Subject: AU: E Timor nears dollar adoption date

Australian

E Timor nears dollar adoption date By Brian Woodley 07aug01

LIKE everyone, Fernando DePeralto measures the colourful and chaotic state of East Timor's multi-currency consumer economy through personal use.

The haircut economy, he says, fills him with confidence for the success of the transition to a single currency founded on the US dollar.

Mr DePeralto ­ who is in charge of imposing the unfamiliar currency on a largely illiterate populace familiar with the Indonesian rupiah ­ a few weeks ago signed off on the regulation making the mighty greenback the sole legal tender. Within hours, he saw that his barber in Dili was offering haircuts for R20,000, $A5 or $US4. "These prices bore no relation to each other and you couldn't work out the price of a haircut," he said.

Mr DePeralto is general manager of the Central Payments Office, the currency branch of the UN transitional administration. His office overlooks a bustling street, adjacent to UN headquarters, where vendors clutch wads of almost every conceivable currency, offering favoured notes at street-smart conversion rates that fluctuate wildly from one customer to the next.

Now the barber's blackboard has changed. He charges $6 or $US3 per haircut, and won't take rupiah.

This tells Mr DePeralto the message is getting through. By August 20 ­ when the month-long period of grace to allow all enterprises to adopt the US dollar expires ­ he expects the whole of East Timor to be conversant with the face of George Washington, or at least with the rusty brown 1c coin, which is the equivalent to the lowest denomination used in the nation, the 100 rupiah coin.

"To make the conversion without inducing inflation, we have brought in $US500,000 in coins, including $US100,000 in 1c coins," he said. This is in addition to $US300,000 in coins distributed late last year.

The changeover is occurring rapidly. From one day to the next, businesses that happily accepted the Australian dollar shake their heads and say "US only". Some have attempted to cash in all ways. A restaurant that charged $5 for a meal might try altering its blackboard to $US5 or something very close. Some demand payment in US dollars and offer change in Australian coins ­ but the good old $2 Aussie attracts more turned up noses as the days pass.

"What I order at lunch was costing $12," grumbled an Asian Development Bank official. "When I went in next day it was in US dollars to the equivalent of $22. The UN people came in for lunch, muttered about it for a few minutes then sat down to eat and carried on as normal, paying the new price."

Mr DePeralto frowns on such stories. His key concern is the avoidance of inflation generally. Restaurants catering mainly for temporarily large numbers of foreigners will, he expects, eventually be reeled in by market forces. The Dili economy, powered by foreign workers, is in any event an aberration, quite unlike anywhere else in East Timor. A taxi ride from one side of the town to the other costs as little as $US1, while hotels charge $US100 or more per night. In the middle of town, during happy hour at Tom's Place, the price of a can of beer falls to $US1.50 or $US2, depending on who among the newly trained East Timorese staff is serving.

According to Mr DePeralto, resistance to the US dollar has come mainly from foreign nationals. "They would prefer to change their dollars into rupiah and get things for half the price," he said.

But confusion over prices ­ and rip-offs occur on both sides ­ is listing, and outside Dili, where it really counts, the transition appears to be going smoothly. "In the Same district, it's now difficult to get rupiah," said Dennis Boothe, Mr DePeralto's chief adviser on dollarisation. "Everything now is in US dollars. In Ermera district, it's similar."

The transition may have been made easier by what happened to the rural coffee growers. Last year, they demanded their money in rupiah, which in mid-2000 was valued at 8000 to the US dollar.

Then the currency took a bath, falling as low as 12,000 to the greenback before steadying at 9500. This year, the grower co-ops eagerly accepted US dollars. Mr DePeralto said several currencies were evaluated before the CPO settled on the greenback. The Portuguese escudo had "quite significant support" but limited duration because of the European Union move to a single currency. The euro was favoured by some but was not yet in circulation. The rupiah, apart from being politically incorrect in the new East Timor, was too volatile, while other Asian currencies were not available.

The Australian dollar, "while less volatile than the rupiah, was itself going through a phase of instability", he said. This left the US dollar ­ "by far the primary choice in terms of economic factors".

Apart from being readily adaptable to economies outside the US, the greenback was the main source of revenue to East Timor from aid donors, taxation in the Timor Gap and coffee exports.

Mr DePeralto said the Bank of Indonesia had signed an agreement for the repatriation of rupiah and the currency would soon be more or less exhausted in East Timor.

He said East Timor still had major trade with Indonesia but the balance was negative, so where rupiah was used as payment, the stock would be reduced.

As an added incentive, enterprises caught trading in non-US tender after August 20 faced fines of up to $US5000.

How long the dollar survives will depend on post-independence government. There is likely to be a push for East Timor to invent its own currency. In the meantime, Mr DePeralto's hair is neatly trimmed and has not gone grey.


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