APPENDIX E
MEASURES TO IMPROVE THE COLLECTION OF ASSESSED CONTRIBUTIONS
1. This paper is presented for the consideration of the Council in accordance with the request of the Finance Committee as set out in paragraph 3.39 of the report of its 77th Session.
2. On the subject of the currency in which contributions are to be made to the budget of the Organization, Financial Regulation 5.6 states that:
"Annual contributions to the budget shall be assessed in United States dollars. To the extent that the Conference, after ascertaining in what currencies Member Nations and Associate Members propose to make their contributions in the ensuing financial period finds that anticipated United States dollar income will be inadequate to meet estimated United States dollar expenditures of the Organization as determined by the Conference, the Conference will determine the proportional share of contribution that all Member Nations and Associate Members who do not pay their contributions in full in United States dollars shall pay in that currency. Each Member Nation and Associate Member shall pay the remainder of its contribution in lire, or in its own currency which, for the purposes of its contribution to the Organization, must be freely convertible into lire, the convertibility being the responsibility of the contributing government. The applicable rate shall be the official rate of the lire to the dollar on the first business day in January of the calendar year in which the contribution is due, or the rate in effect on the day the payment is made, whichever is higher."
3. The increasingly difficult economic situation facing many developing nations continues to be a major element contributing to the large number of countries owing arrears of contributions to the Organization. As at 30 September 1993, seventy-four Member Nations, or 46.54 percent of the membership of the Organization, owed arrears of contributions. (A schedule of contributions currently outstanding can be found in document CL 104 LIM/1). Often a country's inability to pay its contributions is determined by limited resources in hard currency.
4. In the case of a large number of developing countries, the Organization pursues activities through Regional Offices, Representations or Projects. In many cases, the activities of these offices and projects are financed by purchasing the local currencies with US dollars.
5. While not suggesting a modification to the Financial Regulation at this time, it may be appropriate to consider allowing the management of the Organization the flexibility to accept payment of contributions in local currency subject to the strict application of certain conditions.
6. A Member Nation wishing to avail itself of this proposal would have to submit a request to the Director-General and obtain approval prior to effecting any transfer of funds to the Organization.
7. The Director-General would be empowered to approve such a proposal where it was in the best interests of the Organization and involved no risk of financial loss. Such exceptions would be subject to the following basic conditions:
- the Organization has to have activities in that country requiring the use of local currency;
- the proposal could only be applied in the case of those Member Nations whose currency was not freely convertible as defined in Financial Regulation 5.6;
- currencies so accepted would be usable, without further negotiation, within the exchange regulations of the country concerned, for meeting expenditures incurred by FAO within that country.
- the amounts of such contributions could only be accepted if they could be utilized over a relatively short period of time. The limitation of the amount would typically ensure that the currency was received and expended at the same UN operational exchange rate;
- credit shall normally be given against the contributions of the Member Nation at the UN operational exchange rate in force on the date the contribution in local currency is received in a bank account of the Organization;
- in those cases where the UN operational exchange rate varies substantially from the market exchange rate in force in a country, the rate of exchange to be applied shall be the rate that FAO would have obtained for the conversion of US dollars at the date at which the contribution is credited to a bank account of the Organization. Credit shall be given against the contributions of the Member Nation accordingly;
- the Organization would only accept such contributions if the currency could be used without the risk of exchange losses. The proposal would not be accepted for those countries whose currency was subject to persistent heavy devaluation. If, at any time during the period of utilization of the funds accepted, there should occur a reduction in the exchange value or a devaluation of such currency in terms of United States dollars, the Member Nation concerned will be required, upon notification, to make an adjusting payment to cover the exchange loss pertaining to the unspent balance of that contribution.
Examples of how a typical transaction would work are given in Annex A.
8. It is believed that by granting additional flexibility in this respect, the situation of the payment of arrears by developing countries could be usefully improved.
Conclusions and suggested action by the Council
9. If the Council is in agreement with this proposal, it is invited to recommend to the Conference at its Twenty-seventh Session, that the Conference adopt a resolution authorizing a derogation from Financial Regulation 5.6, to allow the Director-General to accept the payment of assessed contributions in non-convertible local currencies under clearly defined conditions based on the above suggestions.
An enabling resolution for the adoption of this proposal by the Conference is as follows:
DRAFT RESOLUTION FOR THE CONFERENCE
MEASURES TO IMPROVE THE COLLECTION OF ASSESSED CONTRIBUTIONS
THE CONFERENCE,
Regretting that in spite of the Director-General's appeals, the number of Member Nations with arrears of contributions to the Budget remains high,
Concerned by the trend over recent years for the number of Member Nations with arrears of contributions to increase,
Recognizing the economic difficulties faced by many Member Nations and the often limited resources in hard currencies of those nations,
Having noted the recommendations of the Hundred and Fourth Session of the Council,
Decides that, notwithstanding Financial Regulation 5.6, the Director-General may accept the payment of assessed contributions in non-convertible local currencies of the Member Nations, under the conditions as defined in paragraphs . to . of the Report of the 27th Session of the Conference.
ANNEX A
Example 1
FAO Representation
Average monthly expenditure equivalent US$20 000
UN operational exchange rate 20 units of local currency per US$ and currency considered stable.
Market exchange rate in line with UN rate.
Member Nation with outstanding contributions of US$30 000
Action
Organization accepts deposit of 600 000 units of local currency and gives Member Nation credit of US$30 000 against outstanding contributions.
Example 2
FAO Representation
Average monthly expenditure equivalent US$20 000
UN operational exchange rate 20 units of local currency per US$ and currency considered relatively
stable.
Market exchange rate not in line with UN rate. Market rate is 25 units of local currency per US$.
Member Nation with outstanding contributions of US$30 000
Action
Organization accepts initial deposit of 750 000 units of local currency and gives Member Nation credit of the US$ equivalent of the local currency at the market rate in force on the date the contribution is received in the bank (value date) against outstanding contributions. If the market rate at that time was 26 units of local currency per US$, the credit would be US$28 846.15 and the balance of the contribution would remain receivable.
Example 3
FAO Representation
Average monthly expenditure equivalent US$20 000
UN operational exchange rate 20 units of local currency per US$ but currency not considered stable.
Market exchange rate not in line with UN rate. Market rate is 25 units of local currency per US$
and subject to continuous variations.
Member Nation with outstanding contributions of US$30 000
Action
Request of the Member Nation not accepted.
