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The La'o Hamutuk Bulletin
Vol. 2, No. 1 & 2: April 2001 (part 1)
English PDF Format    |    Tetum PDF Format

Issue focus: 
Funding East Timor's Reconstruction

La'o Hamutuk, The East Timor Institute for Reconstruction Monitoring and Analysis, P.O. Box 340, Dili, East Timor (via Darwin, Australia) 
Mobile: +61(408)811373; Land phone: +670(390)325-013
Email: laohamutuk@easttimor.minihub.org.

Table of contents:

Part 2

Funding East Timor's Reconstruction: An Overview

People in East Timor have many questions about the hundreds of millions of dollars that have flowed into the country since September 1999. Most have little idea where the money is going. The lack of public awareness, transparency, and participation in funding matters leads many to conclude that something is wrong. At the same time, there is a pervasive perception that, given the levels of funding, there has been insufficient progress in the rebuilding of East Timor.

At a meeting of international donors in Dili on 29 March, for example, Xanana Gusmão criticized various aspects of the reconstruction process, telling the donors of money ill spent and delays in the implementation of projects. The CNRT leader told the conference attendees not to be “overly impressed” with all the activity in Dili, stating that “in the interior the economic situation of the population has not changed much” since the Indonesian military’s September 1999 campaign of terror and destruction.

While such problems are not merely matters of funding, funding is central to the concerns raised by Xanana and many others. That is why this issue of the Bulletin focuses on the primary external funding sources in East Timor, and how their money is spent.

Undoubtedly, there is a great deal of money involved in the international community’s efforts in the territory. Indeed, donors to East Timor have allocated more than one billion US dollars since December 1999.

Despite its small size and an economy based on subsistence agriculture, East Timor presently has one of the most complex external funding and public finance structures in the world. It is important to understand the different sources of this money, what it pays for, and the decision-making processes that govern its allocation. In this way, the people of East Timor can better evaluate the uses of this money, and more effectively influence its future flows and, thus, the reconstruction process.

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International Funding in East Timor (Figure 1)

Click here for full-size view of chart (150k)

Click here for full-size view of chart

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External Funding: Sources and Uses

Almost all of the funds available to East Timor for reconstruction, governance, and security come from foreign governments. Although internal funding mechanisms—such as revenues from the Timor Gap and the new tax system—also yield money for public sector activities, funds coming from outside sources are currently much larger and, thus, deserve close review.

External funding goes into seven different “pots” (see figure 1). These seven “pots” support activities in one or more of three main areas: relief and/or humanitarian assistance; governance and security; and reconstruction and development. Voluntary financial contributions provide the funds of five of the seven “pots,” while contributions that member-countries of the United Nations must make supply the funding for the largest “pot.”

A description of these “pots”—or places where funds reside—follows. (All amounts in US dollars.)

CAP Monies and Related Work
In late September 1999, in the aftermath of the TNI post-referendum campaign of terror, the UN’s Office for the Coordination of Humanitarian Affairs (OCHA) launched a Consolidated Inter-Agency Appeal (CAP). Typically, OCHA is the UN agency that coordinates the international response to humanitarian emergencies.

OCHA’s proposed budget for humanitarian operations called for $183 million for East Timor and $15 million for humanitarian needs in West Timor. In response, foreign government representatives committed $156 million in voluntary contributions to the CAP at the Tokyo Donors Conference in December 1999.

While an additional $40-$50 million went to emergency relief efforts outside the CAP process, the major portion of aid to refugees, including the provision of water, health services, and shelter kits was funded by CAP monies. UN agencies such as the United Nations Children’s Fund (UNICEF), the United Nations Development Program (UNDP), the United Nations High Commissioner for Refugees (UNHCR), the World Food Program (WFP), and the World Health Organization (WHO) were involved in the effort. International agencies such as the International Organization for Migration (IOM) and the International Committee of the Red Cross (ICRC), as well as numerous other international non-governmental organizations, also participated. The various implementing agencies spent almost all of the money in voluntary contributions received for this effort in the 13-month period from November 1999 to December 2000. No additional funding of the CAP is anticipated. (For a review of OCHA, the CAP, and its impact, see the La’o Hamutuk Bulletin, Vol. 1, No. 2.)

