Financial Times

Govt. responsible for donor funds to interim structure-WB
“Donors including the World Bank are encouraged by the improvement in the disbursement of foreign donor funds this year,” said the Bank's country director for Sri Lanka. In a recent interview Peter Harrold said the Sri Lankan government would be responsible for whatever monies the bank or donors lend to any interim administrative setup.Excerpts of the interview are given below:

What's happening to the money pledged at the Tokyo conference?
A lot of things are happening at the moment. If we talk of support for Sri Lanka as a whole, things are going well. There is also a very significant increase in the level of financial support to Sri Lanka this year.

We think about $1 billion would be delivered this year by all donors and that's in line with the Tokyo commitment of $4.5 billion over four years. I think this is pretty good. Some donors like the World Bank have seen a spectacular increase in delivery and a number of others have seen a similar rise in delivery.

Are these monies pledged at Tokyo or outside the Tokyo meeting?
The Tokyo meeting also included previous commitments which were re-pledged. This included 2003 where donors had already made commitments. It was restated.
The money has begun coming in. The World Bank for instance will disburse over $200 million this year, a dramatic increase from last year.

Does this include the North and the East?
It is for the entire country. The situation in the north and east however is somewhat different. It has some similar features and some different features compared to other regions. It's similar because we are seeing a significant increase this year from last year.

We are looking at probably about $75 million being spent by donors in the northeast this year which is up 50 percent from last year. Yet there is a shortfall of donor aid in the northeast because there are no new commitments with the $75 million coming from old commitments. Under the needs assessment study, the amount required for the northeast is $250 million a year. So we are well below those numbers. We are still stuck waiting for further progress in the peace process.

What about the proposed interim administration process and how does that figure in the disbursement (of foreign aid)?
That comes into play because the international community has said it would like to see significant progress in the peace process before it could release those commitments made in Tokyo. The absence of talks is the reason for no new commitments.

What are the expectations of new commitments? Are there any expected figures that we can go by?
There are some numbers but we were careful to avoid figures because a number of donors were not able in Tokyo to make any clear statement about the kind of support between the north and the rest of the country. Some did but several did not. We would only be guessing numbers.

Is a substantial amount expected?
It's reasonable to say significant and substantial but a lot less than half (of the total commitment). It's not correct to say the lion's share of the funding will go to the northeast.

Is this outside the $4.5 billion already pledged?
No. What donors have done is to allocate an X amount of money for Sri Lanka as their full commitment and within this a portion would be for the northeast which is yet undecided.

If an interim administration is set up what would be the World Bank's relation with this set up be particularly in relation to the disbursement of funds?
At the moment the funds that go to the northeast go via the NorthEast Provincial Council. If the government and the LTTE agree on an interim administration and if there is a consensus that donor funds to be channelled through this administration then we will follow this exercise. If they decide that the existing projects where funds are channelled through the Provincial Council should go through the interim administration, then we will do the same.

If that happens, who would be responsible for the repayment? If for instance the structure fails, crumbles … what happens to the money already disbursed through this administration? Who's accountable?
The World Bank would still be lending to the Sri Lankan government. My understanding is that the new interim administration would function like a new provincial council. It would be a devolved administration, a decentralized administration within a unitary state of Sri Lanka. Nothing changes in the unitary state of Sri Lanka and our direct relationship is with the government in such a case. We will decide with the government the level of resources to be made available in the north and the east.

This is just like the government deciding the level of money for the south, central or western regions. The government will then ensure the repayment. In the case of the Northeast Reconstruction Fund (NERF) which was to be managed by the World Bank, it was very unusual because it was to be administered through the Sub Committee on Immediate Relief for the North and East with its signatories being the government and the LTTE. There was an interesting provision accepted by both sides that if things went wrong in relation to corruption or abuse of funds, the party identified as being responsible would have to restore the funds.

What happens when the interim administration gets off the ground? Will there be two structures?

NERF would still be needed to support rehabilitation and would probably get adapted in the new context. What we don't know as yet is in what way the interim administration will incorporate parties other than the LTTE.
I don't think we should assume this is going to be an LTTE administration. I don't think this will go down well with the Muslim community and the Sinhalese population in the northeast. I believe other parties would also be involved.

Is NERF functioning?
We only received one deposit from a donor and before other donors could make contributions the issues (crisis over peace talks) arose in April. No payments have been disbursed. In July, the government released some funds to some projects that have already been identified. Some projects are proceeding with government funds on an advance basis on the assumption that it could be recovered.

The government wants to fast track the development process taking roads as the lead sector. Is the World Bank going to be involved?
To some extent … yes. The government has asked us whether we would like to come back to road development (we have been out of it for a long time). There are two conditions if we are getting involved. First a large portion of road construction now undertaken by the RCDC (Road Construction & Development Corp) must stop. If we are going to finance roads, the private sector should be involved because road projects are the perfect vehicle towards building private sector capacity, employment and the construction industry. For many years and in all countries we have been deeply reluctant to finance state construction companies. The government is addressing this issue of less RCDC involvement and that is encouraging us to look at roads.

The second is that it is important that the users of the roads contribute to the financing and upkeep. Roads are expensive to build and maintain. It is only fair that direct and indirect users contribute through taxation to maintain the roads.
We have always encouraged certain types of taxes to be imposed to maintain the roads' network. Maybe a few more rupees could be added to the price of a litre of petrol/diesel.

But doesn't roads also provide access to the poor? Would they be taxed?
The best method is a fuel tax. The transport of the poor is the bus which is shared by many people. So the burden of a fuel tax would be spread (evenly) among the poor and cost less than what it costs the rich.

It's very optimistic however to hope that the roads sector could quickly generate jobs. Roads are messy because land acquisitions can be held up in courts with many legal battles ahead. For example if you are building a road to Kandy that's going to take a long time in terms of legal work, environmental issues. It takes 72 weeks to acquire a land compulsorily and if you start now, you are looking at, at least three years before construction begin.

If you focus on new highways, you are not going to have an impact on the short term. If you focus on resurfacing deteriorated roads, you can get that going pretty fast. If you focus on regarding rural access roads, that can start faster by getting communities involved.

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