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UNCLAS SECTION 01 OF 04 GENEVA 000582 
 
SIPDIS 
 
C O R R E C T E D  C O P Y //CORRECTED REFS A, B, C// 
 
SIPDIS 
 
POSTS FOR REFCOORD, STATE FOR PRM 
 
E.O. 12958: N/A 
TAGS: PREF PREL UNHCR
SUBJECT: 36TH UNHCR STANDING COMMITTEE - PROGRAM BUDGETS 
AND FUNDING 
 
REF: A. GENEVA 555 
     ¶B. GENEVA 556 
     ¶C. GENEVA 557 
 
GENEVA 00000582  001.2 OF 004 
 
 
¶1. (U ) Summary.  The Deputy High Commissioner, the 
Controller and the head of External Relations provided a 
briefing to member states on UNHCR strategies to meet the 
current budget crisis.  Member states were frank in their 
remarks to UNHCR, sometimes highlighting  the organization's 
shortcoming on budget matters.  Most expressed their concern 
over the capping issue, and said they wanted to see UNHCR 
prioritize rather than continue cuts across the board. 
Members stressed the need for UNHCR to provide updates on its 
financial situation and said that more strategic thinking on 
the budget was needed.  Member states also recognized that 
flexibility on contributions will help support timely 
assistance to refugees.  On the IDP issue, member states 
asked for more clarification on UNHCR's budget for the pilot 
countries and cautioned against adding responsibilities under 
the cluster approach that would further strain its financial 
situation.  End Summary. 
 
Budget Discussion - Recap of 2005 
- - - - - - - - - - - - - - - - - 
 
¶2. (U) Deputy High Commissioner Wendy Chamberlin and 
Controller Saburo Takizawa made a joint presentation of the 
current state of UNHCR's budget, painting a frank picture of 
UNHCR's financial crisis and emphasizing the fact that for 
the first time ever, UNHCR began the calendar year with 
depleted reserves for its Annual Program Budget (AB).  As 
previously reported, UNHCR realized mid year in 2005 that it 
was going to have financial difficulties and relied on a 
number of measures to reduce the pain.  These included 
shifting funds across programs based on its mid-year review 
capping, and spending reductions across the board to reduce 
funding requirements. UNHCR's financial situation was 
nonetheless grim at the end of 2005, and the organization 
imposed more cutbacks late in the final quarter and borrowed 
USG 12.1 million from the working capital fund to support its 
operations. 
 
¶3.  (U) UNHCR has paid back the loan in 2006, and is looking 
at a number of financial reforms to support continuing 
operations.  Chamberlin repeated the High Commissioner's 
mantra that UNHCR needs to change its way of doing business, 
because its current structure is financially unsustainable. 
She emphasized obvious contradictory results over the years, 
such as staff costs overtaking operational costs as a direct 
result of putting staff on indefinite contracts.  On a more 
positive note, the approximate ratios on program, program 
support and management and administration budgets have more 
or less in the past five years balanced out.  However, 
external factors such as the fluctuations in the exchange 
rate, combined with fixed cost rigidities, have made it 
impossible to obtain 100% support of the budget. 
 
Making Difficult Budget Decisions in 2006 and Beyond 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶4. (U)  Unfortunately, UNHCR is still in a financial crisis 
and is trying to maintain a precarious balance of waiting for 
donor contributions while making sure that contributions 
received early in the year are not prematurely liquidated. 
In response to members' requests for regular budget updates, 
the High Commissioner, during his recent meetings with 
representatives from UNHCR's major donor countries, had 
promised to provide monthly financial reports.  Other factors 
for the 2006 financial crisis include the large number of 
programs in the Supplementary Program Budget (SB), the 
absence of carryover funds from the previous year, and the 
addition of the Burundi and Chad budgets (formerly SBs) into 
 
GENEVA 00000582  002.2 OF 004 
 
 
UNHCR's annual program budget (AB) making the 2006 AB USD 
163.7 million larger than the 2005 budget. 
 
¶5.  (U) Chamberlin noted that obtaining "fresh funds" from 
donors is a challenge and pressed member states to give UNHCR 
as much as possible this year.  She said that things are so 
bad that capping the budget, customarily done at the end of 
the year, has been imposed in the beginning of 2006 in order 
to prevent painful cuts later.  Some of the programs affected 
by the early capping of 20% include the headquarters' budget, 
staff travel, training and seminars.  Despite this, UNHCR 
still has a sizeable shortfall.  The DHC stressed that 
UNHCR's way of doing business must change to meet these 
realities and mentioned the headquarters and field review 
that will look for a more flexible workforce strategy.  She 
ended her presentation with a bleak statement that UNHCR may 
also face a difficult year in 2007. 
 