Assessed Contributions to Maintain UNTAET
By far the largest “pot” of money is the one that supports the establishment and maintenance of the UNTAET mission. This is the only “pot” that does not rely on voluntary contributions; rather, all foreign governments that are members of the United Nations are expected to contribute to it. Almost all funds for the budgets of UN peacekeeping operations (such as UNTAET), as well as the regular budget of the United Nations, come from the assessed contributions of UN Member States.

An assessed contribution is an amount of money that a Member State is supposed to contribute. The UN General Assembly approves the amount of each assessment, which is based on the ability of a country to pay (taking into account principally the country’s Gross National Product relative to all other countries’ GNPs). Starting next year, the scale used for peacekeeping operations will be one that has 10 levels of assessments based on each country’s per capita income.

The UNTAET assessed contributions budget finances expenses related to the UN involvement in East Timor which include the peacekeeping forces, civilian police, UN buildings, UN vehicles, UNTAET staff, and communications. The assessed budget does not include the costs of running an East Timorese government, namely the East Timor Transitional Administration (ETTA). Finally, this budget does not fund development or reconstruction projects.

UNTAET’s budget for the final eight months of the last fiscal year (November 1999-June 2000) was almost $400 million. The budget for the present fiscal year, FY2001 (1 July 2000 - 30 June 2001), is $563 million (see below). Notably, the East Timorese people have little input in developing and modifying this budget. Rather, UN staff and committees in New York and Dili create and modify this budget.

Consolidated Fund for East Timor (CFET)
The CFET “pot” of money is both the smallest and, along with the INGO/NGO “pot,” the most accessible to local input and East Timorese participation in decisions around its use. It finances the embryonic national government (ETTA), which the international community is helping to build within the UNTAET structure. The CFET pays for the emerging national government’s operational costs, including the building of basic institutions, the provision of public services, the repair of government buildings, and civil servants’ salaries.

The CFET has two parts. The first part is made up of voluntary contributions from foreign governments in the form of the UNTAET Trust Fund (UNTF or UNTAET TF). The United Nations set up the UNTF in October 1999 to help finance an East Timorese governing body—the East Timor Administration (ETA), which later evolved into the East Timor Transitional Administration (ETTA).

The second part of the CFET is made up of East Timor’s domestic revenues. These include monies gained from the collection of taxes and import duties, as well as revenues from the exploitation of oil and natural gas reserves in the Timor Sea.

For the present and near future, the UNTF and donors are supposed to contribute enough monies to the CFET to ensure that with whatever domestic revenues are generated, the ETTA is sufficiently funded. But the hope is that the UNTF’s and donors’ share will diminish over time as domestic revenues increase. All of this is predicated on a very modest annual national budget of approximately $60 million.

The initial amount contributed by the UNTF was $32 million. At the June 2000 Lisbon Donors Conference, donors allocated an additional $16 million in voluntary contributions for FY 2001 and $25 million for FY2002 to supplement the CFET.

Trust Fund for East Timor (TFET)
The TFET “pot” contains money for reconstruction and development projects and is the second largest of the “pots.” In October and November 1999, representatives from the World Bank, the International Monetary Fund, and various national governments visited East Timor to assess its needs and circumstances. Both the IMF mission and the World Bank-led Joint Assessment Mission helped inform policy recommendations and assistance requests.

Soon thereafter—in December 1999— the first international donors conference for East Timor took place in Tokyo. There, donors pledged a total of $523 million in voluntary contributions: $32 million for UNTF; $147 million for a future Trust Fund for East Timor (TFET); $33 million pledged to bilateral programs, but left unallocated (not yet designated to be spent in a certain place or program); $156 million for the CAP humanitarian aid, and $155 million left completely unallocated to the trust funds or for bilateral programs. (Subsequent donors conferences have not solicited additional pledges, but rather only reviewed progress and strategy and made allocation decisions.)

The conference established the Trust Fund for East Timor (TFET) managed by the World Bank and the Asian Development Bank to finance and oversee reconstruction and development projects. (For a review of the World Bank and its projects in East Timor, see La’o Hamutuk Bulletin, Vol. 1, No. 4). Additional money from the unallocated fund has augmented the initial $147 million, bringing the current amount budgeted for TFET to $167.4 million. This amount is spread out over three years and, with additional monies from the unallocated pledges, is likely to average $60 million/year. While funding will continue after 2003, it is expected to diminish considerably. International and East Timorese advocacy might stimulate some additional pledges of support.

