Also: SCMP Editorial: East Timor deserves continued attention

South China Morning Post

January 24, 2006 Tuesday

FEATURES Behind the news, Pg. 14

Let's do a deal

The East Timorese have two tetchy, uncharitable neighbours in Indonesia and Australia, neither willing to lend a genuine hand to the nation, says Peter Kammerer

East Timor's Prime Minister Mari Alkatiri was in a buoyant mood after sealing his young country's latest oil and gas deal with Australia earlier this month. With money from a previous pact already guaranteeing the budget could finally be balanced, the agreement seemed to ensure his people's escape from poverty and rise to self-sufficiency.

National leaders have to be optimistic, especially those from countries as new as East Timor. Few nations have started from such a low base or had so traumatic a history; brave faces, even in moments of lost face, are required.

For many observers, this was one of those occasions.

Glowing with achievement, Mr Alkatiri enthused that his nation of 800,000 people, which won independence from Indonesian occupation in May 2002 after a 24-year struggle, was finally going places.

"Our budget has increased almost two-fold and we are investing three or four times more in infrastructure," the prime minister told the South China Morning Post from Sydney, where the pact was signed. "For the next fiscal year we are hoping to invest one time more for education and health. This will make a very, very big difference for the whole country."

He conceded that reversing the poverty-mired, stagnant economy and finding jobs for the hundreds of thousands of unemployed remained challenging. "This cannot be done overnight. We have planning and programmes and have been investing in infrastructure. Thousands of people are working now, but still, others are waiting for the opportunity."

But relations with Indonesia and Australia, termed by some observers as bullies of the tiny nation sandwiched between them, were good because "we're in between two giants and we need to have good relations with both", Mr Alkatiri observed.

As for mending the wounds of Indonesia's often brutal occupation, he was certain that reconciliation lay in a truth and friendship commission both governments had set up, rather than an international tribunal.

"I don't believe that the United Nations Security Council will approve a resolution setting up a tribunal," he said. "If there is not this possibility, you have to be creative and try to get the truth known by everybody. That is why we and Indonesia have set up the truth and friendship commission, because this is the only mechanism we now have to get the truth known by the innocent people, the Timorese people and all people around the world. History will also do its part to bring justice."

For Australian expert on East Timor, George Quinn, this was the voice of a pragmatist: the oil and gas deal had increased the nation's revenues from what is known as the Sunrise field from 18 per cent to 50 per cent, at the expense of rights to contest other energy reserves with Australia.

"Despite the fact that it has involved quite a substantial sacrifice, he has taken what he would consider to be a pragmatic solution to get some immediate outcomes," said Dr Quinn, a researcher at Australian National University in Canberra who has met Mr Alkatiri several times. "He probably feels that the window of opportunity is closing, and that unless he can nail down an agreement and get something in the pipeline as far as substantial revenues are concerned, then the window may close and he may find himself with social unrest on his hands."

Whatever the prime minister's optimism as a result of oil and gas revenues finally flowing into the economy, East Timor is far from shrugging off its difficulties, Dr Quinn believes.

"East Timor still has huge problems - its infrastructure is poor, its level of education and the quality of its manpower are poor," he said.

Heavy reliance is still placed on international support, even though the UN and donor nations have already poured billions of dollars into building the nation. The education system is essentially funded by the Portuguese and Brazilian governments, the European Union has a large share of the health budget, and roadworks and other infrastructure have a big Japanese contribution.

Nor would it seem East Timor's problems with Indonesia - which a report President Xanana Gusmao presented to UN Secretary-General Kofi Annan last Friday blames for the deaths of more than 100,000 East Timorese and massive human rights violations - are over. On January 6, three alleged Indonesian militiamen were shot by East Timorese police near the porous border with Indonesian-ruled West Timor, sparking a heated exchange between the two countries.

The truth be known, the deal Mr Alkatiri struck on January 12 was most likely the best he could have achieved after several years of tough bargaining with Australia. The two nations dispute their sea border, beneath which lie rich oil and gas reserves.

East Timor has claimed an exclusive economic zone around its coastline, and in parts this overlaps with Australia's claimed area. The small nation's negotiating position has been based on a line drawn exactly midway between the two countries' coastlines, a common method under international law. Australia, which made agreements on its maritime border with Indonesia before East Timorese independence, disagrees with such an approach.

So vehement is the Australian government about its position that in the months leading to independence, it secretly withdrew from the two recognised forums on which the new nation could have had the matter adjudicated, the International Court of Justice and the International Tribunal on the Law of the Sea.

Negotiations between the two nations have since sputtered on, with few agreements and Australia continuing to earn billions of dollars in tax revenues from companies working in the disputed area.

The January 12 agreement increased East Timor's share of revenues from the Sunrise field, straddling the disputed areas, to 50 per cent, but waived its right to contest the maritime boundary for 50 years, or until the oil and gas runs out, whichever is sooner.

