A: Assessing the reform balance sheet makes sense at this juncture. Before I start listing new reforms, I think we ought to take stock of the considerable progress that has been made in economic reform during the three and a half years I have been in Bangladesh. In addition to creating a stable macro-economic environment with steady growth, relatively low inflation and indebtedness, and stable interest and exchange rates, the government has attempted to tackle some key economic hurdles to further development. Of the reforms carried out I would highlight the new Public Procurement Act, which brings transparency and accountability to public purchasing, and the new medium term budget process, which sets a clear budgetary framework in ten major ministries. There have been moves to strengthen the National Board of Revenue and Bangladesh Bank, and we are on the verge of seeing the privatisation of Rupali Bank. I would also like to point to the expansion of the Export Processing Zones, a move that has helped the readymade garment sector flourish.

Of course there have been areas where progress has been slow, and nowhere is this more apparent than in the energy sector, most notably in power generation. The failure to provide a reliable supply of power for businesses and homes is a major economic constraint and one that will have to be a priority of the next government. The new government will also need to address energy pricing. Selling fuel at significantly less than its tax-inclusived cost is putting an enormous strain on Bangladesh Petroleum Corporation (BPC) and in turn, the nationalised commercial banks, which have been asked to lend to BPC, and also on public finances as government absorbs BPC losses.

The transportation sector is also in need of reform. Although there has been considerable investment in roads, there are major challenges in civil aviation, with the government rightly deciding for a major restructuring to put Biman on the track of sustainability. Chittagong Port, the main gateway for the country's exports and imports, needs urgent improvement. Reform and modernisation are also needed for the country's railways, and I'm glad we were able to contribute, with ADB and Japan, to the long-term railway reform programme that recently got underway.

Another area I would prioritise is Dhaka. The capital is one of the world's fastest growing cities and is a motor of growth, but lack of basic services for the majority of its citizens, road congestion, and poor governance are stifling its potential. Finally there is still a need to restructure the remaining state-owned banks.

Q: If asked to draw two scenarios, what would be your short-term and long-term scenarios for Bangladesh?

A: The near-term scenario depends on how the country manages the political situation. I urge the main political parties to seek a peaceful resolution to the present conflict and move forward to hold free and fair elections. Chaos, boycotts and repression will only undermine the progress this country has made.

In the longer term I remain an optimist. One scenario is that performance continues very much as in the recent past: the sensible macro economic policies pursued by governments for the past decade are continued, economic growth continues at 5-6 percent a year and the impressive gains in human development such as infant mortality and school enrollment are maintained.

But there's no guarantee that just by continuing on the present path successes can be repeated. Many observers think that the gains from past policies have been reaped, and the constraints on growth, be they poor political governance, lack of power supply, or weak infrastructure will soon become more apparent.

Another scenario is more bullish. It sees growth in Bangladesh reach levels of 8+ percent. At such a rate there is a real possibility of ending poverty in a generation. This means poverty rates in the single digits and the attainment of the Millennium Development Goals in health and education. To reach this goal major reform will be necessary, and issues such as poor governance and the weak delivery of public services will have to be tackled. But it is not impossible. Economic growth has the benefit of creating political room for policy and institutional reforms. It is a virtuous circle that Bangladesh has the opportunity to enter.

The World Bank has often spoken about "ring-fencing" -- taking out of the political arena a few issues key for economic development. Power sector development, the port, FDI, higher education, should not be used as "political footballs" but should be ring-fenced from the political game. If only a few areas key to growth and development can be ring-fenced, the benefits to Bangladesh would be huge, providing a real growth dividend. We would urge the major parties to agree on ring-fencing those sectors on which the future prosperity of the nation depends.

Q: Poverty has reduced, but inequality has further spiked. How do you look at this situation? What you think could be done to address this?

A:The proportion of people living in poverty has been reduced by 9 percentage points in the last five years according to figures from the 2005 Household Income and Expenditure Survey (HIES) undertaken by the Bangladesh Bureau of Statistics. This rate of poverty reduction is twice as fast as in the previous five years and is a remarkable achievement, bringing down the proportion of the population in poverty to around 40 percent. If you examine the figures the increase in inequality has actually been relatively mild compared to what has happened in other countries. Of course this is inequality measured relatively, in absolute terms people may experience things differently. For example a 10 percent increase for someone earning Tk100 a day is Tk10, while for someone earning Tk1,000 it is Tk100.

