Over coffee in a noisy Dili cafe, Fretilin spokesman Jose Texeira is quick to share a litany of complaints about Timor-Leste’s government–from its management of the budget to human rights, from food security to its tourism policy.
Of course, this kind of feisty, partisan display is only to be expected from an opposition party still smarting after an election defeat in 2007. But what is perhaps less expected is his upbeat overall assessment of Timor-Leste, ten years after its vote for independence.
‘We’ve made a fairly successful transition from a conflict to a post-conflict society,’ says Texeira, an Australia-trained lawyer and former government minister. ‘Another big plus is we’ve managed to establish basic national institutions, a functional civil service…It has its weaknesses and shortcomings, [but] we’ve also established quite lot in the legal system.’
Texeira’s assessment echoes the growing, albeit cautious, mood of optimism in Dili, where residents believe that Timor-Leste has put the worst of its political instability and civil unrest behind it. But such optimism has not come easily, with the turbulent past decade seeming at times as though the country was taking one step forward and three steps back.
Indeed, more than once, Asia’s newest nation teetered on the brink of disaster.
In 1999, after 25 years of brutal Indonesian military occupation (which cost anywhere from 100,000 lives to as many as 250,000 by some estimates), the Timorese people voted overwhelmingly for independence. Their reward was a devastating campaign of violence and destruction waged by departing Indonesian troops and pro-Indonesian militia. More than 1000 lives were lost, while three quarters of the population were driven from their homes. Roads, bridges and other infrastructure were destroyed, and it was only armed intervention by international troops and the United Nations that brought the carnage to an end.
Still, in 2002, Timor-Leste became the world’s newest nation. International goodwill was universal, and aid and other support poured in. But the brief independence honeymoon period was shattered in 2006. Sparked by tensions within the national security forces, communal rioting swept the nation and devastated Dili and many other towns. The fledgling economy was pole axed–GDP contracted by almost six percent, while tens of thousands fled their homes for the safety of makeshift camps and shelters.
The violence was stemmed by the deployment of Australian and international troops, but burnt-out houses and buildings across Dili remain as reminders of how close Timor-Leste came to becoming another failed state.
Against the odds, the 2007 national elections for the presidency and parliament were largely incident free and generally seen as free and fair. Yet, the threat of serious instability resurfaced in early 2008, with the unsuccessful assassination attempts on President Jose Ramos-Horta and Prime Minister Xanana Gusmao.
Once again, though, the nation weathered the storm, and relative peace has held since. Ramos-Horta confidently told the UN Security Council early last year that stability and security were much improved in Timor-Leste, citing an International Crisis Group assessment.
Stability has been matched by a rebounding economy. In 2008, the economy grew at an impressive rate of 12.8 percent, while the IMF has forecast GDP growth of just over seven percent for both 2009 and 2010.
Damien Kingsbury, a professor at Melbourne’s Deakin University, says the country is in a much better state than it was in 2006. But he says he’s still cautious about the future. ‘There’s still potential for Timor-Leste to fall down,’ he says. ‘It’s fragile, and it faces enormous difficulties.’ But he adds that predictions of it joining the ranks of failed states are ‘unnecessarily alarmist.’
Kingsbury says Timor-Leste has three things working in its favour–a determination by the international community to not let it fail, a functioning institutional and governmental framework and also resilient democratic processes. ‘The parliamentary process and the electoral process are working extremely well,’ he says. ‘And the people’s embrace of the process is also very impressive.’
But years more of stability and economic good fortune will be needed if the country is to tackle the daunting economic and social development challenges it still faces.
Timor-Leste’s list of challenges includes all the usual suspects–inadequate infrastructure, a relatively inexperienced civil service and weak public sector institutions. Law and order still depend heavily on the high profile of troops from the international Joint Stabilisation Force and large contingents of UN police and other international security personnel. The 2006 riots were the result, in part, of tensions within the national armed forces and fledgling police force. How these national bodies will perform after the inevitable withdrawal of international personnel is one of the biggest question marks hanging over Timor-Leste.
In the United Nations Development Programme’s 2009 survey of global living standards, Timor-Leste was ranked near the bottom–162nd out of 181 nations, below even Sudan. The US State Department, meanwhile, equates the nation’s indicators for health, literacy and income with those of Sub-Saharan Africa.
