World Bank approves new Afghanistan aid strategy

WASHINGTON (Reuters) - The World Bank on Thursday approved $600 million in grant funding for Afghanistan under a new three-year lending strategy that focuses on making government systems more effective and transparent, and encouraging private-sector investment.

In an interview with Reuters, Nicholas Krafft, World bank country director for Afghanistan, said there was enough flexibility built into the program to adapt it to political changes arising from elections in August.

Despite increased insecurity in Afghanistan and resurgence of Taliban insurgents since 2006, Krafft said there had been successes in education, health, microfinance and building roads to make rural areas more accessible.

There also was success in strengthening the public management system that had allowed the World Bank to channel its aid through the government budget.

The Bank has been trying to encourage other donors to do the same, Krafft said. Some two-thirds of foreign aid to Afghanistan falls outside its budget, making it difficult to promote meaningful donor coordination and for the government to build up national programs.

He said the World Bank welcomed U.S. special envoy for Afghanistan and Pakistan Richard Holbrooke's recent encouragement to Congress to ensure more U.S. aid went through Afghanistan's budget.

Krafft said the World Bank was looking to build on successful development projects, and where Afghanistan had shown strong leadership, including in the areas of agriculture and commerce.

He said the Bank also was looking to work with aid groups and access communities in regions that were not secure.

"Given the enormous needs and the overall importance of the rural economy for growth and poverty reduction, support to the rural economy and livelihoods will remain a strong priority for the Bank," Krafft said.

"Rural programs also serve as important entry points for shifting economic incentives away from opium and toward alternative, legal high-value agricultural products," he added.

Afghanistan produces more than 90 percent of the world's opium, used to make heroin. Providing farmers with an alternative crop, such as wheat, has been one way of weakening the link between locals and powerful drug lords or insurgents.

The Bank's new lending strategy also seeks to encourage investment through its private-sector lending unit, the International Finance Corp (IFC) and guarantee arm, the Multilateral Investment Guarantee Agency (MIGA).

IFC has recently seconded a permanent representative to Afghanistan to help advise and invest in local companies, including banks to help them expand businesses.

(Reporting by Lesley Wroughton; Editing by Carol Bishopric)