366. Telegram From the Mission to the United Nations to the Department of State1

713. Subject: Financing of UN Bonds.

At 20th GA session we will face in Fifth Comite2 question of how to handle financing (i.e., payment of principal and interest) of UN bond issue. While UN bond res [A/RES/1739(XVI)]3 provides that amount sufficient to pay principal and interest be included annually in regular budget, and this has been done thus far, Sov bloc as well as France have deducted from their annual regular budget assessment payments, amounts equivalent to their share of such principal and interest. They have attempted to justify these withholdings, which now total about $3.3 million for 1964 and prior years, on the ground that bond issue was designed principally to finance expenses of ONUC and UNEF to which [Page 794] they object. As of now we can expect Sov bloc and France to continue in Fifth Comite to insist that provisions for bond interest and principal be removed from regular budget.
Many developing countries can be expected support proposal remove bond financing provisions from expenditure sections of budget since they contend bond proceeds were used primarily for financing ONUC and UNEF (and this is true) and that expenses of these operations should not have been included in regular budget and assessed on basis of regular scale of assessments, but should have been financed on same special basis used for financing ONUC and UNEF during other periods—under which LDC’s paid far less than regular scale.
There is considerable sentiment among developed countries and more responsible developing countries to find new way to handle financing of bond issue which will:
Ensure repayment of bonds,
Avoid question of applicability of Art 19 arising in future with respect to nonpayment of assessments for bonds, and
Be acceptable to Sov bloc and France as well as majority of membership.
SYG has been studying this problem and possibility of financing bond issue from misc income of UN. He has run into problem that annual principal and interest payments amount to about $8.6 million, whereas annual misc income amounts to about only $6.5 million, and as result he has indicated belief solution through use of misc income would be feasible only if period of amortization of bond issue extended another five years, i.e., to thirty years. We opposed any such extension.
In our view, misc income approach—properly used—has fair chance of resolving problem in manner highly desirable in terms of US interests. Objective should be to find solution which:
USSR and France can acquiesce in and agree to, with as little loss of face as possible, as part of overall solution of UN financial problem;
Does not require changing UN bond Res 1739, i.e., continues basic responsibility for repayment of bonds as obligation of regular budget;
Does not impair provision that US “deduct from annual payment of assessed share of United States of budget of United Nations an amount equal to corresponding” amount due US each year on bonds. (P.L. 87–731, Oct 2, 1962);
Does not change term of bonds, e.g., from twenty-five to thirty years maturity; and
Gives added security to repayment of bonds and to integrity of regular budget.
It should be quite possible to use misc income approach to achieve objective provided there is agreement to use, in addition to misc income, the annual regular budget surpluses, plus whatever small additional amount of staff assessment income might be required. Annual regular budget surpluses have varied in amount from $1.3 to $2.6 million in the 1960–1964 period and have averaged about $2 million. Thus, use of surpluses should substantially fill gap between total of misc income and amount required for annual principal and interest payments. However, should some portion of gap remain, we calculate it should be possible to draw annually on staff assessment income for this purpose to extent of $1.2 million without creating any income tax reimbursement problem for tax equalization fund into which staff assessment income normally channeled.
We are aware of history of UN bond legislation in UN [US] Congress and fact that it not desirable change present UN financing procedure for bond issue if this can be avoided. Accordingly, believe our first position should be that, now that Art 19 problem has been removed with respect to ONUC and UNEF special accounts, SYG and Afro-Asians should try induce Sov bloc and France to pay assessments for all items in regular budget including bond financing. However, we have little hope of success on these efforts and believe we must be prepared move rapidly to fol position in order have any control over developments.
US should be prepared:
Agree to use misc income, regular budget surpluses, and staff assessment income—in that order—to pay interest and amortization on UN bonds, and
Directly, if necessary, but preferably through dels such as Canada, Mexico, and Sweden, attempt persuade SYG put forward such proposal.
Although there are reasons to support this proposal even if it stands alone, we should also try make it part of package. Other parts of package would be:
That Sov bloc agree pay all costs remaining after removal of bond issue, including peacekeeping items they have so far refused to pay, i.e., TSO Palestine (about $1.6 million), UNCURK (about $150,000), Korean Cemetery (about $50,000), and UN field service (about $1.5 million).
That Sov bloc agree pay for Part V (technical assistance) of regular budget in dollars or convertible currencies as they are obligated to do by UN financial regs. (Alternative would be to take this item out of regular budget altogether. Since many developing countries would strenuously object to this, we should be careful make clear that responsibility for deletion of item—should Sov bloc and France so elect—rests with Sovs and France.)
We should try get as much of (A) and (B) as possible but should not insist on making them conditions to agreement on bond financing per para 8.
We recognize it may be argued that suggested new financing approach is not consistent with bond res [A/RES/1739(SVI)] and Dept’s commitment to Congress that bonds would be financed from regular budget of UN. However, we believe there are several very satisfactory answers to any such contention:
Present proposal would give more security that payments on bond indebtedness would be met;
Proposal which designates misc income, surpluses, and staff assessment income as sources of funds for financing bond issue are within intent of A/RES/1739 that an amount sufficient to pay principal and interest on bonds be included annually in regular budget. Misc income, regular budget surpluses, and staff assessment income are all dealt with each year in UN regular budget appropriation res, and they all enter into calculation of regular budget assessment of each govt; thus, use of these sources of funds produces no materially different effect from that resulting from including amounts for bond principal and interest payments in expenditure section of regular budget as is now done; and
If for any reason full amount due annually to US for principal and interest installments has not already been paid in cash, US can, and must under its authorizing legislation, deduct amount due from its annual payment of assessed share of UN regular budget. Thus, repayment to US would not be affected by manner in which UN accumulates funds for repayment of principal and interest.
This is best way known to date for getting effective, even though camouflaged, Sov bloc and French contributions to paying off bonds.
In order eliminate any question about regular budget being ultimately responsible for bond repayments, it would be desirable for GA action to state this specifically. But facts of life are that this compromise too must allow face saving by all parties. Therefore, we would expect somewhat ambiguous statement by SYG to Fifth Comite that, in its report to GA, Comite include recommendation along fol lines: “… funds available from UN income or regular budget surpluses of staff assessment income should first be used to pay interest and principal on UN bonds.”
We believe it important that this proposal not be considered as emanating from US. However, as mentioned above, SYG and number of dels, specifically Canada, Mexico, and Sweden, have shown great interest in finding some method of financing bond issue which would avoid further accumulation of arrears and Art 19 problem. We believe it possible, with help these dels, sell proposal outlined above to SYG and have him carry ball with reference to it. If this is be done, it should be [Page 797] done quickly before other and less sound proposals put forward formally. This is almost certainly our best hope for preserving financial soundness of UN. It may not be acceptable to Sov bloc or French, but we believe effort must be made.
Request instructions.4
  1. Source: Johnson Library, National Security File, Country File, United Nations, Article 19, Vol. 4. Confidential; Limdis.
  2. The Administrative and Budgetary Committee of the General Assembly.
  3. Brackets in paragraphs 1 and 11 are in the source text.
  4. In telegram 628 to New York, September 24, the Department of State approved the general approach set out and indicated that Sisco would meet with Goldberg to discuss implementation of Mission recommendations “prior to any action.” (Johnson Library, National Security File, Country File, United Nations, Article 19, Vol. 4)