¶6.  (U) Many members asked that UNHCR keep them informed of 
the situation and the USDEL asked that a new paragraph 
calling for UNHCR to keep donors informed of its financial 
situation be inserted in the draft decision on the budget. 
Others, such as Australia and the UK, said that if further 
cuts were needed, it expected UNHCR to clearly prioritize its 
activities rather than implementing across the board cuts and 
asked UNHCR to keep EXCOM members informed of how it expects 
to prioritize.  Chamberlin agreed that the capping is not the 
optimal choice for responding to the financial crisis, which 
UNHCR is making a top priority for the financial review that 
will focus on plans to strategize and prioritize.   In the 
instructions for the country operations planning exercise, 
UNHCR has asked its mission representatives to use UNHCR's 
strategic objectives to look at their needs assessments and 
plan programs that will be in line with results based 
management.  Takizawa said that there was a broad consensus 
that UNHCR should be transparent and that UNHCR is amenable 
to present a briefing on the financial picture and budget at 
any time. 
 
Changing the Approach on Fundraising 
- - - - - - - - - - - - - - - - - - 
 
¶7. (U) The director of External Relations, Anne-Willem 
Bijleveld, told members that 2005 had been a challenging year 
in terms of fundraising but was marked by positive outcomes 
such as the improvement in the timing of contributions.  In 
response to previous criticism from EXCOM members on 
incentive based funding, Bijleveld said that it was crucial 
that country representatives get involved in raising funds, 
particularly from private donors.  He added that field 
missions will also help UNHCR get funds from the Central 
Emergency Response Fund (CERF).  He acknowledged that the 
office of Donor Relations is not able to obtain full funding 
of the budget on its own, so UNHCR must look at other means 
as well and is looking at private sector fundraising in Asia, 
Africa, the Americas, and Europe.  UNHCR is hoping to get the 
overall investment level to the same one to four ratio 
applied to WFP and UNICEF on the private sector funding. 
Sweden responded that local fundraising has its advantages 
and that country representatives have to seize the 
opportunities to get additional funding, particularly on CERF 
and pooled funding.  However, Sweden added that it expects 
UNHCR to have a more diversified fundraising strategy, 
focusing on private sector fund raising, and would like to 
see UNHCR develop clear guidelines on diversified 
fundraising.  Norway also encouraged UNHCR to expand its very 
limited donor base. 
 
¶8. (U) Bijleveld updated members on UNHCR's plans to possibly 
charge a seven percent overhead on programs funded under the 
Operational Reserve II (ORII) budget.  He said that UNHCR 
will ask the evaluators of the ORII to look at this issue and 
 
GENEVA 00000582  003.2 OF 004 
 
 
draft a report for the next SC meeting.  (Note: This 
initiative was announced at a February meeting of UNHCR's top 
donors, where the USG noted its dissatisfaction with the 
suggestion of charging an overhead, saying that the ORII is 
part of the AB and it was not logical to charge an overhead 
on a program which should be serviced from within this 
budget.)  Bijleveld urged members to do as much as possible 
to help UNHCR in reaching its funding goal.  Canada, France 
and Spain all announced forthcoming contributions to UNHCR. 
Spain's contribution of 25 million Euro is a marked increase 
in its usual core contribution. Japan announced that its 
support for UNHCR is under deliberation but expected its 
contribution to be around USD 55.5 million.  Japan may make 
additional contributions on a project-by-project basis 
and said it is also considering a USD 2.1 million 
contribution for resettlement and reintegration of Liberians 
in Liberia.  The USDEL said that the USG believed its 2006 
funding to UNHCR will be the same amount as last year, but 
will not be able to meet the same percentage. 
 
Questions from the Floor 
- - - - - - - - - - - - 
 
¶9. (U)  Most speakers expressed their concern over UNHCR's 
current financial crisis, commented that the conference paper 
did not accurately reflect the situation and asked for more 
details on the actual impacts on UNHCR's programming. 
Chamberlin responded that the 20% cap affected budget items 
that did not directly impact tangible benefits for refugees. 
However, programs such as preparations for repatriations, 
income-generating and vocational training, reintegration and 
return monitoring are affected, as are capacity building, 
refugee status determination, training of government 
partners, environmental programs and AGDM training.  Press 
and information, public affairs, Refugee Day events, 
community services and education grants have also been cut. 
Chamberlin added that if UNHCR embarks on further cuts, it 
will be difficult to avoid actions that will directly affect 
the refugees. 
 