Presently, a Donor Council made up of donor representatives and facilitated by the Donor Coordination Unit (part of the ETTA National Planning and Development Agency) discusses, evaluates, and approves development and reconstruction projects as well as transitional governance assistance supported by TFET monies.

Direct Bilateral Funding
The “pot” that contains money for government-to-government assistance also has considerable in-kind (non-monetary) donations, such as agricultural and office equipment. Foreign governments have negotiated directly with UNTAET and ETTA to provide assistance. The bulk of direct bilateral assistance provided by these foreign governments has supported transitional governance and services. For example, programs of the United States government (USAID), the Australian government (AUSAid), and the Japanese government (JICA) have covered some operational costs for generating electricity, rebuilt some schools, and trained and built capacity in ETTA staff. Direct bilateral aid also helps fund reconstruction and development.

Including the bilateral support for transitional governance, bilateral donors have spent between $50 and $90 million to date. It is estimated that donors will spend $160 to $195 million over a three-year period. We will explore direct bilateral aid in a future issue of the La’o Hamutuk Bulletin.

Funding for UN Agencies
UN Agencies initially funded by the Consolidated Appeal Process still operate in East Timor although they now raise their funding through normal agency channels. Voluntary contributions from UN member states fund most UN agencies. Some of the administrative costs of some of the agencies are covered by the regular UN budget that is funded from assessed contributions. A few agencies also receive support from other areas (i.e. UNICEF receives significant non-governmental support and the WFP receives significant multilateral and bilateral support). Finally, bilateral monies fund some of the East Timor-specific activities of some agencies.
These agencies do a wide range of work especially in the areas of relief and development. While it is difficult to calculate their combined spending in East Timor, it runs into the tens of millions of dollars.

Funding for INGOs and NGOs
There are many local and international non-government organizations doing a wide range of work in East Timor, especially in the areas of relief and development/reconstruction. The “pot” that would collectively hold their funding has the most diverse funding sources. Some international non-government organizations (INGOs) have been in East Timor for many years while others have only recently begun operations here. These INGOs, in turn, provide some financial support to local non-government organizations (NGOs). Almost all of the money that supports the work of the dozens of international non-government organizations and over one hundred local NGOs originally comes from outside East Timor.

All of the contributions to local and international NGOs are voluntary and include some foreign government monies. In some cases, monies also come from UN agencies and supranational bodies. While it is difficult to calculate the annual combined spending of local and international NGOs in East Timor, it runs into the tens of millions of dollars. INGOs direct more than 90% of these funds. While some of the estimated $50 million INGOs have spent in East Timor since late 1999 came from the CAP process, most monies for both INGOs and local NGOs come from individuals; community, activist/solidarity and church groups; foundations; and/or foreign government grants and in-kind donations. Additionally, some local NGOs have income-generating activities. 

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Dialogue and information exchange lead to agreement between UNTAET and United Nations (New York) staff and committees. Inflexible once annual budget is approved.
After negotiations, agreement is reached between each donor government and UNTAET/ETTA.
Internal, varied processes which are often influenced by funding organizations.
Largely internal for each UN agency; heavily influenced by policy directives of the UN General Assembly. Several have Executive Boards that provide final approval on budgets.
Informal and formal discussions take place between UNTAET/ ETTA, donors, and World Bank/Asian Development Bank; after which there is Cabinet agreement; NC endorsement of 6-month work program; then TFET donor council final approval.
OCHA consulted with UN Agencies, and other organizations that respond to emergencies. They secured agreement amongst them on approach and responsibilities.
Donors’ discretion, primarily at donor coordination meetings.
Monies are then used to augment domestic revenues and meet the needs of the East Timor Consolidated Budget.
ETTA departments submit proposals, seek Cabinet agreement, then NC approval. 
If seeking new funding, donor and international financial institutions’ approval is also required. 

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Reviewing the East Timor Transitional Administration’s Budget

he boundary between the East Timor Transitional Administration (ETTA) and UNTAET can be difficult to understand. ETTA will become the administration of East Timor when UNTAET leaves next year. In July 2000, a cabinet system of government was established, comprising eight departments and a few autonomous agencies such as the Central Payments Office (future Central Bank), and the National Planning and Development Agency. A legislative body, the 36 member National Council, was also established. Altogether, this structure constitutes ETTA. ETTA is expected to have some 11,000 public employees by June 2001.