But the United States is not alone in its concerns. According to World Bank research in 2007, 50 percent of the Timorese population were living below the poverty line of 88 cents per day, while more than a third were living below the extreme poverty level of 71 cents per day. The Bank also reported some worrying findings on health, especially maternal and child health. For children under five, for example, incidences of wasting, stunting and being underweight actually increased between 2001 and 2007. Although participation and completion rates in education have improved, educating and training the rapidly growing population remains a serious challenge.
Fortunately, strong world oil prices have delivered a windfall for the region in recent years and these resources have the potential to keep funding Timor-Leste’s government and national development for decades to come. But the government is almost entirely dependent on resource earnings and international donors to fund the national budget, the increased spending from which has been the key driver of the economy.
Critics say this dependence on oil is a major weakness, noting the only other significant national export is coffee. Foreign direct investment is minimal, and the domestic private sector small, although sustained political stability and good economic management may create the conditions for expansion in both sectors.
But Texeira says sound economic management skills are something Gusmao’s government is sorely lacking, and he is critical of the way the budget has been used to deal with a number of potentially destabilising domestic issues such as financial compensation for war veterans, petitioners and the resettling of the more than 100,000 people displaced by the 2006 riots. Fretilin says the government is, in effect, buying peace, though its supporters argue that even if this accusation is true that it ultimately helps to underpin stability.
But despite massive efforts to improve public sector management and capacity, corruption and governance have been identified as emerging national problems. In 2009, Transparency International ranked Timor-Leste 146 out of 180 nations for levels of corruption, citing major concerns about public sector and official corruption. Gusmao himself, meanwhile, was recently embroiled in accusations of high level nepotism and corruption.
Kingsbury admits there’s corruption in Timor-Leste, but says he also believes the government is taking the issue seriously, including through the establishment of an anti-corruption commission, and argues that the evidence anyway ‘doesn’t support high level corruption.’
A Tale of Two Economies
Near the mountain hamlet of Maubisse, local coffee farmer Mr Batista leads me through a grove of head-high coffee trees. The waxy green leaves flick into our faces as we push past them, while underfoot, dried-up leaves inches deep crackle and snap as we walk. A canopy of giant acacia creates a cool, shaded world for the coffee trees below. Coffee is the enduring legacy of Portugal, which introduced the bean sometime in the mid-19th century. It flourished, and has been a mainstay ever since.
Yet last year was a bad one for growers. Batista grabs a handful of leaves and points upwards, shaking his head. In broken English he says that his trees badly need rain for a good harvest in 2010. In 2009, yields across the country were down by 50 percent, effectively halving the annual incomes of the nation’s cash-strapped farmers.
Batista’s village is surrounded by some of the most stunning landscapes in the region, but daily life for a Timorese farmer and his family is harsh.
Roads, where they even exist, are appalling. There are few if any services; most rural villages have no electricity, no running water and only limited access to the most basic medical care. More than 80 percent of Timor-Leste’s population depend on agriculture, and coffee is by far the most important cash crop. Other staples like cassava, maize and rice are grown, but Timorese farmers return some of the lowest yields in the region. Even in good years, they grow barely enough to satisfy household consumption and Timor-Leste is therefore heavily dependent on imports such as rice.
According to the World Bank, 75 percent of Timor-Leste’s poor live in rural areas, while the overwhelming dependence of the population on agriculture for a living (a sector where labour productivity is low) is a key factor in the country’s high poverty rate.
This dependence on agriculture means it is farming–not tourism or other new industries–where many people believe the current government should be focusing its spending.
The Asian Development Bank suggests Petroleum Fund earnings be directed toward a broad-based approach to development to help alleviate poverty, saying, ‘Agriculture will likely be the main source of income for most of the population for some decades and further investment is required in this sector.’
Australian National University economist Jennifer Drysdale agrees. ‘If the government could just focus on agriculture and support those people, the country would be fine,’ she says, adding that education, health, food and basic services in rural areas should be a priority.
Improving the productivity of the nation’s farmers would not only raise incomes and living standards, but might also help address Timor-Leste’s dependence on expensive food imports. In 2007 and 2008, drought and other factors triggered a food crisis that prompted international donors, including China, to donate rice. Reducing the nation’s vulnerability to fluctuating global food supplies and market prices would also reduce social hardship and remove a potential source of social instability.
The Resource Curse
But while most of the population toils in agriculture, Timor-Leste has benefited from a revenue stream that could transform the economy–oil and gas. Petroleum wealth has ‘fundamentally changed the economic outlook for what was one of the poorest places in earth,’ the IMF says in a report. With significant new oil and gas resources still waiting to be tapped, the nation’s economic future looks bright.
