em i. Consultative Group on International Agricultural Research - CGIAR Chairman lsmail Serageldin February II,2000 Chairman’s Letter to Center Directors and Board Chairs Dear Colleagues: The European Commission’s (EC) default in its 1999 payments of some $16 million has disrupted funding at most centers. ISNAR faces a budget shortfall of about 10 percent. For most others, the loss is between 5 to 8 percent. This is a serious and critical - though not hopeless - situation. We need to face the realities, assess their implications, undertake short-term measures, and launch term actions. I intend to approach this situationwith the same level of concern and as we demonstrated together in 1994 at New Delhi, when the system decided specific course of action to overcome a serious financial predicament. As you know, many high level contacts were made with the EC including Bank President Wolfensohn to Mr. Procii, and contacts with Commissioners Nielson. up to longeffort on a from World Patten and Following on these contacts, I visited Brussels on January 27-28 for discussions with the Honorable Poul Nielson, Commissioner for Development; Mr. Uwe Werblow, Head, Division of Rural Development and Food Security; Mr. Philippe Vialatte, Administrator, Division of Rural Development and Food Security; and others. I found that the ground had been well prepared by CGIAR members of the EC; and that EIARD had been exceptionally active. Commissioner Nielson and his staff are fully aware of the error that was made, and of its disastrous consequences. They would like to help, and have been considering the following measures to ensure,the longer-term stability of EC investments in the CGIAR: l l l l A three year planning and commitment horizon for all EC funding (similar to EDFLome funding); An annual contribution of 15 million Euro from ALA/MEDA in addition to the 4 million Euro from the EDF-Lome; A special additional contribution in the 2000 allocation (possibly allowing some funding for rebuilding center reserves); A single “contract” arrangement for the CGIAR as a whole to streamline paper flows to the EC and to allow funding of “generic” as against project specific activities. CGIAR Secretariat l Mailing Address: Tel: (l-202) 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. l office Location: 473-8951 l Cable Address: INTBAFRAD l Fax: (l-202) 473-8110 1800 G Street, N.W. These are all helpful possibilities, and I hope they will materialize. However, the internal procedures at the EC are slow, and decisions are unlikely before September 2000. This is going to be problematic for the centers, because the EC does not permit retroactive financing. Thus, whatever programs are funded by the EC for 2000 will, at best, have to be carried out in the last three months of the year unless they agree to specific timelines of execution and are satisfied to cqmmit the funds in 2000 and disburse over several months in 2000 and 2001 as well. I have reviewed this situation with the Finance Committee Chair, the World Bank’s Cosponsor, and the CDC Chair. Based on these and other consultations, the Finance Committee has endorsed a plan of action to assist the affected centers. This operation would be akin to the manner in which flood disaster relief is applied across the board, with all affected parties compensated to the same percentage of the amount lost regardless of their wealth or poverty. The details approved by the Finance Committee are as follows: l l l l Seventy five percent of the amount in default, i.e. $12 million, will be made available to all affected centers in proportion to expected 1999 funding from the EC. Details of the proposed allocations are set out in the attached annex. This funding is not gap filling for the EC but a “borrowing” to be financed as follows: l $2 million from the $4.2 million long term system reserve held by the FC, l $3 million from the $5 million set aside at ICW99 from the 2000 World Bank allocation, and l $7 million from the 2001 World Bank allocation. These borrowings will be refunded (partially or fully) by the centers in amounts exactly matching the amounts they receive from the special allocation EC intends to make in 2000. In the event that EC does not provide the additional allocation, the matching ratio for World Bank funds for the year 2001 will be reduced from 12 percent to 10 percent. The situation shall be closely monitored and based on what the EC decision in 2000 shall be made at ICW concerning the needed reduction in the percentage allocation for World Bank funds for the year 2001. The centers should thus close the books on 1999 showing a drawing down of reserves to cover the lost EC funding. Then they can show new transfer into their reserves equal to 75 percent of that amount in 2000 based on the amount they will receive under this proposal. I hope that this set of measures will blow delivered by the EC funding cut. to a less vulnerable financial position their tasks, and that the work we do work with you all for that objective. reduce the I hope that in 2001 and for the poor human and psychological cost of the it will smooth out the difficult transition beyond, so that our staff can focus on countries remains unabated. I shall Over the long term, our guiding principle has to be that “business as usual” is simply not tenable. The system clearly remains vulnerable. We need to replenish our reserves, and be prepared to guard ourselves fully against threatened vulnerabilities in the future. We must seize this moment to strengthen our financial position, reducing our vulnerability to the volatility of the funding sources we have. We must vigorously seek out new sources of funding. I expect to raise some of these issues at the Consultative Council meeting in April, to continues discussions with all of you, and then return to the question at MTM2000. With best wishes. Sincerely, lsmail Serageldin Chairman, CGIAR Attachment: cc. Annex Showing Proposed Allocations Finance Committee Oversight Committee Chair, Technical Advisory Committee Annex Special Reduction in EC Funding $‘m 1.8 0.8 1.4 1.9 1.5 0.9 0.4 1.9 0.3 0.7 0.4 1.4 1.6 1.0 75% of Reduction $‘m $2 million allocations to cope with EC I Disbursements Feb-00 Jul-00 I To be funded from (2)2ooowl3 Allocation $3 million (3)2OOlwb Allocation $7 million , (I)+@) 0.56 0.25 0.44 0.59 0.47 0.28 0.13 0.59 0.09 0.22 0.13 0.44 0.50 0.31 (3) 0.79 0.35 0.61 0.83 0.66 0.39 0.18 0.83 0.13 0.31 0.18 0.61 0.70 0.44 CIAT CIFCIR YT CIP JCARDA JCLARM 1.35 0.60 I.051 1.43 1.13 0.68 0.30 1.43 0.231 I 0.53) I I 0.23 0.10 0.181 I 0.24 0.19 0.11 0.05 0.24 0.041 I 0.091 I 0.34 0.15 0.261 I 0.36 0.28 0.17 0.08 0.36 0.061 I 0.131 0.7s 0.35 0.61 0.82 0.66 0.3s 0.1e 0.82 0.12 0.31 JFPRI MI JlTA RI NAR ARDA TOTAL Remaining Balance 16.0 12.01 2.01 2.2 3.01 2.0 7.01 38.0 5.00 7.00 I/ In August 1999, ICRAF and ILRI were informed that EC would not contribute to their programs in 1999. In view of this timing, these centers are also included in the special allocation. CGIAR Finatye Committee, Feb 1 I,2000