We agree that reducing inequality ought to remain an important public policy objective. One key issue that the new figures illustrate is inequality across regions. The impressive reduction in poverty has been mainly in Dhaka, Chittagong and Sylhet divisions while Barisal, Khulna and Rajshahi have seen comparatively little change. The development of policies that help develop human and physical capital in these lagging regions is crucial.

Q: You had written to the prime minister about power sector corruption. Can you specify why you were compelled to write so?

A: The donor community as a whole is concerned about corruption in the power sector. The letter was sent on behalf of the donor community at large, by the chair of the Local Consultative Group, an organisation made up of 32 bilateral and multi-lateral donors operating in Bangladesh, in which the World Bank served as chair at the time.

Many donors including the World Bank were, and remain eager to support the power sector. We all realise that the failure to provide adequate power is one of the major hurdles to this country's development. The problem has not been a lack of available funding from donors, but a lack of suitable projects to support. By suitable I mean projects where basic transparent, competitive, internationally acceptable procurement procedures have been followed. Time and again during the past years we have seen projects characterised by unsolicited, non-transparent procurement processes that may end in the award of a contract, but which never come to financial close, and thus never materialise on the ground, depriving Bangladesh of the electricity the country so desperately needs.

In the seven years to May this year, some 18 power plants had been considered, but only two contracts awarded. World class projects, such as Meghnaghat II and Sirajganj, which today would be producing 900MW of low-cost power, never got to financial close. In 2005 the country's power sector generated 160 kilowatt-hour of electricity per capita, among the lowest levels in the world. With such evidence it was not difficult for donors to foresee the massive mismatch between supply and demand that we have been witnessing in recent months, and their offers to finance transparently awarded projects in the power sector were designed to alleviate this shortage. Hopefully the enforcement of better procurement rules will make a difference.

While the World Bank and other donors have offered substantial financing for the sector (well over $2 billion is on offer for the next years,) power generation projects are long-gestating: a project financed today will bring power on stream in 2-3 years if all goes smoothly. As the power problem cannot be fixed overnight, it is hugely important to get tenders issued in a transparent manner now, so that these projects can get underway before too much more time elapses.

Q: What in your view are the main challenges for Bangladesh now?

A: In the immediate future the main challenge for Bangladesh is to hold free, fair and peaceful elections. However the challenge of running regular elections is something that goes beyond the coming months and will involve reforming the political and electoral culture to allow a functioning, accountable and participatory democracy. For example the cost of getting elected in Bangladesh is said to be very high, and campaign financing is said to be a major source of corruption. Rules relating to the declaration of assets and incomes of high public officials need to be enforced and intra-party democracy improved. Political reforms lie outside the World Bank's mandate but without them it will be difficult to solve the governance problems that spread into all sectors of economic and human development.

Q: After the initial years of commendable achievements, the social sector indicators seem to stagnate. What is the way out?

A: I don't think it's fair to say they have stagnated. Bangladesh is on its way to meeting several of its health and education related Millennium Development Goals. However I think it would be correct to say that if Bangladesh is to move to the next level of development, new methods are needed.

This is very clear in the health sector. For example, while reducing child mortality has been one of Bangladesh's greatest achievements, the country still has one of the highest rates of maternal mortality in the world. A major reason for this is the current state of public health services. If a woman faces complications during childbirth she needs good hospital facilities, skilled medical attention, blood transfusions. In most cases these facilities aren't available. Bangladesh is a world beater when it comes to organising public preventive health campaigns, but campaigns by themselves are not enough; this country needs a functioning and accountable health care system accessible to all.

The same can be said in the education sector. With almost 100 percent primary school enrollment Bangladesh has made truly impressive strides forward. Now it is a question of ensuring the quality of education these students receive, of guaranteeing that teachers turn up and that parents aren't forced to pay for outside tutoring if their children are to have a real chance. If these issues can be addressed, then we should expect to see the social indicators continuing to improve.