Frank Wisner is a former US ambassador to Egypt, the Philippines and India. He is currently executive vice-chairman of American International Group, Inc which is investing in the American Life Insurance Company (Alico) in Nepal. During his brief visit to Kathmandu this week during which he met King Gyanendra, senior government officials, and the leader of the opposition, Wisner spoke to Nepali Times about the insurance business, politics and governance. Excerpts:

Nepali Times: Tell us: why Nepal?
Frank Wisner: I've come up to inaugurate our new life insurance operation in Nepal. We are the first foreign insurer to receive a license, and establishing under the brand name of Alico, the American Life Insurance Company. It will open its doors on the first of January 2002 and begin to sell policies. This is a company that will employ in the initial stages about 250 agents and about a ten-member headquarters staff, so it's a significant start-up. We expect to grow: in five years we should be investing reserves in the Nepalese market of around Rs 740 million. We will be making investments in the longest term, which is appropriate for life - and that depends on what debentures, bonds, options, the government offers to be able to make that sort of contribution. We are already insurers, life insurers, and general insurers elsewhere in South Asia - we're life insurers in Sri Lanka, Bangladesh, India and Pakistan - and so it's terrific to complete the suit right here in Nepal.

Alico had some legal problems have those been sorted out?
The request for a license went through constant iterations, there were filing problems, there were changes of government, there was a court case, but I don't remember each twist and turn. All I can say is I'm glad it's over. We're here, and we're starting.

Is the Nepal market worthwhile for big players like yourselves?
AIG, the parent company on whose board I sit is present today in about 140 jurisdictions all around the world. And we have insurance operations in all of them. No, it's not too small a market. I believe that it is also a very under-insured market. Our present estimate is that no more than two percent of Nepali citizens are insured, and about one percent of that two percent are insured in India with Indian companies. So it's a good, sensible policy decision on the part of government to bring Nepal's insurance industry up with better competition, bring it home, introduce competition, strengthen the financial marketplace. These are all wise decisions on behalf of government.

Is that what you would also say to reassure smaller players that are feeling threatened by your arrival?
Actually, it isn't the smaller players that feel threatened but the national life insurance companies that tend to wrongly feel threatened. The experience is that once you open a market and put competition in place, the knowledge of insurance increases exponentially, the taste for insurance increases, new products are developed. The product I launch, you copy, and vice versa. And if you look at the first year of opening the Indian insurance market, LIC's business has grown by 60 percent-it never had such a good year in its history. The pie gets bigger and smarter. The same was true for us in Shanghai with the Chinese national company-we got in the market, they got bigger. So the fear of loss of market share is proved generally, to be over-stated.

There is a SAARC summit coming up, and many people say South Asia should go for trade and not wait for the politicians to get their act together. Do you agree?
You have terrific advantages in opening trade in the neighbourhood. Regional trade cooperation, whatever its political dividends has its own inherent logic. This market opened will not be dominated by India, it will be a much more interesting market place. It will be better for foreigners who want to invest. It will be better for national companies if their tariff barriers are very low. The pashmina industry in Nepal will be selling to a couple of billion people. I can only think that the most narrow, the most stifling political outlook limits a bold move in too close to a free trade agreement in South Asia.

From your present perspective, is that then the obstacle that you see - politics?
Absolutely. I cannot think of a sensible economist who would argue that high tariff barriers between neighboring states makes good sense. It's a poor idea.

From your diplomatic experience in India, Philippines, Egypt and South Africa, what is the checklist a country needs to break out of underdevelopment?
Well, let me start with the political aspect. I would think that where countries are afflicted with a crisis between several nations, or even with the deep-seeded insurgency within their borders, the establishment of a political process, the development of the will to settle the dispute as opposed to try to win or posture. Two, I am absolutely persuaded in my mind that free markets, properly regulated, encompassed in a rule of law, is the right economic model for increasing the goods and services of an economy, producing the resources needed for the best poverty alleviators of all, education and health, and fundamentally alleviating the burden of poverty. Third, I believe that democracy is the best institution to mobilise consensus. Even though it's painful and takes a long time, it offers the best hope to transparency, to deal with issues like corruption. It's the best political model within which to get things done. So, lifetime of experience: get your peace house in order, free your economy, and deepen and expand your democracy. It's the best formula for success in the twenty-first century.

Where have you seen it working well?
It never works well, it always works imperfectly. Those who tell you that I have an absolutely shiny model, are lying. We're dealing with human beings. But Brazil is working, terrific experience. I believe a number of southeast Asians are working. Eastern Europe is coming up strongly. Prospects for Russia, bring these several aspects together - free markets, democracy. Not to mention the already developed nations. I think it has the prospect of working well in India. I want it to work here. You're having a messy transition. You simply don't build a democracy that functions to everybody's complete satisfaction in ten years. But you certainly don't build a sustainable form of government by having one minority party say that they know what truth is and pushing it down everybody else's throats with violence. It's unacceptable. Nowhere in the world is that acceptable.

Are you also thinking of moving into general insurance, maybe sometime in the future?
Not immediately. This is a pretty tough year. A lot of insurance companies are watching their expenses before they jump out and make new investments.

Here in Nepal, two international life insurers came in on the week that the country went to war with the Maoists.
Frankly, the correlation is purely accidental. The government finally approved licenses-in our case, we've been looking for this market for five years. We could have been sitting here five years ago having this conversation. But that it comes right now, at a time in which there's falling confidence in the Nepali economy...

Is that the message you're giving to government?
If I had sat down last week and said, "Let's go to Nepal and launch our insurance", they'd say, "that'd be crazy". And yet I felt that it was right that we come, if we're going to be a long-term insurer in this country then we ought to come and stand here. When life isn't super-easy for you guys we ought to come and toughen up for three months.

Watching this, general insurers decided they would not reimburse for acts of terrorism or sabotage. What is your take on that?
Since we're not a general insurer, this obviously is not my business, but I think you need to interpret that fairly to your readership. Your general insurance companies did not cancel coverage. But they're discovering, if I understand this correctly, that their re-insurers outside of Nepal are canceling terrorism coverage not because of the state of emergency in Nepal, but because around the world re-insurers, having been hammered by 11 September, are not prepared to cover terrorism. Now, your situation doesn't help matters at all, it makes them tougher. But the re-insurers are pulling back because the perspective losses from terrorism are beyond anything they can insure against. Every company has a finite sense of dollars. So what do you do about it? Throw your hands up? Run around outside the circle? No. There are things you can do for terrorism. There's a very useful model in what the British did when the Irish were blowing up lots of central things. Something called \'pool-re'. You can establish a pool-re here and I understand that your insurers are doing it.