Identifier
Created
Classification
Origin
09UNVIEVIENNA72
2009-02-20 14:08:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
UNVIE
Cable title:  

UNODC Financial Crisis: Tough Choices But Silver Lining?

Tags:  PGOV SNAR KCRM EAID UN 
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VZCZCXYZ0010
RR RUEHWEB

DE RUEHUNV #0072/01 0511408
ZNR UUUUU ZZH
R 201408Z FEB 09
FM USMISSION UNVIE VIENNA
TO RUEHC/SECSTATE WASHDC 9031
INFO RUCNDT/USMISSION USUN NEW YORK 1502
RUEHGV/USMISSION GENEVA 0855
RUEHRO/AMEMBASSY ROME 0418
RUEHBS/AMEMBASSY BRUSSELS 0194
UNCLAS UNVIE VIENNA 000072 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV SNAR KCRM EAID UN

SUBJECT: UNODC Financial Crisis: Tough Choices But Silver Lining?

Ref: A) UNVIE 00033, B) STATE 07023

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Summary
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UNCLAS UNVIE VIENNA 000072

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV SNAR KCRM EAID UN

SUBJECT: UNODC Financial Crisis: Tough Choices But Silver Lining?

Ref: A) UNVIE 00033, B) STATE 07023

--------------
Summary
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1. (SBU) Unexpected declines in UNODC's General Purpose Fund (GPF)
contributions have created a financial crisis within the UNODC.
Compounding that assessment are interest losses stemming from the
world financial crisis and the inherent difficulties associated with
managing an exploding Special Purpose Fund (SPF) revenue stream. As
a result, UNODC management is freezing hiring for a number of senior
positions and pondering other measures. Their concern that the
worst is yet to come is leading senior management to consider
strategic realignments in Vienna and closure of several field
offices to guarantee long term financial solvency. Mission believes
that if UNODC can get its organization and financial house in order,
a leaner, more efficient and more marketable Office can emerge, but
we need to assert member state leadership and avoid cuts that short
change UNODC's key norm-setting role. END SUMMARY

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Current Crisis GPF Driven
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2. (SBU) In recent conversations with a number of UNODC officials,
Missionoffs learned of a looming financial crisis at the UNODC.
Elaborating on a point he foreshadowed to Ambassador Schulte (reftel
A),UNODC Executive Director Antonio Costa told his staff on
February 10 that GPF contributions had shrunk from an average of USD
21 million annually between 1992-1998 to projected USD 13 million in

2009. According to one senior manager, the decrease was a result of
Italy reducing and re-allocating its contributions to the UNODC,
causing a drop of over USD 1 million. In addition, UNODC lost about
USD 1 million in interest income as a result of falling interest
rates. The combined effect was a USD 2.2 million dollar shortfall
in the GPF for 2009. Furthermore, the SYG had requested UNODC to
find 2 pct savings in its regular budget funds.


3. (U) 50 pct of GPF is spent in Department of Operations (DO). 30
pct goes to Department of Policy Analysis (DPA). The Executive
Director's Office consumes 10 pct of the PGF, while the Division of
Management uses the remaining 10 pct.

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Current Crisis Just the
"Tip of the Iceberg"
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4. (SBU) UNODC officials privately asserted that this USD 2.2

million shortfall was just the tip of the iceberg. They noted that
this was the shortfall they knew, but given the deteriorating
financial situation, they were worried that the worst was yet to
come. One well-placed secretariat source projected that the GPF
shortfall could reach over USD 4 million, based on shrinking Italian
GPF contributions, and Norwegian, Irish and Japanese hints that they
too were considering cutbacks to the GPF.


5. (SBU) As a sign of the times, this source asserted that in
January 2008, 13 countries had fully paid their regular UN
assessments. This year, he stated, perhaps only 7 had done so. The
UK, which prides itself on fully and promptly paying its
assessments, has informed New York that it will pay 25 pct now, and
hopes to make up the balance through the year, as a result of the
weakening pound.


6. (SBU) Our source also expected a hit to SPF contributions.
Although he was not sure whether it would be an absolute decline in
dollars, or rather a slowing of the exploding growth in SPF
donations, there would definitely be a decrease in the amount of
earnings from program support costs (PSC) that UNODC can deploy. As
a result, UNODC has decided that there can be no growth in any
PSC-funded activities for the foreseeable future.


7. (SBU) This interlocutor stressed that UNODC officials, while
worried about the current shortfall, were even more concerned about
the financial situation of the UNODC in 2-3 years. The financial
crisis is hitting markets and citizens now, he stated, but its full
impact would not be felt by governments until perhaps 2010. When
that happens, he worries governments will tighten their belts even
further, and UNODC-type assistance will be the first on the chopping
block. Therefore, our UNODC interlocutors privately insist that now
is the time to "get our house in order, and prepare for the next 4-5
years."

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"Low Hanging Fruit"
Is First to Go
--------------


8. (SBU) In order to make up for the USD 2.2 million shortfall,
UNODC has immediately implemented a number of measures. UNODC
contacts provided Missionoff with internal documentation and his own
explanations for how UNODC intends to rectify its financial crisis.



9. (SBU) These measures include freezing a D-1 position in the
division of Policy Analysis (DPA),P-3 and P-5 positions in the
Independent Evaluation Unit (IEU),and two P-4's and a P-3 in
Division of Operations (DO). He estimated that these measures would
realize over USD 940,000 in savings.


