Received from Joyo Indonesia News

Newsweek issue dated May 12, 2003

A Dangerous Windfall

Dili isn't sure it's ready to face the temptations of oil

By Joe Cochrane Newsweek International

When Indonesia and Australia agreed in 1989 to jointly exploit East Timor's offshore oil and gas fields, the countries' foreign ministers sealed the pact by sipping champagne in a private jet high above the Timor Sea.

Ten years later, after throwing off the yoke of Indonesian rule, East Timor has claimed the deep-sea deposits for itself and is preparing to cash in on its natural resources. But, strangely, no one is breaking out the bubbly. "While oil and gas revenues can be a blessing, we are conscious that our public administration, our Treasury and other branches of government are very weak," says Jose Ramos-Horta, the country's foreign minister. "This can lead to waste, mismanagement and corruption."

Not that East Timor doesn't have a lot to be happy about as the one-year anniversary of its independence approaches later this month. War and starvation are slowly becoming distant memories, nation-building has begun in earnest and the East Timorese--not their Portuguese, Japanese or Indonesian colonizers--are finally calling the shots. Just last month East Timor and Australia inked the final terms of their joint treaty, with 90 percent of the oil revenues headed to the tiny nation. Unlike other strife-torn countries, this Southeast Asian outpost can write its financial ticket by wisely spending its oil and gas revenues, estimated to be $6 billion during the next 25 years.

But therein lies the danger: a sudden windfall of cash from the black stuff could just as easily send the region's poorest state down the path of nations like Nigeria or Indonesia, whose corruption is a testament to the temptations of oil economies. "The institutions are not there--and the openness and transparency are not there--to make sure this money's going to be spent well," warns one Western political analyst in Dili. "There are no checks and balances against large-scale corruption."

In fact, many experts think corruption has already gotten worse in the last year. "There are increasing anecdotal reports... of low-level corruption that is making it difficult for businesses to do business," says Elisabeth Huybens, the World Bank's country manager in East Timor. So far the tales of graft are the typical fare: civil servants demanding bribes for permits, influence peddling by midlevel bureaucrats and alleged kickbacks for handing out state contracts. There is no evidence that the tentacles of corruption have reached the highest levels of government, but given that the country's current national budget is less than $80 million, opportunities for officials to line their pockets are scarce.

That could change when East Timor goes from receiving about $28 million a year from its oil and gas fields, called the Timor Gap, to $100 million in the next three years as more fields come on-line. While independence heroes like President Jose (Xanana) Gusmão and Ramos-Horta, a Nobel laureate, are considered beyond reproach, average Timorese view their fledgling bureaucracy with growing suspicion. Prime Minister Mari Alkatiri and a small clique of other cabinet members are commonly referred to as the "Mozambique mafia"--a jab at their years spent as political refugees in the African nation during Indonesia's occupation. Critics complain that members of the group, which comes from the ruling Fretilin Party, are making major policy decisions behind closed doors and are being feted abroad as VIPs. "If they are eating sweet potatoes, we should all be," one Timorese woman recently told researchers conducting a democracy survey. "They have dollars and good food, while the ordinary people are ignored." Ramos-Horta is quick to defend his colleagues: "They are very hardworking and competent leaders. The prime minister is totally unforgiving when it comes to corruption."

For East Timor's sake, it better stay that way. The international community has invested a lot of political capital--not to mention billions of dollars--in East Timor's future, and the tiny country remains the poster child for nation-building. But many of the fundamentals for the country's good governance remain unfulfilled. All agree that the court system remains in shambles, with most judges and prosecutors having never previously set foot in a courtroom. Nor has the Parliament created an ombudsman's office to protect the Treasury from being cleaned out. International organizations and NGOs are working frantically with Dili to create these checks and balances, and the World Bank's Huybens admits that donors are "concerned." "If we are not serious," says Ramos-Horta, "we will lose credibility and international assistance." And no one will be raising their glass to East Timor.

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