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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¶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 
------------------------- 
 
¶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" 
----------------------- 
 
¶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. 
 
----------------------- 
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. 
 
---------------------------------------- 
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 
 
 
SCHULTE