Australian Financial Review June 25, 2001

Features

End of beginning for East Timor

Geoffrey Barker

Photo: Uncertain future ... the pervasive influence of the United Nations has created a dual economy. Photo: ANDREW MEARES

An armada of big, white four-wheel-drive vehicles cruises and clogs the dusty roads of Dili carrying the army of United Nations soldiers, policemen and civil servants that is preparing the world's newest impoverished nation for independence.

The pervasive UN presence in East Timor has had a dramatic economic impact on the capital that was burned, trashed and looted by the departing Indonesians two years ago.

Out of the ashes are rising new and restored buildings and trendy bars and cafes patronised by foreign staff of the United Nations Transitional Authority for East Timor. The result is a bizarre dual economy in which young women work as waitresses while young men labour on burned and battered building sites or loiter on roadsides trying to sell mobile telephone cards, bootleg CDs and old Portuguese coins.

At night, the UN elite, headed by the smooth Brazilian Sergio Vieira de Mello, retires to the air-conditioned comfort of a luxury cruise ship berthed in Dili harbour. The locals go home to wrecked houses or to rusty iron and sapling shanties where roosters, pigs, goats and dogs piss and peck and snuffle for scraps of food.

Soon, very soon, most of the four-wheel-drives, the highly paid foreigners and the cruise ship will depart. The cafes will close and the bubble will burst, leaving the relatively privileged minority of the capital, and the overwhelming majority in East Timor's countryside, to ... what?

East Timor, just 500km north of Darwin, is approaching a historic cross-roads, the end of its beginning.

On August 30, two years to the day since their overwhelming vote for independence unleashed the Indonesian-orchestrated orgy of violence and destruction against them, the East Timorese will vote in national elections for an 88-member Constituent Assembly.

The election results will be announced on September 9, the assembly will sit on September 15 and, under UNTAET's smothering solicitude, it will have 90 days in which to write and to promulgate the Constitution under which East Timor will finally reach full independence late this year or early next year.

Thus will end what is arguably the UN's largest and most complex operation so far - to ensure security in a country that had been plunged into chaos and wrecked and looted after its vote to reject Indonesian rule, and, in the words of the UN mandate, "to support capacity-building for self government and to assist in the establishment of conditions for sustainable development".

The UN and international responses to East Timor have been extraordinarily generous, reasonably effective, unquestionably wasteful and doubtless intimidating and confusing to many locals.

The UN (which is facing a $US20 million ($38.7 million) deficit in this year's $US65 million East Timor budget) has brought in 8,000 troops, 1,450 civilian police and 1,000 international staff. Many national government and non-government organisations are pouring tens of millions of dollars into the reconstruction of East Timor.

When the UN mandate expires on January 31 next year it will leave behind a civil administration of variable quality and the nucleus of defence and police forces.

Democratic political institutions will be in place with responsibility for developing social and economic policies. Reasonable foundations for future health and education - two crucial areas of concern - will have been laid.

As East Timor moves towards the August 30 elections, political parties and national leaders are taking cautious positions. National resistance hero Xanana Gusmao has declared that he does not want the presidency, although Fretilin, the country's main party, insists that he is its candidate.

Nobel Peace Prize winner Jose Ramos Horta, a high-profile international figure, has, like Gusmao, quit Fretilin and is Cabinet member for Foreign Affairs in the UNTAET administration.

After the elections, peace-keeping forces, including some 1,500 Australians, will remain in East Timor for possibly three to five years while the new East Timor Defence Force is recruited and trained.

Several hundred senior civilian staff will also stay in the country to overcome critical skill shortages in key administrative areas.

But the country of about 812,000 people, most living from primitive, subsistence agriculture, will be in charge of its own social, political and economic future. Its civil administration will be new and inexperienced, it will be among the poorest countries on Earth, and it will face three major challenges identified at the recent Canberra meeting of East Timor donor countries.

They are to set up a medium-term post-independence framework for planning and development expenditure within what seems likely to be an extremely limited budget, to achieve fiscal sustainability by balancing its spending, saving and investment, and to achieve a clean and efficient political and administrative handover.

