US embassy cable - 05ROME1765

UNCLAS  ROME 001765 
 
SIPDIS 
 
 
STATE FOR IO/EDA KOTOK AND BEHREND 
USDA/FAS FOR REICH, HUGHES AND CHAMBLISS 
USAID FOR FFP LANDIS AND THOMPSON 
IO FOR ABRAHAMS AND JACOBS 
 
FROM THE U.S. MISSION TO THE UN AGENCIES IN ROME 
 
E.O. 12958: N/A 
TAGS: AORC, EAGR, EAID, FAO, WFP 
SUBJECT: FAO FINANCE COMMITTEE: WEAK FINANCES; SHARP 
CRITICISM 
 
REF: A) Rome 1735 B) Rome 1742 C) Rome 1752 
 
1.  Summary.  In addition to issues discussed Refs A- 
C, FAO's May 9-13 Finance Committee considered the 
organization's weak financial health (the organization 
expects to have to borrow $40 million as early as 
August), strongly criticized the Secretariat's tepid 
response to the decentralization evaluation tabled in 
the summer of 2004, and discussed issues of importance 
to good management in the organization.  End Summary. 
 
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Financial Highlights 
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2.  During the presentation and subsequent discussion, 
the organization made the following points: 
 
-- Expenditure of the 2005/6 budget is on track. 
 
-- However, the organization continues to face severe 
liquidity problems given both the US's and now Japan's 
practice to pay contributions, together over 40 percent 
of the budget, in the last quarter of the assessed 
calendar year. 
 
-- The present problem is greatly exacerbated by the US's 
delay in paying a large share of its 2004 contribution. 
 
-- Staff costs are US $16 million above projections due 
to the impact of strengthening local currencies against 
the dollar in decentralized offices (a phenomenon not 
remedied by the new split assessment procedure that 
neutralized currency fluctuations only for expenditures 
made in dollars and euros), and medical cost inflation. 
The existing health insurance contracts are denominated 
in dollars and will not be renewed until next year. 
 
-- Overall, the delay in the receipt of contributions 
and the persistently high levels of arrears were "the 
largest factors undermining the organization's financial 
health." 
 
-- The organization expected to have to borrow up to $40 
million between August and October 2005 when US and 
Japanese 2005 contributions should begin. 
 
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Decentralization Evaluation 
-------------------------------------- 
 
3.  In the September 2004 Finance and Program Committee 
sessions, the Secretariat promised a full reply to a 
highly critical external evaluation of FAO's field 
operations issued during the preceding summer.  The 
response paper tabled in this session was neither final 
nor full, but rather a tepid collection of verbiage that 
seemed to indicate a lack of real intention to implement 
important recommendations.  The evaluators, who were 
present to discuss the Secretariat's response paper, 
displayed, with their focus and intensity, a sharp 
contrast to the sleepy Secretariat, as they eloquently 
argued for more speed in implementation and "de- 
packaging" the organization, something, they said, that 
did not depend on extra funding.  "The organization," one 
of them argued, "needed to have the courage to change 
staff found incompetent," referring to one of the 
evaluation's findings that technical field staff were 
often not up to the job required. 
 
4.  USDEL started the committee's consideration by 
expressing disappointment with the Secretariat's 
response, noting the refreshing energy of the 
evaluators' presentations, and the need for robust 
action on the Secretariat's part to deal with the 
pressing problems of FAO's large and expensive field 
operations.  Every member of the committee followed 
USDEL's lead in opening a barrage of criticism of the 
Secretariat.   Deputy Director General Harcharik, who 
 
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presided over the Secretariat's team on this issue, 
was visibly shaken with the committee response and 
promised a better and more responsive paper for the 
September session.  Afterwards, Harcharik told USDEL 
that the organization's intent was to support the 
evaluation and to attempt to implement its 
recommendations.  UDEL replied that one would never 
know that from the way the report had been written and 
packaged. 
 
 
5.  It appeared that the message got through on this 
issue, but we will watch with interest for the new paper. 
This is especially important given the concerns many have 
over how the Secretariat will implement recommendations 
coming from the Independent External Evaluation when 
completed. 
 
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External Auditor 
------------------------- 
 
6.  Debate over whether the private sector should be 
allowed to bid on the external auditor contract continued 
in this session.  OECD countries, including USDEL, 
continued to push toward opening the position to 
potential applicants beyond the national auditors now 
allowed.  Some G77 resisted, hoping thereby to keep 
Western auditing firms from bidding against their own 
national organizations.  (The contract is now held by 
India's national auditing entity.)  The FAO Secretariat 
noted that in response to its inquiry, the UN's HLCM had 
indicated that nothing precluded a UN organization's 
allowing private sector participation. 
 
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Work Permits for Expatriate Spouses 
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7.  The Secretariat informed the Committee that Italy had 
agreed to open negotiations toward a bilateral 
arrangement allowing the spouses of FAO employees easier 
access to work permits.  This was an important step 
forward on an issue of importance to enhancing the 
numbers of American citizen employed at FAO.  For the 
last three Committee sessions the USDEL had pressured the 
Secretariat to establish a dialogue with Italy on this 
 
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matter. 
 
8.  This is the final report on the 109th FAO Finance 
Committee session (May 9-13). 
 
HALL 
 
 
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	2005ROME01765 - Classification: UNCLASSIFIED