DISCOURAGE BORROWING TO MEET INFRASTRUCTURE NEEDS

C O N F I D E N T I A L STATE 069225 SENSITIVE SIPDIS E.O. 12958: DECL: 06/23/2036 TAGS: AORC IAEA PREL UN SUBJECT: DISCOURAGE BORROWING TO MEET INFRASTRUCTURE NEEDS REF: A. UNVIE 279 ¶B. STATE 057105 Classified By: A/S ESTHER BRIMMER for reasons 1.4 (b) and (d) ¶1. (SBU) This is an action request in response to reftel request for guidance. Please see paragraph 2. ¶2. (C) Summary and Action Request: Mission should discourage any proposal that interest-bearing loans be used to meet International Atomic Energy Agency (IAEA) infrastructure needs and continue to work with member states to advance the U.S. position for a significant budget increase. Mission should emphasize that borrowing proposals are merely short- term, stopgap solutions, and that real budget increases are required to solve these problems in a sustainable way. The Department views external &borrowing8 as an ineffective method of financing IAEA infrastructure projects, while internal &borrowing8 has little chance of achieving widespread support, especially among the NAM and G-77 member states. Department finds the option of interest-bearing external loans unacceptable. An interest-free external loan from host country Austria, while not preferred, might be acceptable if passed as a consensus measure with broad support. An internal loan, such as borrowing from the Technical Cooperation Fund, should not be pursued unless it receives broad support, as this would be only a short-term fix and would likely alienate G-77 member countries. End Summary. Background -------------- ¶3. (SBU) The U.S. has been arguing for an increase in the IAEA budget, consistent with the President,s pledge, in order to enhance nuclear safeguards, security, and safety. Our support for a substantial increase in the regular budget has faced resistance from many of our European allies and developing countries. Though some consensus exists on the importance of the IAEA re-examining its budget to meet infrastructure needs, including the IAEA Safeguards Analytical Laboratory (SAL) at Seibersdorf, Austria, there is little consensus on how these needs should be addressed. ¶4. (SBU) Canada, France, Germany and the UK have supported the concept of &borrowing8 as a way to fund both the SAL and other infrastructure upgrades. This proposal has also gathered increasing support from G-77 countries. There are three specific options for borrowing: external borrowing through interest-bearing loans, external borrowing through interest-free loans, and internal borrowing (likely from the Agency,s Technical Cooperation fund). Interest-Bearing Loan -------------- ¶5. (C) An interest-bearing loan is not an acceptable proposal to meet IAEA infrastructure needs. Interest-bearing loans conflict with U.S. policy to increase the IAEA budget. President Obama has committed to providing the IAEA with the resources it needs to perform its duties as a nuclear watchdog. Approving an interest-bearing loan would undercut the U.S. position in support of a 9.5% increase in the IAEA regular budget and would not solve IAEA,s long-term budget situation. Mission can also emphasize the lack of precedent in international organizations for an interest-bearing loan, as each of the cited examples in para 6 below (UNESCO, WHO, WTO) were granted interest-free loans. Interest-Free Loan -------------- ¶6. (C) An interest-free loan is not preferred as a solution to the IAEA budget woes, but could be acceptable if it achieves broad consensus. Interest-free loans have been employed in the past in the cases of UNESCO, WTO, and WHO. In each of these instances, the organizations in question requested and received interest-free loans from or guaranteed by their host countries to build or upgrade their administrative headquarters. If the U.S. were to accept an interest free loan for the IAEA, it would only be to fund infrastructure upgrades at the SAL and other locations in Austria, and even then only if it obtains broad support among member states. ¶7. (C) An interest-free loan would also face obstacles from the Austrian government. Austrian Mission Counselor Stefan Heisler implied to Member States that Austria would be disinclined to offer or guarantee such a loan. While Austrian disinclination reinforces the U.S. opposition to all &borrowing,8 it could leave open and even advance the proposal for interest-bearing loans, which is unacceptable to the U.S. If interest-free loans are ruled out (because of Austrian objections),member states that see borrowing as a panacea would likely turn to interest-bearing loans. Mission should emphasize that even an interest-free loan is problematic and would not be a solution to IAEA budget woes. The Agency will need increased funds in the future, and such a loan would only be a short-term solution needed to fund key infrastructure upgrades. Internal Borrowing -------------- ¶8. (C) Internal borrowing would be acceptable to the U.S. to meet IAEA budget concerns, though not ideal. The only fund from which internal borrowing could take place would be the Technical Cooperation Fund (TCF). The TCF contains reserves of over $80 million, and such a loan would have little impact on TC operations. Borrowing from the TC fund is likely politically unfeasible due to probable strong G-77 opposition, despite its attractiveness as a short term solution. Mission should not push internal borrowing from TCF as a solution to budget woes, unless it receives widespread support among Member States, as it would be only a temporary solution and could alienate G-77 countries. Conclusion -------------- ¶9. (C) Borrowing is not a solution to IAEA budget issues. Mission should continue to advance the U.S. position supporting a significant IAEA budget increase. External interest-bearing loans are unacceptable. While external interest-free loans are not ideal, they could potentially be acceptable as a consensus measure. Internal loans could meet immediate financial needs of the Agency, but they would likely alienate G-77 countries and should not be a focus of Mission,s budget efforts. Mission should emphasize that borrowing only delays the inevitable budget increases and, in the case of interest-bearing loans, would actually increase future budget commitments. ¶10. (SBU) Mission is requested to advise Department on developments regarding IAEA budget issues, especially efforts to borrow to meet infrastructure needs. CLINTON