Sultan Hafeez Rahman, is the new Nepal country director of the Asian Development Bank (ADB). He coordinated the Manila-based bank's policies and programs in South Asia. In this interview he says he will focus on a reworked country strategy, reaffirming ADB's commitment to fight corruption and the effective use of foreign aid. He also has a few pointers for Nepal as the newest member of the WTO.

Nepali Times: This is not really a new job is it, since you were already at the South Asia desk in Manila?

Sultan Hafeez Rahman: Yes, Nepal was one of the eight countries that I coordinated under my division. But the office focused on the overall program and the strategy, more than on the projects themselves. I feel that Nepal is a very resourceful country and one big resource is its hardworking people. You have natural endowments, tremendous water resources. There are challenges, and I come with a very serious commitment to help the government meet some of them.

How has the insurgency hindered ADB operations in Nepal?
We have 18 ongoing projects and two of them have been affected: the rural finance project and the Melamchi project.

Speaking of which, Melamchi's delays are worrying.
Melamchi is a sizeable and complex project, therefore a challenging one. This is not something we did not know. The ADB has very stringent requirements on the construction quality and resettlement. We have had to go back to the resettlement in particular to make sure that our policy is being complied with. This involves fair compensation for the affected people and is one of the reasons why progress has not been as rapid as we all would have otherwise wanted. There are 17 contractors, their supervision has to be very tight and very effective. The question of demand is a very complex subject. We remain very confident that Melamchi is very needed to fill the supply gap. In an overall water plan, this is just one source. There have to be other interventions as well, and the government and ADB are thinking about it.

The ADB has supported the CIAA, how do you rate its anti-corruption performance?
We place a very high priority on governance. The actions that have been taken-especially the four bills that were passed recently-we welcome those. I think this is an area when actions have only begun and this sort of concerted approach to anti-corruption is new. We would remain very much engaged in the process. We also welcome the actions that have been taken in terms of investigating senior officials and some former ministers. I frankly have no specific information as to whether this is politically motivated. But I can assure everyone that we will be watching very closely and we want actions to be anti-corruption, not politically motivated.

Nepal's new foreign aid policy wants to reverse the present trend of more loans and less grants. Would this create problems for the ADB?
The foreign aid policy is something all donors support, including ADB. We would, of course, like to see Nepal reducing its dependence on external assistance. The problem, however, is Nepal has a resource gap. It cannot generate the resources it needs to develop. I think it would be extremely difficult in the present international environment to meet the entire resource gap Nepal faces out of grants alone. Therefore, Nepal, has to seek some external assistance that is concessional.

But the policy talks about reducing loans and not dependence on foreign aid.
The productivity of foreign aid is something that concerns me. When Nepal is taking external assistance of a magnitude of almost $300 million a year, it has to make sure it is effectively and efficiently used. The productivity, especially of capital, must be high. At the moment it is quite low. If you look at the gross domestic investment, for instance, in Nepal it is pretty high, around 25 percent. With that figure, if one can double the productivity of external assistance, it would be possible to achieve the target of six percent GDP growth. But, with the present productivity levels it would not be possible to attain the Tenth Plan's targeted growth rate. We are pleased that the government has prioritised development expenditures that will cut waste and improve efficiency.

Can these ideas be implemented with all this political instability?
Our operations in Nepal were not very affected but I think the country as a whole, has been very seriously hit. One of the biggest economic activities and foreign currency earner, tourism, is down. If the situation deteriorates, Nepal will suffer more. And it will be the poorest who will suffer the most. We are all hopeful that there will be an end to the conflict that has ravaged this country. We are pleased to see that there has been some uptake in economic activity and there is some recovery, especially after the ceasefire. We are closely following and monitoring the talks and the overall peace process.

Cancun is coming up, is Nepal in a position to benefit from WTO membership?
It is important to know what is in one's interests. The WTO has many provisions that have phasing arrangements for joining agreements. Specific actions required can be phased as well. It will depend on how Nepal assesses its comparative advantage in the international commodities that it trades in, and how it views its economic interests. In order to be able to reduce poverty in the longterm, it's very important to have high, sustained and broad-based growth, which, unfortunately, has not been the case in Nepal. I do believe that international trade provides a major indent to sustain that sort of growth. It means that Nepal has to liberalise at a rate faster than its neighbouring countries.

The ADB was silent over payment irregularities to the civil contractor of the Kali Gandaki A project.
The reason we did not comment was because the government is implementing the project. We have certain methods of reviewing the projects. Whatever problems we see, we discuss them with the government and ensure that the issues are satisfactorily resolved. As for the contention between the contractor and the government, we have no role in this and cannot be mediators.

But couldn't you have blown the whistle on unrecorded payments as you have done with other projects?
ADB has a very stringent anti-corruption policy. What you are saying is quite general. If there is any specific allegation about any project of ADB, then there is an established procedure by which cases are investigated very seriously by the bank. Somebody has to lodge a very specific complaint to us, then we will look into it.