Sunday, September 14, 2014

How did UNESCO financially handle suspension US contribution in 1984?

UNESCO is currently facing financial difficulties due to the suspension of the US contribution of 22% in 2011 (see my earlier blog). How did UNESCO deal with this same problem when the US left the organization in 1984?

I read several books about UNESCO but found no financial analysis of this crisis detailed enough to answer this question. I therefore looked at the related budgets myself: the one before the the US left (1982-1983) and the one after (1984-1985).

There are two big differences between 1984 and today:
  1. In 1984 the UK and Singapore left UNESCO too (with their financial contribution). UK being a significant donor too, this makes the situation in 1984 worse than today's situation.
  2. In 1984 the budget dropped by 40% (!) against 22% today (US share of contributions).
These differences made me curious: how did UNESCO overcome this extreme 40% budget cut in 1984?

The difference between 1984 and today does not appear in UNESCO's most important and "tangible" budget part: the one for programmes. The cuts were substantial in both cases, but with no substantial difference: a 26% cut in 1984 versus a 24% cut today. So nothing to learn from that.

So how did UNESCO manage to abolish "only" 96 posts (4%) in 1984 versus 216 (12%) today despite a larger budget cut?

The answer lies in the less "tangible" part of the budget, the one regarding "budgetary techniques". Before the US left in 1984, the budget included $70 million for "currency fluctuations". One year later, this amount was reduced by no less than $117 million to -$46 million. This means a reduction of 19%, covering almost the contribution share the US pays today! How to interpret this?

The huge decrease of this budget line called "currency fluctuations" is an accountability artifact that does not refer to a financial reality but to an estimate. It probably meant that the estimates for currency fluctuations that were made in 1984 were simply way to high, and that the financial crisis brought the budget (much) closer to financial reality. In other words: until the US left, UNESCO's Member States had been paying more than was strictly necessary to accomodate currency fluctuations, and this "windfall" made the landing in 1984 a lot softer than is the case today. What made the landing even softer in 1984 is the fact that UNESCO had a reserve of $52 million, of which it could "eat" $23 million to make the landing safe.

Let me end by mentioning two other important differences between 1984 and today. Firstly, UNESCO's financial management has much improved over the years. Secondly, the US contribution is currently not suspended because of alleged "mismanagement" like in 1984 but for legal reasons.

Twitter: @Oosterenvan

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