You've met different Nepali officials, tell us what you found.
It is a bit presumptuous for me to draw conclusions on the basis of the short experience. I have come away with an overwhelming sense that there is a need to find a mechanism for lengthening the planning horizons of politicians, in particular, lengthening the planning horizon of government leaders. When prime ministers change so quickly one runs the risk that politics becomes the politics of shuffling the deck, moving from one person to the another without giving anyone enough time to think strategically and implement programs they want to deliver. The incentive structure for politicians and for public servants is perverse from a development point of view.

Did you sense some positive signs?
The prime minister is serious and wants to see change, wants delivery of public services, which is clear from his eight-point program. It is also clear from his analysis of the root cause of the insurgency, that ultimately it is due to the failure of government to deliver public services to the grassroots. The answer is providing politicians and civil servants the right incentives to deliver the goods.

What about resources, how do you deliver when you can't pay for it?
One has to be very frank about this. I think it is not a question of resources, it is a question of priorities. Resources will never be enough, at least on earth (in heaven there might be). We are condemned to having scarcity of resources relative to needs. I think the ultimate objective of any government or political activity ought to be delivery of public services with the resources you have.

What about borrowing?
You can, but prudently. Certainly not from the domestic banking system. I was amazed about your long record of macroeconomic stability. Clearly this has been a result of prudent monetary and fiscal policy. But from our experience in Uganda I can tell you that this stability can go up in flames overnight the minute the government begins to use central bank borrowing to finance its expenditures because that is creating money. As darkness follows daylight, it will cause inflation, not in years but in months.

How serious is the possibility of us overspending in a war economy?
Here's how you should handle the war. It is the new priority and it must displace some other priority. You should reprioritise all government expenditure in such a way so as to create enough resources to fight the war within the existing sources. Once donors have seen that you are doing your best within the resources available, it is most likely that they will come in and give you money for the non-security-related expenditures. But I doubt if they will give you money for the budget unless they can see evidence that you are re-prioritising.

Have you got some sense of the donor role in Nepal so far?
There has been a policy and program vacuum (on government part) and donors have moved in to fill that vacuum. That is why there are so many different small projects financed by this or that donor. Because this money is being put in Nepal without a coherent framework it is virtually being wasted because it is like pouring water into a sieve. There must be a coherent framework identifying priorities within the budget constraints, donors can then come in and help once they see the good intentions. Nature hates a vacuum, they (donors) are there and they will come and fill it if you keep the space. What you need to do is to channel their resources to where you want it to go. Don't allow them the freedom to pick and choose. Donors have, through their interventions, taken the pressure off Nepalis in positions of power to effect changes for the benefit of the people. Fortunately the National Planning Commission and the Ministry of Finance have started the Medium Term Expenditure Framework (MTEF) which is an important development. It means the government is beginning to confront the constraints.

What is this new acronym, MTEF?
A MTEF is essentially about three things. It is about overall fiscal discipline, meaning that the resource you have is the limit for your expenditure. Of course, the resources include money committed by donors to the budget to the extent you get them to put in the support. But that must be the limit to public expenditure. Secondly, there must be strategic prioritisation of resources within and between sectors. For example your priorities could be agriculture, roads, power and water. Everything else is not a priority. You may now have to add security to the list, and cut resources from elsewhere to pay for it. The third point is operational efficiency to get the output you want, which you have to achieve through cost-effectivity.

Assuming we do everything right, what does your Ugandan experience tell us about the turnaround time for Nepal?
Improvements can be obtained very quickly, if you determine what outcome you want. You can reduce percentage of people living in poverty or increase health delivery, agriculture productivity very quickly. In Uganda we reduced poverty from 56 percent in 1992 to 46 percent 1997, we had a reduction of 10 percentage points in the poverty head count in five years. That is not a long time to deliver such reduction. I cannot see why it cannot happen in Nepal because you have a similar economic structure and you have been even better in terms of macro-stability and external reserve management.

If you were asked to start something tomorrow, what three things would you start with?
I would try to increase agriculture productivity which would require high-yield seeds, irrigation and extension services to farmers. I would deal with transport more generally and mainly building feeder roads in the mountains. I would also attempt to increase the number of children going to school. Our program in Uganda doubled the number of school-going children in one year. Over more than five years we have increased the number of primary school goers from 2.5 million in 1996 to 8 million this year.

But how do you deal with a bureaucracy that barely functions?
Without apologising for civil servants, I think that politics is the most important. Once the politics is right, once the incentive framework is improved from your short-term preoccupation (to get to power), in the longer term the civil servants will also have the right incentives to implement projects. You should not transfer people from one office to another, as it seems to be happening here, but one should also not be a permanent fixture. People should be kept in an office long enough to see a program through. If they have that prospect they then have the incentive to do things. It is thus important to change the incentive structure facing both the politician and civil servant to lengthen their planning horizons. Political leaders of all parties need to have some sort of a compact: they should ask the prime minister to provide a vision and he should be given at least five years to deliver.