"We have reached agreement ... to have an expenditure cap of $950 million dollars in the 2006 UN budget," said US ambassador to the UN John Bolton.

The two-year budget deal was later ratified without a vote by the 191-member General Assembly at a late night session, clearing the way for many bleary-eyed diplomats to head home for Christmas holidays.

"The budget agreed upon today will enable the organization to continue its work uninterrupted while member states pursue the reform proposals adopted during the 2005 world summit," UN chief Kofi Annan said in a statement. Annan had repeatedly warned that the US proposal for an interim budget for three or four months instead of the full two-year budget would lead to a serious financial crisis for the world body.

Friday's deal capped tough negotiations between major UN contributors -- the United States, Japan, the European Union, Canada and Australia and New Zealand -- and the 132-member G-77 group of developing countries and China. Disagreement focused on an EU proposal for a six-month spending cap of $950 million, after which the UN secretary general would come to the General Assembly to seek authority to spend the rest of the money for the year.

"It's a new concept…to cap the expenditure within a year for a given an amount and to then say when you've run out of that money or are about to, come ask us for some more but then people can make a judgment," said Britain's UN envoy Emyr Jones Parry, who played a key role in the talks on behalf of the European Union.

An "exceptional measure"

A group led by Egypt and India within the G-77 submitted a counter-proposal for a minimum cap of $1.35 billion to cover a nine-month period. Egypt's UN envoy Maged Abdelaziz, who earlier had said a nine-month cap was "the least we G-77 can accept," emerged from a final negotiating session to announce: "There is a deal."

"We have shown flexibility and restraint in our efforts but we think we have accomplished what we set out to do, which was ensure the inextricable linkage of budget and (UN) management reform," said Bolton.

"I am happy for the UN ... I hope we did the right thing," said South African UN envoy Dumisani Kumalo, a key G-77 negotiator along with his colleagues from Singapore and Jamaica.

Jamaican UN envoy Stafford Neil, the chairman of the G-77 group, said his side and China negotiated "in good faith with a constructive attitude," but only reluctantly accepted the six-month spending cap on the understanding that this was "an exceptional measure not to be repeated and used for the future."

"We still believe this is not a good thing," he said. "We find unpalatable the fact there is this ax hanging over our heads," he added, referring to the cap. "It is our expectation that the membership will ensure that the request for further spending of the outstanding balance will be honored when the secretary general makes his request in mid-year 2006," Neil added.

Abdelaziz said some developing countries were concerned that a six-month cap amounted to pressure to ram through within an artificial timeframe the UN reforms agreed by world leaders at their summit in September.

Washington pushed management reforms

Jones Parry for his part hailed the EU's role in building bridges with both the G-77 and countries such as the United States and Japan. He also reaffirmed that "management reform is for all of us a priority." He said the deal produced "a budget sufficient for the UN, which recognized the compelling need to maintain the pressure for reform, but in a cooperative fashion."

Bolton had earlier proposed an interim budget for three or four months pending the resolution of the stalemate over UN management reforms that Washington strongly backs.

The management reforms, strongly pushed by Washington in the wake of the oil-for-food scandal, include giving the secretary general greater powers in exchange for greater accountability, creating a new ethics office and establishing a whistle-blower protection program to root out corruption. But negotiations on the reform package have so far stalled due to an apparent power struggle between UN chief Kofi Annan's secretariat and the General Assembly.