May 13, 2002, Monday

By Emad Mekay


Debt-relief campaigners say they hope East Timor's donors and creditors will promise enough aid this week to keep the nascent country free from sovereign debt.

East Timor will be declared officially independent from Indonesia May 20. Donors are to meet in the capital, Dili, May 14-15 to pledge money to help meet a projected budget shortfall of around $ 90 million for the next three years. After that, revenues from offshore oil and gas are expected to supplement earnings from coffee exports.

Donor governments have said they are willing to plug the revenue gap. At issue, however, is what strings will come attached to their money, which likely will be administered by the World Bank through a facility set up to collect and disburse aid to East Timor.

Located at the end of the Indonesian archepelago, East Timor was a Portuguese colony for some 400 years. On Dec. 7, 1975, the Indonesian military brutally invaded East Timor, occupying the country until 1999. In the early years of the occupation, the Indonesian military killed one-third of the population -- 200,000 people -- through murder, forced starvation, and other means.

Twenty four years of brutal, illegal Indonesian military occupation combined with centuries of Portuguese colonial neglect have left East Timor one of the poorest countries on the planet.

Officials in Dili and international civil society groups, meanwhile, are working to have the facility handed over to the United Nations, which they see as more likely to allow East Timor to use the aid money in the form of unconditional grants. The World Bank, they say, likely would look to convert the money into loans, thus saddling the fledgling government with long-term debt.

"A lack of funds could stand in the way of East Timor's commitment to use future revenues to secure healthcare and education for its people rather than to service a debt to wealthy states and financial institutions," said the East Timor Action Network (ETAN), a U.S. rights group.

"What we are trying to do is avoid East Timor falling into debt and suffering conditions imposed by the World Bank and IMF (International Monetary Fund)," said Karen Orenstein, ETAN's Washington Coordinator.

A World Bank official, speaking on condition of anonymity, told IPS the lending institution had no immediate plans to lend money to East Timor. Rather, the Bank was best placed to manage the money and use safeguards to ensure that tax revenues and donor contributions are used for their intended purposes.

"But for the long-term plans, the governments have the option to generate revenues domestically through efficient tax collection for example or through concessional loans over 40 years, which is close to free money," she said. "That's the way to go."

The official also said that at tomorrow's meetings, donors likely would move from funding projects to supporting the national budget as a whole.

"This is a leap of faith in the government," she said, adding that the Bank has been advising Dili to consider expenditure cuts and to come up with ways to generate revenue.

East Timorese development watchdog La'o Hamutuk, however, said it has investigated several of World Bank projects and found problems in planning and execution.

For their part, U.S. activists have lobbied Congress and the U.S. administration to plug at least one-fourth of East Timor's budget gap with unconditional grants and to press other countries and international financial institutions to follow suit.

"Activists have a unique chance to take pre-emptive action -- to prevent the stranglehold of structural adjustment, loans, and the vicious cycle of poverty from putting its deadly grip on the new country," ETAN said.

Mara Vanderslice of the anti-debt group Jubilee USA, said the idea has caught the imagination activists.

"We find it a very exciting idea," she said. "Here you have a country that has been in the news; a country that is starting on a new slate. We are very hopeful that it'll work."

Activists are further encouraged by the small budget deficit. The shortfall was initially estimated at $ 154 million to $ 184 million but the government has now modified its figures and says it expects to need only $ 90 million over the next three years, according to Orenstein. "This is half the price of a U.S. F-22" jet fighter, she said.

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