Mr Alkatiri estimates between US$13 billion and US$20 billion could be made from the deal for his country, up from the previous estimates as low as US$2 billion, depending on oil prices. Work on the field is expected to begin in the next two years and production in six or seven at the earliest.

The prime minister said the deal opened up the possibility of a pipeline being built from Sunrise to East Timor's capital, Dili, and the construction there of a liquified petroleum gas refinery there. "This will have a very big multiplier effect, doubling or even tripling all other revenues," he said.

So far, the mining companies involved have shunned the idea, preferring a pipeline to the northern Australian city of Darwin, which, although further away, already has such facilities.

For East Timor, the matter is more than just pride: with its few industries of coffee and cassava production all but destroyed under Indonesian rule, oil and gas have been seen by its leaders as the only immediate economic lifeline. An oil fund approved by parliament last year using an earlier deal with Australia, under which East Timor gets 90 per cent of revenues from another field, already contains about US$350 million.

Charles Scheiner, a New York-based oil and gas researcher with the non-governmental group La'o Hamutuk - also known as the East Timor Institute for Reconstruction Monitoring and Analysis - believes between US$6 million and US$7 million is presently going into the fund each month.

"The petroleum fund legislation says that money from oil revenues goes into the fund and it is used each year when the government makes its budget," Mr Scheiner said. "Whatever deficit there is in the budget is taken from the fund. The last budget was US$120 million and it was bare-bones, and many UN projects will dry up. At that point, the fund will be the bulk of the budget."

Oil and gas were being perceived by the government as its financial lifeblood, he said. In four years, 89 per cent of the country's gross domestic product and 94 per cent of its revenues were projected to be coming from the sector.

"It's very dangerous," Mr Scheiner concluded. "They need to be developing other sectors of the economy. But it takes time to develop anything else, and this can be done quickly."

His Dili-based La'o Hamutuk colleague, Alex Grainger, agrees.

"We're extremely concerned because the attention to the non-oil economy has been quite rudimentary to date," Mr Grainger said. "The government is running a very unsustainable trade deficit, importing about US$112 million in goods and only exporting US$7 million in coffee. There are options other than coffee, but we see them lying in the people themselves."

He estimates unemployment in urban areas is 20 per cent and in the countryside at between 80 and 90 per cent, with underemployment running similarly high.

Nor has the government's efforts to attract foreign investment made many inroads. The executive director of the Timor Institute of Development Studies, Joao Saldanha, puts this down to the nation's isolated location, far from the region's primary markets of Hong Kong, Singapore and Sydney. But despite the problems, East Timor's people were generally content, he said.

"We've had five years of peace and people are happy with that," Dr Saldanha said from his Dili office. "Even if there is suffering in terms of jobs and food, compared with the desperation and conflict of 24 years, people are happy. They will most likely let their true feelings about what is happening be known in the electoral process [in 2007].

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South China Morning Post

January 24, 2006 Tuesday

Editorial

East Timor deserves continued attention

Peace and stability are reigning in East Timor, a marked contrast to the 24 years of Indonesian occupation during which, according to a recent independent report, up to 183,000 people were killed or starved to death. The tiny former Portuguese colony will have been independent for four years in May and from a budget standpoint, is finally able to stand on its own feet, thanks to the revenues from an oil and gas deal with Australia.

Such developments were unimaginable to Timorese when they were battling Indonesian soldiers and police and Jakarta-backed militias at the height of their struggle for self-rule in 1999. Only with the intervention of international peacekeepers did a dream become hope; and that hope turned into reality when the United Nations stepped in to help create a nation from the ruins with the assistance of foreign donors.

The UN has all but gone and no longer is East Timor wholly dependent on international support. This year, for the first time, it is able to fund its own budget and the anticipated billions of dollars from oil and gas income will see it right for at least the next few generations.

That is no reason for the world to forget the new country, though - just because it is no longer in the headlines does not mean all is well. East Timor, far from what outward appearances would indicate, has serious problems: unemployment is high, poverty runs deep, education levels are poor and foreign investors are staying away.

Neighbouring giants Indonesia and Australia continue to bully to get their way. Reconciliation with Indonesia will only come through proper justice for the atrocities its forces carried out, a possibility that is unlikely given the mood of Indonesian and East Timorese officials. Australia's refusal to negotiate fairly maritime boundaries in the Timor Sea is robbing East Timor of billions more dollars that would enable it to become truly self-sufficient.

As it is, although international funding remains crucial to developing infrastructure and the education and health systems, among others, East Timor's lower global profile has meant foreign assistance is drying up. Yet the opposite should be the case.

In recent days, the nation has become a topic of discussion at the UN, first with the presentation of the report on Indonesia's atrocities to Secretary-General Kofi Annan by East Timorese President Xanana Gusmao, and now with the security council being told of the wider issues of concern. Council members must take the messages to heart and act to ensure that the world stays engaged in East Timor.

Only through continued interest and involvement can a crucial stage in the country's development towards true independence be bridged and the East Timorese given the bright future they so rightly deserve.