Australian Financial Review May 20

Dili's budget underspend slows growth

Tim Dodd in Jakarta

East Timor's first independent government led by Chief Minister Mari Alkatiri begins its task with the goodwill of the world, but its major problem is its own lack of skill and expertise.

Even with the benefit of a wealth of foreign experience in key areas of administration, the East Timor Government has underspent this year's expenditure budget by nearly 10 per cent because it cannot manage all the planned programs.

The IMF believes there will be a carry forward of up to $US5 million ($9 million) in unspent funds at the end of the financial year on June 30, and this is in a total government spending budget of only $US53.8 million for 2001-02. The IMF said in its report to a meeting of national and other donors to East Timor last week that the budget underspend was having a serious economic impact.

It is one of the reasons that the IMF downgraded its economic forecasts for East Timor since the last donor meeting in Oslo in December last year.

The projection for economic growth in 2002 has declined from zero to -0.5 per cent and next year's growth estimate has declined sharply from a 2 per cent expansion to a 2.2 per cent contraction.

"The projected decline is mainly driven by a contraction of public administration and related services," the IMF said.

Mr Alkatiri's Government, which was elected last August, has had eight months to gain experience under the UN umbrella before striking out alone. But the spending shortfall occurred despite abundant help from foreign advisers. This assistance will now be scaled back, making the skills shortage even more acute.

The encouraging news is that other sectors in the economy - including agriculture which employs three-quarters of those with jobs - is growing faster than previously thought. Agricultural production was "largely restored" to pre-crisis levels, the IMF said.

This a remarkable achievement because, according to one survey cited by a United Nations Development Program report on East Timor, households lost 58 per cent of goats, 48 per cent of cattle and 47 per cent of pigs in the Indonesian-inspired violence and destruction of 1999.

Under Indonesian rule East Timor experienced rapid economic growth which independent East Timor may find difficult to replicate, even with substantial foreign aid.

According to the UNDP, from 1983-90 East Timor's real economic growth averaged 7.8 per cent and from 1990-96 (before the Asian economic crisis) growth averaged 10 per cent, boosted by aid from Jakarta including direct grants of about $US150 million a year in the mid-1990s. But the UNDP also notes that the benefits of the economic growth in East Timor under Indonesian rule mainly went to Indonesian people, rather than indigenous East Timorese.

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