But the multi-billion dollar question is how will the fledgling nation manage its resource wealth? Will Timor-Leste spend the money effectively? Or will it squander and mismanage its national wealth like so many other resource-rich developing countries? In short, will the ‘resource curse’ strike Timor-Leste?
The national Petroleum Fund was established in 2005 to avoid such an eventuality.
The Fund is an investment vehicle designed to protect national wealth for future generations and maximise long-term and sustainable earnings to allow the government to fund national development.
Essentially, the Fund works as follows: All oil and gas revenue is deposited directly into the Fund, and then at least 90 percent must be invested in international US dollar-denominated cash securities. It’s an extremely conservative investment approach.
Each year the government may withdraw from the Fund an amount called the Estimated Sustainable Income (ESI), or three percent of total Petroleum Wealth. The ESI is calculated based on the amount of money already in the Fund and projected future revenues from oil and gas sales. Withdrawals from the Fund can only be used for state budget purposes, while the management and operation of the Fund is subject to an extensive array of checks and balances designed to ensure transparency, accountability and good governance. The International Monetary Fund, which helped Timor-Leste establish the Fund, says the Petroleum Fund is ‘the cornerstone of the country’s financial management.’ The IMF also says the structure of the Fund and investment approach protects national finances from international economic volatility.
And so far, Timor-Leste’s Petroleum Fund has been widely hailed as a success. By mid-2009, the Fund was worth over $5 billion, and had returned an impressive average of 5.6% per annum on its investments through the end of 2008.
Texeira, while generally critical of the government’s policies, is unequivocally supportive of the Petroleum Fund. ‘I think our Petroleum Fund is the envy of much of the world,’ he says. But he also worries that Timor-Leste has become overly dependent on oil, and has developed unrealistic expectations. ‘People think that the oil and gas money isn’t going to run out. But it will,’ he says. ‘Right now, we’ve only got one well (Bayu Undun) producing. There’s nothing else.’
Texeira says he doesn’t see Greater Sunrise coming online in the near future, and adds that other prospects are years away from production. Bayu Undun is forecast to be tapped out by around 2024 and Texeira says it is therefore critical for Timor-Leste to develop other sectors of the economy, such as agriculture and tourism, to create jobs and growth.
But he says the current government has no strategy for developing new industries, and is also neglecting the agriculture sector.
His concerns could prove to be well-founded. The IMF notes Timor-Leste is currently one of the world’s most oil dependent nations, with more than 95 percent of government revenue coming from oil. Government spending has underpinned recent economic expansion, but aside from oil and gas, there are no other sectors generating significant new jobs or growth.
At current values, and based on a price of $60 per barrel, the IMF forecasts the Fund will be worth more than $13 billion in 2024, and will generate long term annual ESI of just under $400 million. However, future downward fluctuations in oil prices, serious production disruption or lower investment yields are a risk, the IMF says.
There’s widespread confidence that other projects, including Greater Sunrise, will be operating before then. Greater Sunrise, a joint field development between Timor-Leste and Australia’s Woodside, has estimated reserves worth more than $90 billion.
And although the involved parties are locked in a dispute over how to develop the resource, Kingsbury says it would not anyway be a disaster even if Greater Sunrise does not proceed as planned. ‘Timor-Leste doesn’t need extra oil income, its struggling to spend the money it has now,’ he says.
One risk is that future governments will withdraw amounts above the ESI, a rate which the IMF notes is a benchmark rather than a legal requirement. In 2009, the IMF noted that government withdrawals from the Fund were likely to be above ESI for the first time, though it said this could be justified if the government is able to create a sufficient return.
But Drysdale says although the Petroleum Fund has worked satisfactorily thus far, Timor-Leste lacks the experience and institutional capacity to maintain this performance. ‘I don’t see how they’re going to avoid the resource curse in the future,’ she says. ‘Timor-Leste doesn’t have the bureaucracy or the institutions to spend the money wisely…Timor-Leste isn’t yet resource cursed, but they have conflict, corruption and institutional weaknesses and they need to deal with these.’
In The Dragon’s Shadow
One of Dili’s newest attractions is the sprawling Presidential Palace. Tourists and locals can sign in at the gate and wander freely around the expansive grounds. There’s even a children’s playground. Inside the cool, air-conditioned main building you can inspect a life-size replica of a dinosaur and peruse glass case displays on Timor-Leste’s history and culture. The Palace complex is impossible to miss–it occupies a prominent location on the corner of the busy main road from downtown Dili to the international airport.
