Subject: Despite Oil, E. Timor May Be Impoverished For Years -Experts

Associated Press August 12, 2001

Despite Oil, E Timor May Be Impoverished For Yrs -Experts

DILI, East Timor (AP)--Mateus da Silva looks out to sea and finds it hard to believe billions of dollars worth of oil and natural gas lie beneath the water - maybe enough to lift his ravaged homeland out of poverty.

The undersea bonanza is the last thing on his mind as he wanders the hot, dusty streets of the capital, Dili, dressed in tattered rubber sandals, dirty jeans and a ripped T-shirt. He's looking for odd jobs that pay less than a dollar a day so he can feed his wife and 10 children.

East Timor signed a deal with neighboring Australia in July that will give the new nation hundreds of millions of dollars in oil and natural gas royalties over 20 years beginning in 2004.

But like most East Timorese - who are unemployed and live in poverty - da Silva can't afford to dwell on dreams of future wealth.

"I have no land, no job and no money. This talk of riches is for the politicians," he said. "We are poor people. I am only thinking about how to find the money to buy food and send my children to school."

Even though the agreement to carve up the royalties is a welcome financial boon, the shattered economy is likely to be dependent on foreign aid for up to a decade, experts say.

Preparing for independence next year, East Timor is one of Asia's poorest corners after centuries of colonial misrule by Portugal and 25 years of corrupt and repressive Indonesian occupation, the World Bank says.

Much of its infrastructure lies in ruins, destroyed by pro-Indonesian militias after the tiny territory of 800,000 people voted overwhelmingly to break away from Indonesia in a U.N.-sponsored independence referendum two years ago.

Outside Dili, electricity and water supplies are sporadic at best. In the cities and towns, unemployment runs about 80%. Only about half the people can read. Gangs roam the streets looking for ways to make money.

Little foreign investment is coming in due to an uncertain political future and messy land disputes.

Under the oil and gas deal, East Timor will receive 90% of the royalties from wells in undersea fields collectively known as the Timor Gap. The remaining 10% will go to Australia.

East Timor is expected to get about $180 million a year - roughly three times its current budget under the transitional U.N. administration.

Concerns Money May Be Squandered, Stolen The oil deal came as campaigning was getting underway for elections Aug. 30 to choose an 88-member governing body that will steer the territory to full independence sometime in the first half of 2002.

Political leaders are looking to the royalties as a savior, promising to use the money to build up other sectors of the economy to avoid a bust when the royalties stop around 2025.

"We don't want to be dependent on the Timor Gap for our economy. We want to develop other industries," said Lu Olo, who was a president of the former resistance movement Fretelin.

Olo pointed to fishing and tourism as sectors that could be built up to become revenue generators.

East Timor's only sizable export now is high-grade, organically grown coffee.

With the inflow of large amounts of cash, and an inexperienced new government to take over next year, comes the risk the money may be wasted on useless projects or stolen once the U.N. leaves.

"One of the main challenges for East Timor is that the money is well spent," said Sarah Cliffe, chief of the World Bank's mission in East Timor. "There are many, many examples around the world of countries which have received oil windfalls, but have squandered the benefits."

East Timor's foreign minister, Jose Ramos-Horta, said a blueprint is being drawn up to ensure the money is used wisely and that a significant amount will be put aside in a trust fund for future generations.

"We are setting up institutions that are foolproof against corruption," he said. "It is heart breaking to see the level of poverty here. This money can't be wasted."

Web site for U.N. Transitional Administration in East Timor:

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