Untitled Document

Business

Many funding options for ADB if peace returns
By John Breusch

Asian Development Bank (ADB), the largest multi-lateral donor to Sri Lanka, is shifting its focus away from agricultural projects and towards infrastructure, by focusing on areas such as transport and energy. According to ADB's country director, John Cooney, the bank provides about $200 million a year in concessional and commercial funding - a relatively large per capita commitment for ADB. "It has historically been [high]," he told The Sunday Times Business.

"The country has, if you like, responded well to development assistance. But it will be difficult to maintain these levels of assistance, given the shrinking pool for a start.'' Nevertheless, the ADB recently announced $700 million in project financing for 2002-2005. It also found a spare $3-4 million to help improve the A9 road to Jaffna.

Excerpts from the interview:
Cooney: The A9 exercise is a fairly minor part of what we're doing in the north-east at the moment. Our major focus in the north-east is a community restoration and development project which ADB approved in October last year. The broad objective of that is to help people recover from the effects of the conflict - moving out of welfare centres, moving out of other places and going back to where they came from or being relocated.

The general principle is that for people to successfully move they need a little bit of a lot of things. A little bit of education, a little bit of health, a little bit of housing, a little bit of income generation, a little bit of water supply, sanitation and so forth. And the project is designed to do that sort of thing in all eight districts, in cleared and uncleared areas, of the north and east.

If you get to the point where you feel peace may be sustainable, what will be the main priorities in the north and east?
Cooney: I think it's too early to say. I think of all the parties involved - well, the main parties, the government and the LTTE obviously - will have to come a lot further forward on the peace process and on determining priorities. We as a development agency - I'm sure this comment applies to our colleagues as well - follow the process, we don't lead it.

We're not a party to the peace negotiations. What may be done is a general assessment of what has to be done. The roads, the railway, hospitals. We don't just focus on the [A9]. The hospitals are a shambles, the schools have to be refurbished, teachers have to be found.

There needs to be a broad assessment of just what has to be done, who might do it, how it might be done, where the financing might come from. Once that sort of process is under way then people start to coalesce around the result and start talking about priorities and what have you. And we're a long way from that yet.

So when the time comes when you feel peace is far enough down the track to commit funds, you're ready to do so and the strategy has already been drawn up?
Cooney: Yes. Who commits funds is another question. But we do think that there should be a fairly firm idea of what needs to be done, how it might be done, who might do it and so on, when it's possible to do things. Rather than, when it's possible to do things, then thinking about what might be done.

You have set out your funding for 2003 to 2005, but if a peace settlement was reached would you consider increasing that?
Cooney: We have a number of options. If peace arrived and it was decided there was a need to do a disaster rehabilitation kind of project, we tend to do that outside our planning framework, as we have done in a Bangladesh flood or a Philippines earthquake. Or we can simply redirect the programme - say that some things could be deferred while this was done. Or we could add resources. All of this would depend on the government's request and management's response. So we have a number of options.

About 30 percent of your funds for the whole country currently go to agriculture and natural resources. If there is peace, do you see that strategy changing?
Cooney: I think it's already changing. I think agriculture will have less of a role in our programme for the time being and basic economic infrastructure, education and a couple of others, we'll focus on much more. Agriculture is a very difficult area. It's tied up in all sorts of reform agendas that will have to be tackled to be very much successful. Whereas the primary need of the country, countrywide, is basic economic infrastructure, whether that be power, or transport, or water supply.

General systems with financial market reform is another, building up the capacity of the private sector and [the environment] in which the private sector can operate. So they are the broad focuses of what we're doing.

ADB economist and deputy country director, Joseph E. Zveglich Jr: There are some areas in which we've been involved quite heavily in the past - in agriculture, in natural resources. But there's been a process in the last few years in ADB of trying to think of focusing on fewer sectors.

So that rather than just handing out a little bit of money for a road here, a little bit for agriculture there, and a little bit of electricity here, we can be a part of informing and moving forward the reform agenda. So the same amount of assistance then has a bigger impact in general.

And the assessments that have been done have seen that the key need at this point for Sri Lanka, at its point in development - where we are seeing a country that is really on the cusp of moving from being at the concessional lending [level] to less and less concessional lending and being able to attract on its own the more commercial lending - is [the provision of] the basic infrastructure that's necessary to help them make that transition.

So the change in focus from agriculture and into infrastructure is a natural outcome of the development of the economy?
Zveglich: It's part of a change also in ADB's thinking [that] agricultural projects in other countries have not really given the rates of return that we've seen [in other projects]. It's easier to justify when you're using concessional loans.

But when you have a country like Sri Lanka - in which the agricultural sector is at a stage where it can continue to chug along, in order to make the next level in terms of productivity they really need to attack the key reform needs. Land is one of the main areas. Land titling is work that the World Bank is doing.

Cooney: Water resources is another one. There are many complications in agriculture that have to be resolved before any sort of investment makes serious sense. Certainly infrastructure is critical for the Sri Lanka of the future. So the big elements in our forthcoming programme are power sector reform, road sector reform, coupled with other reform programmes where there are physical investments in there as well.

But they're linked very closely to moving it forward in the reform process - making road agencies more efficient, for example, having a much greater role for the private sector. Also education: secondary education [and] focusing on university, which is very restrictive.

Is that a major concern, the way that high literacy and secondary education enrolment levels have failed to flow into tertiary education?
Cooney: Of the number of students who sit for the A levels in Sri Lanka, only about two percent get into the university. That's all the capacity there is. Of that two percent, probably more than half learn things that are of not much use to them in the future nor to the country. It's a very, very limited access to tertiary education.
The equivalent number of the two percent in Sri Lanka is probably 40 percent in the Philippines, 40 percent in Korea, more than that in Singapore and Malaysia. So it's extremely limited - the most limited in the region in terms of access to the university.

In terms of roads are there specific projects in the south that you want to concentrate on?
Cooney: The projects we're currently focusing on are the Colombo-Galle-Matara expressway, which is the first major piece of new highway infrastructure in the country since independence, I would suspect. Being new and big, it's run into some problems with land acquisition, but that's expected with something of this size. Hopefully they'll all be resolved.

What sort of time frame are you looking at?
Cooney: Hopefully construction will start this year although again this will depend on the outcome of various reviews of people affected by the project which is to be completed within four years. That's something like a $400 million investment by the time it's all done.

We're financing that with the Japanese through Japan Bank. We also have a project for upgrading ordinary highways, some 300 km of road, all over the country, and another project coming of upgrading provincial highways. The provinces are the Cinderella's, if you like, of the transport system.

So the project is intended to firstly bring the provincial system into a sustainably maintainable system and also build up the capacity of the provinces to manage this particular asset. Beyond this small [$3-4 million] residual funding in the north, we have no major road projects in the north.

Back to Business