance
to good management in the organization. End Summary.

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Financial Highlights
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2. During the presentation and subsequent discussion,
the organization made the following points:

-- Expenditure of the 2005/6 budget is on track.

-- However, the organization continues to face severe
liquidity problems given both the US's and now Japan's
practice to pay contributions, together over 40 percent
of the budget, in the last quarter of the assessed
calendar year.

-- The present problem is greatly exacerbated by the US's
delay in paying a large share of its 2004 contribution.

-- Staff costs are US $16 million above projections due
to the impact of strengthening local currencies against
the dollar in decentralized offices (a phenomenon not
remedied by the new split assessment procedure that
neutralized currency fluctuations only for expenditures
made in dollars and euros),and medical cost inflation.
The existing health insurance contracts are denominated
in dollars and will not be renewed until next year.

-- Overall, the delay in the receipt of contributions
and the persistently high levels of arrears were "the
largest factors undermining the organization's financial
health."

-- The organization expected to have to borrow up to $40
million between August and October 2005 when US and
Japanese 2005 contributions should begin.

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Decentralization Evaluation
--------------


3. In the September 2004 Finance and Program Committee
sessions, the Secretariat promised a full reply to a
highly critical external evaluation of FAO's field
operations issued during the preceding summer. The
response paper tabled in this session was neither final
nor full, but rather a tepid collection of verbiage that
seemed to indicate a lack of real intention to implement
important recommendations. The evaluators, who were
present to discuss the Secretariat's response paper,
displayed, with their focus and intensity, a sharp
contrast to the sleepy Secretariat, as they eloquently
argued for more speed in implementation and "de-
packaging" the organization, something, they said, that
did not depend on extra funding. "The organization," one
of them argued, "needed to have the courage to change
staff found incompetent," referring to one of the
evaluation's findings that technical field staff were
often not up to the job required.


4. USDEL started the committee's consideration by
expressing disappointment with the Secretariat's
response, noting the refreshing energy of the
evaluators' presentations, and the need for robust
action on the Secretariat's part to deal with the
pressing problems of FAO's large and expensive field
operations. Every member of the committee followed
USDEL's lead in opening a barrage of criticism of the
Secretariat. Deputy Director General Harcharik, who

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presided over the Secretariat's team on this issue,
was visibly shaken with the committee response and
promised a better and more responsive paper for the
September session. Afterwards, Harcharik told USDEL
that the organization's intent was to support the
evaluation and to attempt to implement its
recommendations. UDEL replied that one would never
know that from the way the report had been written and
packaged.



5. It appeared that the message got through on this
issue, but we will watch with interest for the new paper.
This is especially important given the concerns many have
over how the Secretariat will implement recommendations
coming from the Independent External Evaluation when
completed.

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External Auditor
--------------


6. Debate over whether the private sector should be
allowed to bid on the external auditor contract continued
in this session. OECD countries, including USDEL,
continued to push toward opening the position to
potential applicants beyond the national auditors now
allowed. Some G77 resisted, hoping thereby to keep
Western auditing firms from bidding against their own
national organizations. (The contract is now held by
India's national auditing entity.) The FAO Secretariat
noted that in response to its inquiry, the UN's HLCM had
indicated that nothing precluded a UN organization's
allowing private sector participation.

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Work Permits for Expatriate Spouses
--------------


7. The Secretariat informed the Committee that Italy had
agreed to open negotiations toward a bilateral
arrangement allowing the spouses of FAO employees easier
access to work permits. This was an important step
forward on an issue of importance to enhancing the
numbers of American citizen employed at FAO. For the
last three Committee sessions the USDEL had pressured the
Secretariat to establish a dialogue with Italy on this

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matter.


8. This is the final report on the 109th FAO Finance
Committee session (May 9-13).

HALL


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2005ROME01765 - Classification: UNCLASSIFIED