MEED: What is the significance of the elections on 24 October?

Sheikh Salman:His majesty the King put forward a system that is really the result of the development of local institutions and traditions. This is putting in place a system that allows for change and development and a much more accurate representation of people's wishes. The monarch retains a significant amount of power, but it is by no means absolute. What is the point of running a country if the people are unhappy and fear they have no say or stake in the system? We want to see a well developed school of political thought committed to the rule of law, capitalism and open and free markets. We will try to make sure that the experiences and technical skill of both houses [of parliament] will balance the more populist demands. We must be very clear that socialism and some of the extreme forms of socialist economics have failed and are not suitable for this part of the world. I am confident the government will be able to convince the public that this is the right way.

MEED: What will the role of political parties be and how significant is the partial boycott of the elections?

Sheikh Salman: There are no political parties at present, but his majesty the King has said he will not oppose them if they are proposed by the lower house. There is no structured or legal opposition outside parliament. In my view, it is fundamentally a mistake to boycott the elections. They [the advocates of a boycott] have concerns but they can articulate them better than I can. If anything can be said about what has been achieved since the inception of the shura council, we have seen a steady progression towards openness, accountability and liberalism. The political community needs to grow and develop. It is their choice [to boycott]. They are allowed to do it, of course, as long as they don't obstruct people from voting or do other things that might take away the rights of the citizens.

MEED: How will you measure success in the political reform process?

Sheikh Salman: The parliamentary initiative has already succeeded. It is an irreversible process. We will follow this through. It will mature as it ages and traditions develop. His majesty the King says it is an inalienable right of the people.

MEED: Which key areas of the economy need to be focused on?

Sheikh Salman: If there is one thing I would change it is the labour structure. The structure of the labour force needs to be looked at. We have tried to introduce some steps to rectify the problems we see in creating employable, well-trained and well-paid local workers. This is something that has not been as successful as I would have liked it to be. We want the workers' associations and the unions in the future involved and some world-class economists to put their finger on the problem and explain why, in an economy that grew by 4.8 per cent in 2001, we still seem to have unemployment among the young. From our studies, the biggest unemployment problems are in young people aged between 17 and 24.

Oil is for the present not the future. I don't think that my children or their children will benefit as much as our parents and their parents did from oil. What we will really need to do is a structural re-engineering of the economy. I need to improve the flow of information between separate ministries. We need to make sure decisions are taken quickly and create a transparent system for any investor.

There have been allocations of plots of land for sale to foreign investors with 100 per cent foreign ownership. This is a big step forward. We are looking at tying residency to land ownership for non-nationals. We need to act to make sure there is a registry for land that is available for rent and for sale. We have a great story to tell here, but we need to get this across to investors.

We need to develop capital instruments so that investors and entrepreneurs can pursue their economic activities. The return of capital to the region is a good sign. We need to make sure the laws that protect companies are in line with international laws and strengthen local legislation. We have a huge challenge to strengthen our judicial process. I want to see it on a world-class level.

It is my goal to reduce the dependence on oil to 10 per cent in the future from 17 per cent at present. The Abu Saafa field [which lies between Saudi Arabia and Bahrain] is a strategic reserve for Bahrain. The way that our relationship with Saudi Arabia is managed is that we are in negotiation to develop the field. But that is a very short-term goal.

MEED: What is Bahrain's policy towards Iraq?

Sheikh Salman: What we have done is to urge Iraq in the current political climate to respect all [UN] Security Council resolutions without delay. I think we must thank them for their recent posture. It has been very responsible. If there is any slippage on the part of the Iraqi government, the US and its allies will move forward with their plan to forcibly ensure those inspections take place. It is wise and good for stability that this war does not take place. We continue to encourage the Iraqis to stay on this route and accept weapons inspectors without preconditions.

MEED: What is your opinion about calls for regime change in Iraq?

Sheikh Salman: I don't think I can ever support regime change. We can certainly support weapons inspections and disarmament. Non-interference in states is a fundamental part of international law.

MEED: Do you believe the US is listening?

Sheikh Salman: We can only hope this is so. But we must be reasonable and realistic and plan for any contingency. The US has heard Russia, France and China and the UK quietly. For regional stability and security it is better we do not have this conflict. You don't know what will happen afterwards.

It must be said that our strategic relationship with the US is something we have closely guarded for over 100 years informally and 50 years in a formal sense. Our relationship with the US stretches back further than Iraq. I think that taking into account, in any actions in the region, you must look at where our strategic interests lie. We are against this conflict, but will honour our commitments.

MEED: What is the future of the GCC?

Sheikh Salman:I would like to see more interdependence and common institutions. I would like to see a significant amount of capital flows between the member states. I would like to see us acting closer together on international affairs. I would like to see us consolidate our positions both economically and socially vis-à-vis the outside. We have a good story to tell if we could only get people to tell it.

MEED: To what extent has the Iraq crisis overshadowed the Palestinian crisis?

Sheikh Salman:What upsets us about this focus on Iraq is that, while we are holding one country accountable to international resolutions, we are not holding the Israelis to the same rules. We have an Arab League proposal for a complete normalisation with Israel that will result in a two-state solution. This involves withdrawing to 1967 borders, declaring two states with Jerusalem as the capital of both. I don't know of another international issue where the solution is so well known but implementation is so clouded.

We will continue to demand an end to suicide bombings where civilians are the principal targets. But the Palestinians have the right to military resistance to occupation forces. I hope the Palestinians can target their attacks against military forces and not against civilians.

MEED: What should the US do about it?

Sheikh Salman:What is missing from this debate - and the US needs to realise this - is that the continuation of the building of settlements is hindering the peace process and is the largest blow against their argument for balance to both sides. The US is making demands of the Palestinians, but, at the end of the day, the US seems to be happy about vague statements about restraint sent by the Israeli government and Prime Minister Sharon.

What they must do is develop those ideas further and create an environment that will allow the peace process to move forward. Any new settler who stakes his claim in land in post-1967 settlements is a further blow to the resolution of the problem.