East Timor deserves a clean slate

Subject: G&M: East Timor deserves a clean slate

Globe and Mail May 8, 2002

PAUL KNOX

Most poor countries are in hock to rich ones. This is not necessarily a bad thing, any more than a car loan or a mortgage. But overindebtedness is definitely a bad thing. And too many countries have too much debt -- often the result of irresponsible behaviour by their own leaders, foreign lenders or both.

With bad luck or bad judgment, East Timor could easily become one of them. On May 20 it will become the world's newest independent country, ending a bitter, centuries-old struggle against subjugation by Portugal and Indonesia. It will be born proud but poor, and the debt trap beckons.

Can East Timor avoid it? One indication will come next week, when representatives of aid donors meet in Dili, the capital, to finalize assistance as East Timor heads into independence. As things stand, East Timor's 750,000 people will be living on foreign aid and annual budgets totalling $256-million (U.S.) over the next three years. Tax receipts will pay for some of it, but the shortfall will be about $30-million a year. It could be made up by grants from rich countries -- Canada, the United States, Europe, Australia, Japan. Or, like a child indentured from birth, East Timor could begin life as a debtor nation.

That would seem a shame. We're not talking about huge amounts here. Canadian aid to East Timor currently runs at $6.3-million (Canadian) a year, much of it helping to set up a police force and finance ministry for the new government. It has remained relatively constant since 1999 and could easily be boosted, say by $2-million or so. U.S. aid to East Timor is little more than coffee money.

Foreign aid these days tends to be allocated toward specific projects, not covering budget deficits. There are good reasons for that. Projects are easier to monitor for results. There's no telling what a government will do once it has the money.

But in East Timor, some of the usual caveats about foreign aid don't apply. There's no giant military machine to divert the money to, and no dictator with cronies to enrich. The new President, independence leader Xanana Gusmao, was popularly elected last month, and there's an elected legislature to keep watch. Advisers from the United Nations, the World Bank and the International Monetary Fund have given thumbs up to the new government's economic plans.

Moreover, in three years East Timor expects to begin receiving income from oil and gas deposits under the Timor Sea. There are wrinkles to iron out, notably the details of a revenue-sharing treaty with neighbouring Australia. But its aid requirements should diminish substantially. It's far from a bottomless pit.

The new rulers are also sending the right signals about managing resource revenues. They want to invest them and spend only the interest -- a far cry from the reckless lending and borrowing that has characterized oil development elsewhere, to the point where royalty receipts go directly to interest payments. As the East Timorese are no doubt well aware, less debt means fewer strictures from foreign lenders about how they spend.

Helping East Timor keep its debt to an absolute minimum is surely the least the developed world can do. Its leaders paid little attention to East Timor during 24 brutal years of Indonesian occupation, all the while enjoying the benefits of surging trade with Indonesia. They keep talking about finding ways to ease the debt burden for poor nations.

East Timor has suffered enough. Let's give it what it needs to begin life in the best of health.