¶10. (U) Algeria, on behalf of the African Group, said that 
earmarking by donors during this time would increase the 
funding gap in certain programs, particularly in North 
Africa.  The delegate emphasized that UNHCR's programs are 
too important to have this funding problem, which undermines 
the credibility of the institution.  He urged more 
burden-sharing among countries in order to alleviate the 
pressure on refugee hosting countries.  Pakistan asked if the 
funding shortage will effect emergency situations.  Other 
countries asked if exchange rate pressures or increases in 
expenditures had an effect on the funding caps and requested 
a comparison on how the fluctuating exchange rates affected 
other UN agencies.  Takizawa responded that the financial 
crisis is not only based on the fluctuating exchange rate, 
but that it is part of the entire picture that has caused 
problems for UNHCR.  He asked members to put things in 
perspective.  Canada cautioned that being the "agency of last 
resort" in the IDP cluster approach also posed an additional 
financial risk to UNHCR and urged the organization to move 
slowly before adding other countries under their 
responsibility.  Sweden, the USDEL and others supported 
Canada's comments. 
 
¶11. (U)   The Netherlands expressed concern that since EXCOM 
approval of the 2006 AB, UNHCR has approved USD 294.5 million 
worth of SB programs.  Sweden would have preferred if UNHCR 
had used the CERF to support these programs.  Sweden 
commented that IDP programs, such as Somalia, Nepal, and 
Colombia, should not be reflected in the SB since they are 
not new programs.  Sweden and the USDEL asked for a clear 
account of what UNHCR needed for the three pilot countries 
under the cluster approach.  Australia expanded on this and 
 
GENEVA 00000582  004.2 OF 004 
 
 
asked UNHCR to explain where the money for the cluster 
approach, as is outlined in the "Cluster 2006 appeal" goes in 
UNHCR's operational budget.  Bijleveld deferred to the Bureau 
heads to respond to the IDP budget questions but noted that 
the USD 4.3 million for the three pilot countries are not for 
operational support in the three countries but for UNHCR to 
fulfill its role as cluster lead - staff salaries are 
included in this figure.  He added that the issue of "agency 
of last resort" is an important issue and does not mean that 
UNHCR will have to divert money from refugee programs, but 
needs to make the extra effort to find the money.  He 
described the  "agency of last resort" as a catalytic role. 
 
Discussing the Situation with UNHCR 
- - - - - - - - - - - - - - - - - - 
 
¶12. (U) As was apparent from the discussion at the SC meeting 
(and from previous meetings and discussions), UNHCR is still 
trying to work out what it needs to do to respond to this 
financial crisis.  During a February meeting with Ambassador 
Moley, High Commissioner Guterres said that UNHCR is in the 
midst of a major reform to improve its response to protection 
of refugees by decreasing its costs, reducing staff at HQ by 
outsourcing some of its specialized units, and working more 
with NGO partners.  He also mentioned the need to strengthen 
UNHCR's relationship with UNDP and the World Bank to get them 
involved earlier in refugee reintegration efforts.  He said 
that UNHCR must do better in terms of looking at the exchange 
rate issue and is working on increasing funding from Gulf 
States and private corporations. 
 
¶13.  (U) In a follow-up conversation with Mission Officer, 
the Controller said that, if the AB is 80% funded by donors, 
UNHCR would be working with a shortfall figure of some $60 
million for 2006. The High Commissioner has approved a plan 
to try to address the shortfall by dividing it into three 
parts.  He hopes to address the first USD 20 million 
shortfall through funding from the CERF and has asked the 
Bureau heads to see which of their programs would benefit 
from these possible grants.  The second USD 20 million would 
come from cuts at headquarters and the final USD 20 million 
would be saved through targeted cuts in administrative and 
project support costs.  The High Commissioner has refused to 
make additional cuts across the board, and has asked the 
field to prioritize programs.  There are disagreements at 
headquarters whether or not this is a good move; some of the 
staff believing that Guterres is taking enormous risks not 
cutting across the board.  US Mission Geneva will continue to 
discuss the situation with UNHCR and push, like other donors, 
for UNHCR to come up with clear guidelines to help the field 
make their decisions. 
Moley