East Timor after Independence -Which way will it go? Sabyasachi Mitra

While East Timor will celebrate its first independence day on May 20, 2002, the soon to be independent nation is already plagued with problems. Centuries of Portuguese colonial rule and 24 years of brutal, illegal Indonesian military occupation have made East Timor one of the poorest places on the planet. East Timor has a 60% illiteracy rate, a per capita gross national product of $340, and a life expectancy of only 48 years. The infant mortality rate is 135 per 1000 live births, and the maternal mortality rate is twice that of other countries in Southeast Asia and the Western Pacific.

Xanana Gusmao, the President-elect of East Timor, wants the country to develop a modern market economy in which both the East Timorese private sector and foreign investment will have roles to play. His hopes are that East Timor will be able to take advantage of the country’s geographical location at the confluence of commercial routes between Asia and Oceania. However state intervention will take place whenever it will be necessary to ensure equity, transparency and efficiency. Rural development will be given priority with the objective of developing existing products such as rice, coffee, livestock and coconut. Steps will also be taken to diversify the rural economy on which 80 per cent of the East Timorese population depends. The need to utilise forest, fisheries and mineral resources more efficiently has also been outlined. The government also plans to create special economic zones and develop the tourism industry.

All this however will require massive injection of funds. But the country is short on funds and the World Bank and multinational corporations are sinking their claws into the economy.

As long as the highly paid UN staff were in the country, they created a bubble by spending heavily and creating demand for goods in the economy. Spending by the UN and its staff accounted for 20 per cent of the GDP of East Timor. But as they now leave the country, East Timor will face a demand constraint with its citizens not having the resources to keep the economy moving. Most of the East Timorese are expected to fall back on reliance upon subsistence agriculture. In any case, most of the 740,000 East Timorese live outside the cash economy, with only about 25,000 receiving a regular wage, that too less than US$ 200 a year on an average.

Coffee is the only cash crop of East Timor. And with world coffee prices witnessing an overall decline in recent years, expected revenues from coffee exports are not going to provide the country with the necessary foreign currency.

The other revenue-generating possibility that East Timor has is the vast oil and gas reserves in the Timor Gap, an area lying in the Timor Sea between east Timor and Australia, which are expected to generate hundreds of millions of dollars in royalties over the next 20 to 25 years. However, the Australian government had been attempting to prevent East Timor from gaining full sovereign rights over these reserves.

On December 11, 1989 foreign ministers of Indonesia and Australia signed the Timor Gap Treaty, which allowed the two governments to approve contracts to multinational petrochemical companies eager to exploit the rich reserves in the Timor Sea. Between 1989 and 1999, gas and oil companies spent US$ 485 million to explore and US$ 196 million to develop deposits in the area. According to US-based Philips Petroleum, the biggest private Timor Sea stakeholder, oil reserves of 30 million barrels and natural gas reserves of about 175 million barrels in the area are worth over $21 billion. The significant oil and gas reserves in the Timor Gap were major factors behind Australia’s support for Indonesia’s invasion and occupation of East Timor.

By arguing that the current terms of the Timor Gap Treaty should remain unchanged, Australian Prime Minister John Howard’s government had been trying to swindle the people of East Timor out of vital revenues, thus undermining independent East Timor’s ability to rebuild its shattered infrastructure and economy.

Things improved to some extent in July last year. On July 5, 2001 Australia signed a deal with East Timor regarding the sharing of oil and gas revenues between the two countries. Under the terms of the landmark deal, East Timor will receive 90 per cent of oil and gas revenue from a joint development area, amounting to some A$ 7 billion over 20 years, starting 2004. Australia will also pay East Timor A$ 8 million a year in unrestricted assistance in lieu of taxes for a natural gas pipeline.

However, even then, the deal is going to benefit Australia much more than it will benefit East Timor. Under international law, East Timor is entitled to a seabed boundary at the midpoint between East Timor and Australia. This would give East Timor not 90 per cent, but 100 per cent of the oil and gas in the Timor Sea. Thus, while it may look like Australia is making a major concession in moving from the 50/50 revenue sharing it had under the Indonesia treaty to the 90/10 split in this new treaty, it is more than fair for Australia.

Australia will receive about A$ 1 billion in direct revenue over that period. Further, Australia will receive virtually all the downstream benefits from the development of gas in the Timor Sea. The pipeline will bring gas ashore in Darwin that will be used in new infrastructure projects including multibillion-dollar plants to convert the gas into liquid natural gas (LNG) for export to the United States, and into methanol for export to Asia.

The Northern Territory Treasury believes these gas-related developments will generate A$ 50 billion in economic activity in the Territory over the next 20 years. This is at least five times the benefit that will come to East Timor.

The UN administration and Western donors have set a budget of just US$ 65 million a year. With even this aid being conditional on opting for a free market economy, government services, including health and education are bound to have severely constrained budgets. The various capitalist powers – notably Australia, Portugal and the US – are more keen to exploit East Timor’s natural resources than to provide aid for improving the pitiable condition of the residents.

Indeed East Timor’s independence can mean different things to different people. One Australian businessman thinks East Timor needs to be made a tax haven, it should have a Swiss banking set-up, should have low taxation and should greet foreign investors with open arms. Tourism will be the biggest industry, if this businessman has his way. In fact, many have visualised East Timor becoming an upmarket Bali with five star resorts in another 10 years.

While this is how some businessmen are looking at East Timor, East Timorese are migrating to the capital, Dili, and living in plastic shelters or roofless ruins left by the Indonesian militia. The consumer price index jumped up by 200 per cent between August and October 1999. Diseases like malaria and dengue are rampant, there are less than 40 doctors in the whole country and none of them are specialists. And even in this scenario, the World Bank representative has launched into “educating” East Timorese about how important it is to privatise health care services. Quite aptly an American volunteer of the East Timor Action Network had said, “Before it can be privatised it has to exist”.

The East Timorese government faces an estimated shortfall of US$ 154-184 million in its already lean budget for the first three years. The US pays more than this amount for an F-22 fighter plane. What East Timor needs are grants without the crippling conditionalities of structural adjustment attached. Sadly enough, at the UN International Conference on Financing for Development in Monterrey in March this year, the U.S. continued to insist on tying money for poor countries to the stranglehold of structural adjustment. Unless those mobilised for global justice and debt cancellation rally in support of a debt-free, structural adjustment-free East Timor, the people of the world’s newest country may be subjected to a new form of economic colonialism. The country will emerge as a chronically aid-dependent state where rival members of the elite are at each other’s throats, corruption is endemic and the government cannot deliver basic services. Under such circumstances, East Timor will not be independent, but will just move from one form of dependency to another.


British Broadcasting Corporation: http://www.bbc.co.uk

The Age, Australia: http://www.theage.com.au

East Timor Action Network: http://www.etan.org

Green Left weekly, Australia: http://www.greenleft.org.au

The Progressive Magazine: http://www.progressive.org

Voice of America: www.voa.gov


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