Aid and Independence
Image Credit: Simon Roughneen

Aid and Independence

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'Goodbye conflict, welcome development' reads the Panglossian banner on the Timor-Leste Finance Ministry website. And, after centuries of sleepy Portuguese colonialism followed by a quarter century of scorched earth Indonesian occupation that killed as much as a third of the population, the Timorese are due an option on optimism as much as anyone else.

Making the slogan a reality is a different story, however, and independent Timor-Leste started from a low base, with most of the country's infrastructure obliterated by the departing occupiers and their local militia proxies after Timor-Leste voted for secession in 1999.

After a receiving an estimated $6 billion to $8 billion in foreign assistance since 1999, and around the same in petroleum revenues since the mid-2000s, the numbers by themselves suggest Timor-Leste should be well-placed to make that leap the Finance Ministry aspires to.

However, early signs are mixed. Despite the black gold and government spending boom of recent years – growth is around the 10 percent mark – Timor-Leste has nothing to sell to the world outside, aside from energy resources and coffee. Even then, the latter leaves the country mostly unroasted and unprocessed, so the value gets added outside.

Sounds like a tough place to be entrepreneurial, but one man giving it a go is Brendan Morias, a Singaporean who stayed on after working as Protestant missionary to open the popular RnR cafe not far from the UN mission headquarters. ‘Elsewhere your input costs might be around 20 percent for a café like this, but here in Dili it is closer to 40 percent,’ he says.

Import reliant even for basics like bottled water, Timor-Leste has a huge trade deficit, and despite the poverty of a country with a non-petroleum per capita average annual income of less than $600, living costs can be high, partly as most things in the shops are brought in from outside. ‘There’s no such thing as buying wholesale here,’ Morias laments. ‘Everything is bought at in shops, and those goods are mostly imported.’

On the plus side, most of the country's energy revenues go into a petroleum fund, set up to ensure that the country has savings in the bank once the wells run dry, which could come as soon as 2040 according to some estimates.

While the country's leaders have been commended for being the first Asian country to meet standards set by the Extractive Industries Transparency Initiative and for the establishment of the petroleum fund, the temptation to dip into the largesse has proven too much, it seems. Ninety-five percent of government spending comes from petroleum revenue, but the country's self-imposed rules say that this limits the amount the government can draw down each year to an ‘Estimated Sustainable Income,’ which is calculated as 3 percent of the total value of the money in the country’s petroleum-based Sovereign Wealth Fund, as well as the expected future revenues from the oil and gas fields.

Still, the national budget has ballooned beyond the ESI limits, since big money revenues started to accrue in 2007, and the 2012 budget is marked up 35 percent from the 2011 spend. Surely it’s no coincidence that elections are scheduled for mid-2012?

As expected, government officials talk up the benefits of the outlay, and dismiss notions of electioneering. Speaking on the side-lines of a UN Development Program (UNDP) 'aid effectiveness' seminar in Bangkok, Helder Da Costa of the Timor-Leste Ministry of Finance pointed out to The Diplomat that World Bank/IMF figures show poverty in Timor-Leste declining over the course of the current administration – a multiparty coalition headed by former resistance hero Xanana Gusmao

He contrasts his government's record with the predecessor Fretilin administration, which he claims presided over ‘a doubling of poverty between 2003 and 2007.’ Elections will take place in Timor-Leste next year, and the now-opposition Fretilin party is confident it can regain government, with opposition MP Jose Teixeira citing popular anger at corruption in the current government.

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