Subject: IPS: Reconstruction an uphill climb

Inter Press Service January 17, 2001, Wednesday


By Johanna Son DILI, Jan. 17

The large presence of United Nations workers and international staff in the East Timorese capital has stimulated the creation of small grocery stores, car rental companies, modest hotels and cafes serving international cuisine.

Yet East Timor -- which now relies heavily on foreign money and has a per capita income of $ 300 a year -- has huge, and real, economic potential.

But this potential and its translation into better lives for local people -- up to 80 percent of whom have no jobs -- depends on transparent leadership as the country graduates from United Nation supervision, good economic policies and laws.

Reflecting the difficulty of rebuilding the country's administrative structure, Jose Teixeira of the Investment Institute of the East Timor Transitional Administration (ETTA), says that 60 percent of businesses operating here today are illegal.

East Timor, due to become independent at the end of this year, continues to have coffee exports. It has sandalwood, which sells at high prices in the world market, copra, and waters rich in tuna.

East Timor also has oil in the Timor Gap, which lies between its waters and its neighbor Australia's Northern Territory.

The sharing of revenues from oil and gas deposits is governed by a 1989 accord, signed by Canberra with Indonesia. East Timor and the United Nations Transitional Administration in East Timor (UNTAET) say it is invalid, but Canberra disputes this.

Local leaders want to proceed faster with the negotiations, and UNTAET figures say that oilfields around East Timor could bring in $ 100 to $ 200 million a year in revenues.

There are some "hundreds of millions of barrels equivalent of oil and gas already being exploited" in the Timor Gap, according to ETTA. For a country with a budget of less than $ 80 million a year, that means a whole lot.

"To have a fair treaty, Australia has to consider that we have our rights in this issue. We respect the rights of Australia, but Australia has to respect our rights and interests there," East Timor leader Xanana Gusmao told a group of journalists last week.

"It is preferable that we get that (income from the Timor Gap), rather than it go to Canberra and then to us as aid," he explained.

UNTAET and East Timor say the sea boundary on which the 1989 accord is based should be redrawn and put midway -- this would put the bulk of oil resources under East Timorese control.

The negotiations strike a raw nerve among East Timorese, who say Australia was keen to gain political mileage out of its support for the East Timor independence vote of 1998 -- but is less than willing now to correct a historical mistake.

Teixeira says East Timor also has onshore deposits in Suai district. In the seventies, he recalls, East Timor was able to produce 250 barrels of oil a day -- which if re-developed could help address the high costs of fuel like kerosene for residents.

East Timor has other potential. But its first priority is to draw in foreign investment needed to stimulate the economy -- investment that one day should go beyond just service-oriented ones for the foreign community to those that create jobs and local enterprise.

Other problems need to be addressed for the economy to pick up, including basic infrastructure and services, and now-daily power cuts from the Comoro power station. The East Timor Transitional Administration (ETTA) spends more than $ 500,000 a month on diesel fuel to run this station.

Reconstruction activity is expected to comprise 50 percent of GDP in the next years.

There is also the question of a legal and policy framework for this country-to-be. East Timor is preparing to draft a new constitution, does not have its foreign investment law or guidelines as yet.

A constitution would spell out sectors closed to foreign investment and remove room for discretion, critical for defining a small country like East Timor.

The applicable laws in East Timor during this transition period are Indonesian ones, but many say it is time to start drawing up their own.

"There is recognition that we need an investment law -- and we want to get away from the room for discretion that Indonesian law allowed in getting into business (joint ventures)," one economic expert said.

He was referring to how Indonesian law put a premium on foreign investors getting local partners, which under the Suharto years often turned out to be people with links to him. Thus, it would not be a good idea to follow this system, he adds.

How to approach all types of foreign investments coming in is difficult under the current structure, the expert says. "What do we do? East Timor needs foreign investment."

In an interview, Teixeira said there were no up-to-date statistics yet on foreign investments in East Timor.

He said Australia was the first to come in, but investments from there were showing a "dramatic slowdown." Investments from Malaysia and Singapore are rising, along with interest from South Korea, Taiwan and Japan, he added. "However, the impact from these has yet to be seen."

Still, critics say that East Timor's economic picture is not all a matter of it being a new country deep in rebuilding -- and that there are signs corruption is rearing its head.

Damien Kingsbury, who was a U.N.-accredited observer in the 1999 vote in East Timor, says there are "first-hand reports that smuggling good across the border from West Timor, where a tax is otherwise payable, has been assisted by the very highest levels" of the CNRT and UNTAET.

"According to border officials, the goods were being smuggled by CNRT, providing the organization with a black income," he added in the article entitled "The new Timor: A Xanana Republic?" Kingsbury was in East Timor recently for a one-month visit.

There is also talk that an Indonesian company with links to the military is doing construction activity in East Timor. But Xanana disputed claims of corruption, saying it was UNTAET that decided in a bid process on the firm involved.

Replying to the question raised by visiting journalists, Xanana said that East Timorese firms clearly could not compete with bigger companies.

Kingsbury also says the Indonesian military is also trading across the border from West Timor in goods such as petrol.

He warns that questions about transparency and corruption are giving pro-Indonesian groups a weapon to destabilize East Timor, as it prepares for elections around June for a constituent assembly and a presidential poll expected late next year.

In his new year's message, Xanana said that ahead of the political season, some local groups were already out to "divide" the East Timorese people in the hope of fuelling violence.

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