In effect, the government in East Timor has two budgets: one for ETTA (in the form of the East Timor Consolidated Budget, ETCB); and one for UNTAET (via assessed contributions). (Both have a fiscal year that runs from 1 July to 30 June.) Presently, ETTA is within the UNTAET structure. ETTA is comprised of East Timorese civil servants (as distinct from UNTAET local staff) and is defined by specific activities that its various departments carry out. Thus, Economic Affairs is both a department of UNTAET and of ETTA; the East Timorese civil servants within Economic Affairs receive their salary from the ETCB and have specific tasks that help to build an Economic Affairs department in the evolving/emerging independent East Timor government.
It is noteworthy that UN local staff are paid on average nearly twice as much as ETTA local staff. Officials justify this by saying that the country cannot afford to continue to pay its local staff at the same level the UN pays, ignoring the fact that the UN’s presence has inflated prices and otherwise distorted the economy.

The budget for next year (July 2001 to June 2002) is currently being developed. In March and early April, each of the eight departments proposed a budget to be considered by the Cabinet during late April and early May. The National Council will consider the final Cabinet recommendations and make their recommendations in mid-May. More discussion may be necessary before final approval is won. Throughout this process, the community can have input, even if it is not encouraged.

A potentially promising approach to making future budgets is “combined sources budgeting.” This entails a review of various funding sources before resources are allocated. This year, the Central Fiscal Authority (CFA) prepared a booklet that presented funding and allocations from three different sources: the Consolidated Fund (CFET), the Trust Fund for East Timor (TFET), and bilateral funding. While the three funds’ budgets were created through separate decision-making processes, by presenting their allocation information together, a clearer picture of sector (health, education, justice, etc.) activity resulted. The CFA proposed that the 2001-2002 budget be a product of combined sources budgeting.

While La’o Hamutuk appreciates the value in this approach, we caution that decision-making processes must be open and transparent. Moreover, people at the community level should be able to effectively participate in the decision-making processes that determine not only how resources are allocated within each particular sector, but also how resources are distributed amongst the various sectors.

La’o Hamutuk will discuss this budget further in a future Bulletin.

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A Closer Look at the UNTAET Budget

UNTAET Budget for Fiscal Year 2001 (US$563 million total)

The UNTAET budget is by far the largest pool of funds available for East Timor. Nevertheless, the East Timorese people have little input in its creation, and there is no mechanism to allow for local involvement in its review. It is useful to understand more clearly what is in this budget. The first approved budget covered a seven-month period from December 1999 to June 2000 and amounted to $350 million. Of that amount, $155 million was allocated for operations, $100 million for military personnel, $85 million for civilian personnel, and $9 million for staff assessments (“taxes” taken out of international staff salaries before the salary is paid and applied to the UN membership dues of each staff member’s country of citizenship). The next approved budget covering Fiscal Year 2001, from July 2000 through June 2001, amounts to $563 million. That budget breaks down as shown above, with notes below.

$220 million for military personnel

Note that more than half of the operations budget below is also for military purposes.

$124 million for operations

$199 million for civilian personnel

$17 million for staff assessments

$3 million for other programs

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UNTAET Assessed Budget Notes and Highlights

Military personnel

Civilian personnel


Compared to society

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UNTAET Bottled Water Facts (FY 2001)
Bottles, bottles and more bottles
  • Produced by: P.T. Erindo Mandiri, Pasuran, Indonesia 
  • Trade name: Aquase 
  • Size:1.5 liters 
  • Cost: $0.375 
  • Military personnel each allotted 3 bottles/day, 7 days/week 
  • Civilian staff stationed in Dili each allotted one bottle/day for 5 days/week (prior to 1 January was 3/day, 7 days/week) 
  • Civilian staff stationed outside of Dili each allotted 3 bottles/day, 7 days/week 
  • UNTAET Mission total daily allotment: 29,000 bottles h Estimated annual distribution: 10.5 million bottles 
  • Estimated annual cost: $4 million
Empty plastic bottles accumulate outside UNTAET Headquarters. This is one of a handful of recycle bins; most bottles end up as litter.  

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La'o Hamutuk, The East Timor Institute for Reconstruction Monitoring and Analysis

International contact: +1-510-643-4507, lh@etan.org

Website: www.etan.org/lh