The country faces massive and interacting social, political and economic hurdles. It will face self-government barely two years after the UN started to build its administration from the ground up out of the wreckage. The Constituent Assembly elections and the constitution-writing process are being squeezed into a period of barely four months.

Leading East Timorese non-government organisations argue this timeframe is far too tight for an adequate program of civil and political education in a country of largely illiterate people for whom political life has always been associated with violence and where question marks remain over personal security and political stability.

But the UN has so far registered 750,000 East Timorese to vote and insists that it is time to wind down its dominating presence and activity.

About 16 political parties have emerged to contest the August 30 constituent assembly elections - although there seems little doubt that the dominant majority party will be Fretilin (the Revolutionary Front of Independent East Timor) which led East Timor's 25-year struggle against incorporation into Indonesia.

It is the biggest, richest and by far the best organised group.

Fretilin leaders say they have abandoned earlier Leftist preferences for highly centralised command economy politics for policies similar to those of the Australian Labor Party, but the Fretilin platform is far stronger on idealistic rhetoric than it is on social and economic policy substance.

Fretilin has pledged a government of national unity in its first term of office, but if it wins up to 80 per cent of the vote (which many experts say is possible) it may well be tempted to impose its will, whatever its will proves to be.

Whoever governs East Timor will face extremely testing budgetary and economic management constraints despite guarantees of continuing but declining levels of international aid, a significant portion of which seems certain to be provided by Australia.

East Timor's core pre-election budget, prepared by an Australian Treasury team headed by Department of Finance and Administration branch head Michael Carnahan, is for $US65 million.

But Carnahan's team has estimated that recurrent expenditure will rise to around $US100 million by mid-decade as functions now provided by UNTAET are taken into the budget and as the

new country hires its police, armed forces and other administrative staff.

By mid-decade, according to an UNTAET-World Bank report prepared for the Canberra donors meeting, Timor Sea oil and gas revenues "can provide an exit strategy from dependence on external grant-based or concessional funding".

But the report also notes that the timing and magnitude of those revenues "complicate" policy decisions.

"These resources can be used to fund recurrent expenditures or part can be saved to fund medium-term development expenditures and used to smooth the revenue stream over a longer period," the report says.

And if recurrent expenditure rises to $US100 million, the report says that all Timor Sea revenues may be needed to fund the recurrent budget.

"Moreover," it adds, "should oil and gas revenues be delayed, the maintenance of expenditures at the levels projected would almost certainly create the need for substantial unplanned borrowing. This argues for caution."

But how cautious is the new Fretilin-dominated government likely to be given the pent-up expectations and frustrations of a dirt-poor population that has finally reached independence after 400 years of neglect and brutalisation by the Portuguese, Japanese and Indonesians?

Will its leaders be tough enough to avoid economic policies that will lead East Timor to becoming a client State depending on foreign budget support?

"We are fortunate to have here a fairly responsible leadership," UN supremo De Mello told The Australian Financial Review.

"In the very early stages they told me that they wanted us ... to proceed with utmost prudence and care with regard to royalties and taxes from the Timor Gap."

De Mello said the interim Cabinet had agreed three months ago that part of the Timor Sea revenues would have to be used to supplement or to replace foreign budget support in the funding of recurrent expenditure.

But a proportion, which de Mello said had never been defined, would need to be kept in reserve for development-related investment.

"At what point the Timorese will use part of those resources to fund recurrent expenditure is up to them. My hope is that they will come to a clearer decision as to how much and when to contribute to recurrent expenditure," de Mello said.

Fretilin's election platform declares the party to be for an administration based on "sustainable governability and good governance" and the eradication of poverty.

Fretilin central committee member Estanislau da Silva, a former NSW Government research agronomist whose son and daughter attend university in Sydney, said Fretilin no longer supported nationalisation policies.

"We do not want to rely on international donors for too long. That's why we are committed to stable government, small government and effective government," da Silva said.

Easy to say on the eve of independence, but hard any time to achieve.

Much has been achieved in East Timor, but as the UNTAET-World Bank report concludes: "The continued support of all the development partners will be critical to the successful transition to a stable, sustainable and independent East Timor." 

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