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VIENNA (Reuters) - The United Nations' nuclear agency is significantly underfunded, a think-tank said on Wednesday, warning the shortfall risked limiting its ability to identify covert atomic activity that might have a military dimension.
The report, issued by a Canadian think-tank, described the International Atomic Energy Agency (IAEA) as a "veritable bargain for international peace and security," but said the Vienna-based agency needed to be reformed and better financed.
"The Agency is significantly underfunded, considering its responsibilities and the expectations increasingly being placed on it," it said, after analyzing a body best known for its troubled monitoring of Iran's atomic activities and for trying to improve reactor safety after the Fukushima disaster.
Trevor Findlay, the report's author, told Reuters he was worried the funding problem would gradually affect the agency's ability to hold countries like Iran to account.
It "will not be able to develop its capacity over time for detecting undeclared nuclear activity. That to me is the most dangerous thing," he said.
"The Agency could just do so much more and a better and smarter job if it had extra money, in almost every single program," Findlay, a professor of Canada's Carleton University and a former Australian disarmament diplomat, added.
The case of Iran - which denies Western accusations it is secretly seeking to develop nuclear weapons - highlights the challenges the IAEA faces in investigating states that refuse to provide it with the access and cooperation it says it needs.
Like other U.N. bodies, the IAEA's budget is not growing in real terms and, as a result, it does not possess the latest technology or have adequate staffing for its role, the report said.
"Despite significant improvements to the nuclear safeguards regime, there is substantial room for improvement, especially in detecting undeclared materials, facilities and activities.
After years of crucial Agency involvement with Iran, that country is closer to acquiring nuclear weapons than ever before," it said.
The 142-page report, entitled "Unleashing the Nuclear Watchdog", was based on a two-year research project and was published by the Center for International Governance Innovation.
It gave a largely positive assessment of the IAEA's work, but criticized its initial handling of Japan's Fukushima nuclear crisis last year, the worst accident of its kind in a quarter of a century.
"For 24 hours the IAEA said nothing publicly. It apparently saw no need for an early public assessment of the situation, an urgent meeting of member states or even a press conference," it said, adding that the agency's image had been "tarnished" by its reaction.
The IAEA and its Japanese director general, Yukiya Amano, defended the agency's performance during the crisis, saying it was forced to rely on information from Tokyo.
Japan's reactor meltdowns - triggered by a deadly earthquake and tsunami on March 11 last year - shook the world, raising questions about the safety of nuclear energy.
However, the IAEA still expects global use of nuclear energy to rise by up to 100 percent in the next two decades.
That is expected to place the agency and its inspectors under further strain, as some of the material and equipment used in a civil nuclear energy program can - technically - also be diverted to develop nuclear weapons.
The report said the IAEA's role in nuclear safety was being enhanced after Fukushima, but remained "hobbled by member states' reluctance to commit to mandatory measures and provide adequate resources."
The bulk of funding for the IAEA - which has more than 2,300 staff and has a mandate that covers inspections as well as supporting nuclear security and peaceful use of the atom - comes from Western member states on a voluntary basis.
However, a group of industrialized, mainly European states as well as Japan have resisted budget hikes for the agency at a time when government finances are reeling from debt problems.
The United States, its biggest financier, has increased contributions since President Barack Obama took office in line with his call for IAEA funds to be doubled in four years.
The IAEA's regular budget for 2012 was 331.5 million euros.
Findlay said developing states such as China, India, Brazil and Russia should help out more since they have become wealthier.
Editing by Andrew Osborn