UN SCALE OF ASSESSMENT: MEXICO PROPOSES "BUFFER"

1. Summary. In a briefing at the Mexican Mission on March
8th, the Mexican delegation briefed members of JUSCANZ
(Japan, US, Canada, Australia, New Zealand), as well as
Norway, Switzerland and South Korea on its proposal to modify
the UN regular budget scale of assessment. The proposal
would, in effect, create a "buffer" for Member States that
are above the low per capita income threshold but do not want
to assume the cost of discounts provided for those below the
threshold. The buffer would apply to approximately 15-20
Member States and would result in an increase in rate for the
top 40 contributors to the UN budget (except for the United
States, which would still be capped at 22 per cent). End
summary.



2. The Mexican delegation has brought in a visiting team of
economists from Mexico City for the Fifth Committee's
discussion on the scale of assessment. In advance of tabling
language next week, they convened a meeting to brief JUSCANZ
and others on their intended proposal for changes to the
current methodology. Mexico's point of departure is that
some Member States' capacity to pay is not accurately
reflected under the current application of Gross National
Income (GNI) calculated with Market Exchange Rates (MERs).



3. Under the current system, Mexico's economy shows a 7 per
cent growth rate, however, this does not account for the
difference in inflation between the Mexican peso and the U.S.
dollar. A more accurate reflection of Mexico's capacity to
pay would be met through the application of real exchange
rates (which would reflect Mexico's real growth of
approximately 2 per cent). However, the application of real
exchange rates to all 191 Members of the UN is an impractical
approach that would require individual calculations for each
Member State.



4. In light of this, Mexico is proposing instead to apply two
new elements to the current methodology. First would be a
recalculation of the base period using the statistical
average of 6 and 2 years. The current methodology applies a
statistical average of 6 and 3 years. Mexico contends that 3
years is more reflective of a medium-term indicator of
economy and as such, weighs the base period in favor of a
longer reflection of economic performance. The application
of 2 years, on the other hand, would more accurately balance
the statistical average of economic performance over the
short and long term.



5. The second proposal would establish another threshold in
the methodology. Currently there is a low per capita income
threshold applied for countries whose per capita income is
less than the world average (approximately $5,250).
Countries who fall below this level receive an 80 per cent
discount on the percentage by which the country's
debt-adjusted per capita income is below the threshold.
Mexico argues that middle-income countries that are just
above the LPCIA threshold bear an undue burden in paying for
others' discounts. As such, a second threshold should be
made at $11,000 PCI and countries between the current world
PCI and $11,000 should not benefit from a discount but also
should not shoulder the costs of the LPCIA discount applied
to others.



6. According to Mexico, the effect of this is the transfer
of approximately half of a percentage point to those
countries over the $11,000 PCI threshold. There are
currently approximately 40 countries above this PCI.
Approximately 15 - 20 "middle income" countries would benefit
from the second threshold.

BOLTON