: Super User; Region; 28 September 2011; Hits: 1182

Timor Leste Economy Strained by Politicking

EAST Timor (officially known as Timor Leste) has “a one-generation window to build the country”, and the situation does not encourage optimism. This assessment, made two years ago by a United States diplomat in Dili and recently made public by WikiLeaks, may yet prove prescient.

The cable, dated Aug 21, 2009, painted a depressing picture. “Petroleum revenue has boosted nominal statistics like gross national income, making East Timor look more prosperous on paper,” it said. “But that stimulative demand effect has yet to filter into the real domestic economy.”

Timor Leste, a former Portugese colony located in the eastern half of the island of Timor in the Lesser Sunda Islands, gained its independence in 1999 after almost 24 years of troubled Indonesian occupation. Since then, the poverty-stricken country has depended heavily on international assistance for almost everything.

Some progress has been made politically. The first elections were held in August 2001, and in March of the following year a constituent assembly approved a Constitution. Since then, the country has had an elected president as head of state and a prime minister appointed from the political grouping controlling a majority in the unicameral Parliament.

But the country’s violent past has never been far from the surface. In 2006, Timor Leste slid into near anarchy when the police and army fought each other on the streets. Then, in February 2008, President Jose Ramos-Horta was severely wounded in an attack led by a rebel allegedly involved in the 2006 violence.

Economically, the country remains in dire straits. Forty-four per cent of the population is malnourished, a statistic which compares poorly to sub-Saharan Africa’s malnutrition rate of 27 per cent. Overall, 41 per cent of the population live below the national poverty line of US$0.88 (S$1) a day. Half the population cannot read or write, unemployment remains high, and the country ranks 174th out of 183 countries on the World Bank’s ease of doing business index.

There is also an urgent need to diversify the petroleum-dependent economy. The petroleum revenues that make up more than 90 per cent of the government’s income will run out in under 30 years’ time. But instead of getting on with the job, the local political elite is being sidetracked by the approach of the 2012 presidential elections.

Earlier this year, when the coalition government of Prime Minister Xanana Gusmao approved the nation’s largest budget, President Ramos-Horta refused to sign it. He saw the expansionary budget as an attempt to win votes, and argued that it violated the petroleum fund law which seeks to ensure that a portion of petroleum revenues are set aside as reserves.

The Supreme Court eventually ruled in favour of the government. But the debate is hardly over. Critics in the opposition Fretilin party allege that many development projects have only enriched the current government and its cronies without doing much to promote economic development. Debate is also heating up over plans to borrow US$8.15 million from the Asia Development Bank to upgrade the national road network.

Relations between Timor Leste and its international donors have also become strained. Timorese politicians of all stripes speak angrily about the effectiveness of international aid, asking repeatedly what has happened to the estimated US$8 billion spent between 1999 and 2009. Tensions with Australia, Timor Leste’s traditional ally, over development rights for the oil- and gas-rich Greater Sunrise field in the Timor Sea are also rising.

Optimists can point to the fact that many development indicators have shown a marked improvement in recent years. The nation’s ranking on the United Nations’ Human Development Index was up 42 places last year (from 162 in 2009), thanks partly to improved maternal and child health care. The incidence of poverty is also on the decline.

The decision to use the US dollar as the official currency should help maintain monetary stability. In an effort to encourage foreign investors, Parliament has also passed important commercial legislation and established an Investment and Export Promotion Agency.

But more than 10 years after independence the country remains heavily dependent on the expertise of the global community to help build its public service and systems of government. Crime also remains a problem.

Critics argue that despite international help local police are still incapable of dealing with gang-related violence.
Resource-rich countries like Timor Leste often fail the test of sustained development because they are unable to deal effectively with the corruption and institutional deficiencies that stifle market forces and hinder the development of a more diversified economic base.

Timor Leste needs to tackle these issues quickly. Divisive political debates risk squandering the progress already made.

Rating:

( 0 Rating )

Key Political Risks

Asia is the fastest growing region in the world, and is likely to remain so in 2013. However, a number of risks cloud the picture.

The good news is that domestic demand in the region remains strong and should continue to cushion the impact of weaker external demand on overall economic growth. The completion of national elections in Japan and South Korea in December 2012 should also help reduce political uncertainties.

But Asian governments will need to guard against the adverse impact of prolonged easy financial conditions on inflation.

Rising inequality also continues to threaten social stability. Ethnic and religious rivalries remain just below the surface in many countries. When combined with government corruption and (in some countries) high youth unemployment, this could become a deadly mix. This seems particularly true of China.

Territorial disputes also require close monitoring. Much diplomatic activity in the new year is likely to be centered on finding ways to reduce tensions over resource-rich islands in the South China Sea, where Beijing's claims overlap with those of Japan, Vietnam and other Southeast Asian states. South Korea and Japan also have rival territorial claims.

North Korea remains the wild card. Inclined to believe its own propaganda, Pyongyang's new leadership could miscalculate, making belligerent moves that plunge the region into a military conflict that nobody wants.