Subject: East Timor launches fund to house oil revenue

Financial Times

East Timor launches fund to house oil revenue

By Shawn Donnan in Jakarta

Published: September 23 2005 12:23 | Last updated: September 23 2005 12:23 >>

East Timor said Friday it had launched a long-touted petroleum fund to house the country's oil and gas income with an initial balance of $250m to be invested in US government bonds.

With an annual per capita gross domestic product of less than $500, East Timor now ranks among Asia's poorest nations. But with a population of just 800,000 and vast oil and gas resources in its territorial waters, the country's leaders argue they can turn that around while avoiding the resource trap that has plagued many developing countries.

"Good management of petroleum revenues is absolutely critical for ensuring sustained economic growth, the alleviation of poverty and a stable political future for the people of East Timor," Prime Minister Mari Alkatiri said.

"It is crucial that we avoid the experiences of many other countries, where petroleum has been a curse instead of a blessing."

The petroleum fund modelled on ones in Norway and elsewhere is expected to house more than $5bn in revenues East Timor will draw from oil and gas over the next 20 years. The figure does not include anticipated revenues from the $5bn Sunrise gas project shelved earlier this year because of an ongoing dispute between Australia and East Timor over maritime boundaries.

The law creating the fund mandates that all "revenues emanating directly or indirectly" from petroleum resources to be deposited in it.

The fund itself will sit at the US Federal Reserve Bank of New York and its capital will be invested only in low-risk instruments, initially US government bonds. Funds withdrawn from the account will be disbursed only to East Timor's national budget account.

The government has said it expects to be able to draw down 3 per cent of East Timor's total petroleum wealth annually, an amount that, it argues, "can be spent each year forever."

That will help state budget expenditures increase more than 35 per cent in 2005-06, the government said, and fund further increases in the years to come.

The launch comes at a time when decision-makers are taking vastly different views of East Timor's economic future.

In a package sent to foreign journalists on Friday, the government argued East Timor was "recognized as one of the best-managed economies in the Asia-Pacific."

But the World Bank earlier this year raised some questions about the economy, arguing in a report that corruption was an "area of growing concern" and that the government was facing growing public discontent. >

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