The Palace is just one of many indicators of the Chinese largesse directed toward Timor-Leste, assistance that is raising questions about Chinese motives.
China donated the new Ministry of Foreign Affairs complex and will soon build new headquarters for the Ministry of Defence and the Timorese Army. Hundreds of Timorese officials and technicians, meanwhile, have travelled to the East Asian nation on training exchanges. China is also involved in small-scale agriculture projects and during last year’s food crisis donated 8,000 tonnes of rice. In addition, as if to underscore its growing interest in the tiny nation, a large new Chinese embassy is taking shape on the Dili waterfront.
There’s no question China wants a role in developing Timor-Leste’s substantial gas and oil reserves. In 2008, its largest resources firm, Petro China, conducted a reportedly inconclusive seismic survey of onshore resources, while the recent awarding of major government contracts to Chinese firms for the supply of naval patrol vessels and to build a heavy oil power plant have added to China’s rising profile.
It’s a relationship with deep roots. Chinese traders first arrived in Timor-Leste 500 years ago to trade in sandalwood, and a vibrant Chinese community has remained in Timor-Leste ever since. In 1975, China recognised Timor-Leste’s audacious first bid for independence, and for the next two decades maintained support for Timorese independence. Furthermore, in 2002, China was the first nation to officially recognise the newly independent Timor-Leste.
The defeat of former Prime Minister Alkitiri and Fretilin in the 2007 election was widely expected to result in cooler ties. But so far, Gusmao and Ramos-Horta have maintained the momentum.
In September 2009, Gusmao led a high-level government delegation to China to discuss a range of projects and cooperation. The official reason given was to attend a trade fair. But as the delegation reportedly also included the Minister for Resources, Minister for Finance and representatives of the defence forces, there was almost certainly more on the agenda.
‘Nothing Sinister’
China’s courting of Timor-Leste has been seen by some as part of a Pacific strategy aimed at countering US dominance in the region and, by implication, allies including Australia.
But Lowy Institute Fellow Fergus Hanson says fears over Chinese intentions are overblown. ‘I don’t buy the threat analysis,’ he says. ‘I just don’t think that anyone can point to China doing anything sinister.’ He also dismisses speculation that China’s moves are part of a coherent regional policy. ‘China doesn’t have a strategy in the Pacific–it’s all a bit ad hoc really. And Timor-Leste is like everywhere else, with China building high profile building projects.’
And he adds: ‘If you drill down beyond the superficial, China is not a contributor in a serious way to the aid program, or the redevelopment program. Australia is still by far and away the biggest player in Timor-Leste.’
Over the past decade, China’s total bilateral aid contribution of around $50 million is dwarfed by Australia’s commitment of over $700 million. Japan, the United States, Germany and the EU also rank well ahead of China. Australia is also the key international partner in maintaining Timor’s national security and law and order.
Hanson says Timor’s relationship with Australia is in excellent shape and that regional concerns about Timor’s pursuit of closer ties with China are misplaced. ‘From Timor’s perspective, it’s totally natural that they should hedge their interests, being wedged between Australia and Indonesia,’ he says. ‘China is very interested in resources in the region, and Timor is keen to make the case for a processing base for oil and gas.’
Charles Scheiner, spokesman for non-government organisation Lao Hamutuk, says the motives behind China’s aid program should be interpreted in exactly the same way as all other bilateral aid programs–‘Like Australia and the United States, China expects something in return.’
However, critics have said that moves by the Timor-Leste government to strengthen ties with China, even if justified, have been shrouded in unnecessary secrecy, including the contract for new naval vessels. ‘We question it (the agreement), not because the patrol boats come from China, but because of the process that was used–whether it’s China, the United States or Australia,’ Texeira says.
Fretilin says the lack of transparency meant the details of the contract were largely hidden from effective parliamentary and public scrutiny. ‘Timor-Leste needs to maintain a very open regime for foreign direct investment. It needs to be non-discriminatory, and we must keep government to government commercial deals to a minimum,’ he says. ‘We should be very careful not to mix commercial relationships with diplomatic relationships.’
A 2008 contract awarded to China’s Nuclear Industry 22nd Construction Company to build a heavy oil power generating plant outside Dili has also been heavily criticised for undue secrecy over the terms of the agreement, and Scheiner says the $380 million dollar contract is anyway too expensive for Timor-Leste and a waste of money.
