Subject: IPS: Experts Trash Myth of a Too-Small State
Date: Sat, 10 Apr 1999 09:45:34 -0400
From: "John M. Miller" <>

Received from Joyo:

ECONOMY-EAST TIMOR: Experts Trash Myth of a Too-Small State

By Andrew Nette

MELBOURNE, Australia, Apr 8 (IPS) - For East Timor size does matter, and the tiny half island's could be the one of its biggest economic assets, experts meeting here say.

For 23 years East Timor's size has been used as a justification by Western governments for their recognition of Indonesia's occupation.

''There is this myth that small states are not viable,'' said Graham Larcomb, director of the Sydney-based National Institute for Economic Industry and Research.

''The reality is that many of the most successful developing countries over the last 25 years have been successful, precisely because they are small,'' he explained.

Larcomb is among the experts attending a meeting of more than 200 East Timorese professionals, academics, politicians, activists and their supporters in Melbourne to plan the economic and social development of the state-in-waiting.

''East Timor may not be another Singapore or Hong Kong,'' he claimed. ''I am saying that as well as facing great problems, it has great economic potential.''

Few East Timorese doubt that, if their homeland gets independence, it will face a daunting economic task.

Most of its 800,000 people are subsistence farmers. The environment has been almost totally destroyed by 23 years of brutal civil war and plunder by Indonesian military-backed companies, local NGOs say.

Added to this, an independent East Timor will inherit a legacy of trauma and dependency. It would be cut off from the 100 million U.S. dollars a year Jakarta reportedly pumps into the recalcitrant province, an estimated two-thirds of its budget.

East Timor, which generates only a few million dollars a year in tax revenue, will then be reliant on international support to keep government administration and public infrastructure functioning.

East Timorese leaders claim there is some good news in the face of all these challenges. ''There are a number of resources we can look at,'' said Fernanda Pires, a bank manager in Sydney and one of the conference's economic advisors.

''There is magnesium. There's marble. There's coffee. There's oil. There is a lot to draw on, we just have to look at what we can do,'' added Pires.

In addition to possible revenue from a re-negotiated Timor Gap Treaty, coffee production is being touted as one of the best bets. Coffee exports are worth 15 million dollars annually, a figure which some claim can double over five to 10 years.

Tourism is another possibility, though the lack of infrastructure is a problem. Sandalwood production and fisheries are seen as other avenues of revenue.

A report doing the rounds of the National Council for East Timorese Resistance (CNRT) outlines how difficult it will be without funds from the Indonesian government.

It says that despite all of East Timor's possible resources, it would run at an annual deficit of 150 million dollars.

''Being big does not necessarily guarantee that a country is a viable state,'' Nobel Prize Laureate Jose Ramos Horta said in his opening address to the conference.

''It is ironic that many small countries in the Pacific have a relatively prosperous life and yet a country like Indonesia there are people starving, despite the billions of dollars provided by the international community,'' he observed.

Small countries do face serious economic challenges, including a limited domestic market, lack of competition, high transport and infrastructure costs, and vulnerability to international economic forces.

''They also have a number of distinct advantages, however, such as the ability to develop national consensus, flexible decision making,'' Larcomb said.

East Timor also has the luxury of learning from others' mistakes and can choose from different models of development, he adds.

''It can follow the so-called 'Washington consensus' of the International Monetary Fund and World Bank, which stresses relying strongly on market forces and having a soft state that lets foreign investors get on with the job of creating wealth, some of which may trickle down,'' he explained.

''The other model it can adopt is a state interventionist one as seen in Vietnam and China, or, in its more corporatist form in Korea and Japan,'' Larcomb continued.

He added: ''With the Asian economic crisis we can see that the countries that are pursuing these two paths are now having a great deal of difficulty.''

Larcomb says the most suitable path for East Timor is to go for sustainable development, which means that ''going for growth alone is not enough, you need to focus on the value of your culture and environment, your quality of life''.

This was a theme taken up by resistance leader Xanana Gusmao in his videotaped comments to the conference.

''The failure of the majority of developing countries, which were not able to support continuous economic growth without incurring heavy external debt, should serve as a lesson to us in how to direct, from the first hour, our strategic development,'' he said Monday.

Analysts add an independent East Timor would be able to draw on a short-term 'independence dividend' in the form of increased aid flows due to international goodwill, a factor which could have positive and negative impacts.

''Let's be realistic. In the first 5 to 10 years the majority of East Timor's investment will be aid,'' said Alan Pears, an environmental scientist. ''How will you manage this?''

''One of the biggest challenges will be developing a cost effective aid policy. Some Asian nations have up to 50 per cent of their annual budget made up of aid. Is that what you want?'' he asked.

One of the biggest economic challenges for an independent East Timor would be a lack of skilled workers and professionals.

''For this reason, I believe that it will be of paramount importance that we can combine all the experience of the diaspora together to help the country,'' said Zaccarias de Costa, CNRT representative to the European Union.

But while few doubt the breadth of skills in the 20,000 to 30,000 strong East Timorese community worldwide, attracting them back to an independent homeland may be difficult, given the deteriorating security situation there. (END/IPS/ap-dv- hd/awn/js/99)

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