10. (SBU) In addition, UNODC will look to reassign and regularize
staff from GPF posts into vacant regular budget (RB) posts. This
includes a number of positions, most notably the D-2 position for
Division of Treaty Affairs (DTA) Director for which we have lobbied
(ref B). The vacancy announcement for this position was canceled
on/about February 10. This GPF to RB maneuver assumes that there
are GPF-funded staff who are qualified and willing to serve in the
vacant RB posts. UNODC realistically estimates a savings of nearly
USD 500,000 through these measures.


11. (SBU) In addition, a senior UNODC official told us that the
UNODC could reduce cost inefficiencies by combining duplicative
programs of different divisions. For example, the Division of
Treaty Affairs (DTA) and Division of Operations (DO) both run
technical assistance programs for implementing the UN Convention
against Corruption (UNCAC). The relevant offices from the two
divisions may have duplicative programs and often compete for donor
funds. Having them develop joint programs will eliminate
duplication, although the two do not necessarily need to be combined
into one office. He noted that recent DTA anti-piracy activity was
a good example of joint DTA-DO programming. Such joint programs
would allow for the deployment of GPF funds which finance most of
the positions in DO, whereas DTA has about 30-40 RB posts. This
official also cited the inefficiency in certain field offices,
noting as examples that UNODC's field offices in Bolivia and Vietnam
do not generate sufficient programs to justify GPF-funded posts. He
plans to freeze two positions in the field, and turn small-volume
field offices into strictly project offices, funded by earmarked
project contributions.


12. (SBU) Our contact expressed support for economizing meetings,
citing for example the three annual HONLEA (Heads of National Law
Enforcement Agencies) meetings as being too frequent. He suggested
that they could take place every two or three years, freeing up the
staff to do other things. He also proposed more burden-sharing by
countries hosting UNODC field offices. For example, he said, UNODC
considered closing its Mexico City office a few years ago. That did
not happen because of resistance from the Mexican government.
Today, the Mexican government provides USD 300,000 as well as
premises for UNODC's office there. Management had also talked about
turning away small projects which would be inefficient to run. He
mentioned that the threshold size could be USD 200,000 to USD
300,000, but emphasized that there was no consensus yet to take such
a step.


13. (SBU) Both he and another senior official cited travel and
consultants as another area to save money. One of them mentioned
that Executive Director Costa would have to cut back on his heavy
travel schedule. The other agreed that flying economy class could
also be an alternative.

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Fundamental Realignment
In 3 Easy Steps!
--------------


14. (SBU) UNODC officials speaking privately to Missionoffs have
asserted that the current financial crisis might serve as an impetus
for fundamental realignment in headquarters and in the field. In
their view, the allocation of four UNODC headquarters divisions -
Operations, Treaty Affairs, Management and Policy Analysis/Research
-- is not rational. Neither is the distribution of RB-funded and
GPF-funded posts. These problems are exacerbated by the New York
views of UNODC - that its norm-setting focus is treaty
implementation, and that technical assistance should be funded by
voluntary contributions. One interlocutor questioned the
distribution of field offices, saying that given an opportunity to
start from scratch, UNODC would locate field offices very
differently.


15. (SBU) With this in mind, these UNODC managers see a "silver
lining" to the crisis: it could lead to greater efficiencies, a more
coherent operational structure, and a better "product" to market to
donors, especially in terms of thematic and regional programming.


16. (SBU) Our well-placed expert contact predicted the first move
would be to abolish the Independent Evaluation Unit (IEU). Our
source noted other UN entities already have abolished "Planning
Monitoring and Evaluation" units, so this would not be
unprecedented. (Note. Mission believes G-77 and EU will adamantly
oppose this move, as they will see it as a total defeat of
evaluation's "independence and integrity." End note.)


17. (SBU) The second move would be to abolish the DO, and merge it
into DTA. The DO Director would become the head of the new DTA (an
RB post). The third and final move, our source indicates, would be
to close a number of field offices, and move towards "regional
hubs." Field offices already on the chopping block include Bolivia,
Laos, Vietnam, Burma and Russia. Echoing the comments made by the
senior managers, source stated that, for example, there are "P-5 and
D-1s in those offices who do not add anything." By reducing the
field offices and folding them into larger regional hub offices,
redundancies may be eliminated and efficiencies maximized.

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Anchor UNODC Headquarter to RB Positions
--------------


18. (SBU) The overall goal, our source argued, would be to "anchor
the UNODC to RB positions." By doing so, GPF and SPF shocks -
either in rapid increase or decrease - would not be so threatening
to UNODC's foundation. Over the long term, our contact agreed, "we
have to be leaner, and right now we are too dependant on SPF and GPF
money - especially at headquarters." If UNODC can create a more
marketable product, especially in terms of thematic programs, GPF
contributions and "soft earmarking" may increase. This would help
implement UNODC's programs themselves, but headquarters would be
more immune to financial shocks, as its functions and posts are more
tied to RB funds.

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Comment
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19. (SBU) Missionoffs note a genuine sense of shock among UNODC
officials about how fast this crisis has hit, but also how quickly
UNODC is responding. And while Mission shares UNODC's concern about
the GPF shortfall and the resulting financial crisis, it also
believes there is a potential silver lining to the cloud.
Reorganization of its operations in Vienna and in the field could
provide UNODC with an opportunity to emerge from this crisis as a
leaner, more coherent and operationally effective office. As this
process unfolds, we need to insist that the US and other key member
states are consulted on management's plans (which have so far come
to us as unauthorized and episodic leaks). We also need to ensure
that needed cuts do not fall disproportionately on less marketable
but still essential norm-setting activities. We will be watching
carefully in the weeks ahead. If the UNODC can "get its house in
order," its regional and thematic programs will be more appealing to
donors, and attract more flexible donations as a result. END
COMMENT


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