‘Timor-Leste is buying used equipment that nobody else wants,’ he says. Lao Hamutuk also claims the Chinese heavy oil plant will be environmentally unsound and unable to meet the country’s future energy needs.
A further grumble is that the Chinese-funded building projects do not create any jobs or skills transfer for Timorese. Crews of Chinese workers, technicians and engineers are typically brought in for construction of projects. With urban unemployment worsening, Hanson says there’s the potential for a local backlash and adds growing ties could create some unexpected problems for Timor, including Chinese organised crime and people smuggling.
‘[Traffickers see Timor] as an easy launching pad into Australia,’ he says.
The Young and the Restless
In a tidy compound off a dusty street in the Dili suburb of Bairo Pite, a group of young men and women sit attentively listening to their teacher. Each one is immaculately turned out in the school uniform of brilliant lime green shirts. From Monday to Friday, between 9 and 4, these students attend classes here. They also have breakfast and lunch every day on campus–an added incentive to attend as many come from households struggling to put food on the table.
Beyond the school fence, the neighbourhood is typical of Dili’s mean backstreets. Here, the scars of the 2006 riots are still visible. Burnt-out and vandalised houses stand unoccupied, as they are in many other parts the city. Urban unemployment is high in Dili, especially for young people. But these students are luckier than most–their classes could be the stepping stone to their first job and a way out of the poverty and troubles of Dili’s backstreets.
The vocational school was set up by the Norwegian Refugee Council (NRC) in November 2008. NRC Education Manager Therese Curran says this site (and four others) was selected because they suffered the worst violence and the largest numbers of houses destroyed during the 2006 riots. The original plan was to only accept 15-25 year olds, but unexpected demand for places forced the NRC to accept students up to the age of 30 (although hundreds of applicants still missed out on a place).
All the students come from troubled backgrounds and have had little or no formal education. Among them are single parents and young people responsible for raising younger siblings because they’ve lost both parents. The school aims to improve basic literacy and numeracy, and develop practical job skills, including office management, hospitality, trades, IT and also basic English language skills.
The ultimate goal is to find work for graduating students. The NRC arranges work placements and on-the-job training for the students. But like most urban young people in Timor-Leste, few students have any experience or understanding of employment. ‘They actually need to see what work looks like,’ says Therese Curran. ‘In Timor, only 25 percent of mums and dads would have ever had jobs.’
Some graduates have found jobs in Dili, mostly in hospitality and tourism. But Curran admits employment opportunities are few and far between.
The NRC courses also focus on building self esteem, confidence and offering some direction for young people. ‘These Timorese kids need long term support, to create pathways and to create futures,’ says Curran. ‘It’s amazing to see the kids blossom beautifully–it’s because they get so much attention.’
But meeting the long list of needs among Timor-Leste’s young people will be no easy feat.
The biggest problems are in the suburbs of Dili, where unemployment, poverty and the threat of communal violence remain most acute. The 2006 riots were fuelled by discontent, poverty and a lack of positive engagement with the urban young–and commentators worry it could happen again.
Another major issue for young people is the ongoing impact of Timor-Leste’s cycle of violence, says Sierra James of Ba Futura, a Dili based not-for-profit organisation. Ba Futura is located in Comora, another troubled suburb of Dili, and not far from the NRC vocational school. Ba Futura helps young Timorese deal with issues of conflict, violence and poverty. Although conflict and poverty affect the whole population, young Timorese are disproportionately affected. ‘Timorese society is heavily laden with a cycle of violence that needs to be transformed in order for the country to build a peaceful future,’ says James.
Rural areas, where the majority of people live, are somewhat insulated as agriculture and traditional networks soak up the young population–at least for now. But as Timor-Leste’s rural population grows, it will place new strains on marginal land and impoverished households, forcing more young people to drift to Dili and urban areas in search of jobs and a better life. ‘There are very few jobs in most rural areas, adding to the numbers of young people that are moving to Dili,’ James says.
Kingsbury agrees that rising urban youth unemployment in Dili is potentially destabilising.
But looking forward he says there is a much more pressing problem confronting Timor-Leste–its dramatically rising population. Under-15s make up more than half the population, while the total population of 1.1 million is growing by 3.1 percent a year (on average, Timorese women have 7.7 children.)
Kingsbury says Timor-Leste’s resource base suggests a carrying capacity of approximately 700,000 people and that the current increase is therefore not sustainable. ‘This is the single biggest issue facing the country,’ he says. ‘A population growing out of control.’