East Timor economy heads for crash in New Year

By Rod McGuirk

DILI, Sept 7 AAP - East Timor's boom economy is headed for a crash in the New Year.

The United Nations presence that has fed growth and inflation for two years will plunge by 75 per cent by January as the newly-elected Constituent Assembly takes over administrative functions.

The economic aftermath of the UN withdrawal will pose a major challenge for the inexperienced East Timorese government.

A former Australian consul to Dili with a 40-year association with the impoverished country, James Dunn, said he hoped the UN had a plan to soften the economic blow.

"We could have a situation like Cambodia where 300 restaurants were reduced to 17 virtually overnight after the UN left," Dunn said.

"We've seen a middle class emerging in East Timor and a corner has been turned in the population's prospects and optimism.

"But there will be a substantial economic setback."

Dili had a population of 120,000 before the town was razed following the independence ballot on August 30, 1999.

Many people fled into the hills or were forced into refugee camps across the border in West Timor.

The Dili population has already swelled to 200,000 today as many East Timorese abandon their villages for the lure of UN dollars.

With more than 70 per cent unemployment and a minimum wage proposed by the UN of $US3.85 a day - high for an unskilled Asian workforce - the difference between the local and expatriate dual economies is growing.

The UN has acknowledged that the high cost of living in Dili is hampering development of an international tourism industry.

A new hotel opens every month in Dili but the signs that the good times are numbered have been universally recognised.

Hello Mister, an Australian-backed supermarket that opened in Dili 13 months ago, will be hit hard by the loss of UN personnel and their hangers on.

With grocery items such as a four-litre cask of Stanley Leasingham wine retailing fo $A46, even expats find the prices steep.

Manager Kirk MacManus said prospects appeared grim.

"We came here for the long haul and spent a lot of money setting up but now things are looking very uncertain," he said.

He blamed the UN Transitional Administration in East Timor (UNTAET) for making conditions increasingly difficult for business and investment.

When Hello Mister arrived, Dili was tax-free.

This year, the company tax levied by UNTAET is 30 per cent and employees pay income tax of 20 to 30 per cent.

Until August 24, Hello Mister accepted US and Australian dollars as well as Indonesian rupiah as a convenience to its multi-national customers.

Since then, UNTAET made transactions in currency other than US dollars an offence punishable by a $US5,000 fine.

Among the street vendors and taxi drivers, who have avoided coins since the days of the Indonesian 500 rupiah piece, the minimum denomination has become one US greenback.

Hello Mister estimates the cost of US currency conversion to buy from suppliers in Australia and Indonesia will inflate its retail prices by eight per cent.

"The inflationary impact on some industries will be even greater," MacManus said.

"They've (UNTAET) really made it difficult for business and investment in every decision that they've made.

"Ever change has cost us more money and provided no incentives for the private sector investment that East Timor really needs to get on its feet."

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