With UN gone, East Timor faces up to economic challenges

KULAU RAI HUN, East Timor – East Timor is striking out on its own after 13 years of UN protection, facing the daunting challenge of how to retool its economy and ease its dependence on energy to tunnel out of poverty.

Foreign troops ended their peacekeeping mission in the half-island nation of 1.1 million people on December 31 and Asia’s youngest country is now turning its focus from security to building an economy almost entirely from scratch.

A 20-year plan spearheaded by Prime Minister Xanana Gusmao aims to transform the nation of predominantly poor subsistence farmers to an upper-middle-income economy that exports cash crops, livestock and processed oil products.

The task is mammoth for what the IMF has dubbed the “most oil-dependent economy in the world”, which produces little beyond some $15 million in coffee a year, mostly for Starbucks, accounting for 90 percent of its non-oil exports.

World Bank country manager Luis Constantino said East Timor was, in fact, a “big example of things actually going right”.

“They rightly focused on stability, they achieved peace, they created confidence in the state, they devised a vision and they put institutions in place to guide the country forward,” Constantino told AFP.

However, the country’s double-digit growth in recent years has come almost entirely from controversial state spending of the nation’s $11 billion petroleum fund.

The money has steamrolled much-needed infrastructure, most of which was destroyed in Indonesia’s 24-year occupation, when some 183,000 people — then a quarter of the population — died from starvation, fighting and disease.

“Now there’s the challenge to diversify Timor-Leste’s economy to one that’s not just dependent on oil but creates other sources of wealth,” Constantino said, referring to the country by its official name.

After criticism, the government plans to draw only 66 percent of its budget, or $1.2 billion, from the petroleum fund this year, down from 80 percent in 2012.

But the opposition Fretilin Party said the government had neglected 75 percent of the population who are subsistence farmers.

“If you look at the amount of money the previous government spent, over $4 billion, you wonder where it all went,” Fretilin member of parliament Estanislau da Silva said.

Only 20 minutes from the centre of the capital Dili, what the economic challenges mean for ordinary people is only too apparent.

Malnourished children with bloated stomachs and runny noses play among ramshackle tin huts in the village of Kulau Rai Hun, as jobless parents sit idly by a dirt road, drinking coffee and smoking.

Marta de Jesus, 48, and her husband, a taxi driver who earns $5 on a good day, cannot grow or buy enough food to meet their nutritional needs.

“We get through around 50 kilograms (110 pounds) of rice every week. That’s all we eat. If we have more money we can buy meat and sometimes corn,” she said outside her two-room dirt-floor home.

The couple had 13 children, two of whom died from malaria and malnutrition.

The country’s fertility rate — the fourth highest in the world, with an average of 6.5 children per family — will only exacerbate food insecurity and unemployment, which is more than 40 percent among youths, according to AusAID.

To tackle both issues, the government plan includes the cultivation of cash crops such as palm oil, vanilla and candlenut for export. The country now imports almost all fruit and vegetables.

But experts are skeptical.

“It’s never going to develop a viable secondary industry sector, it simply doesn’t have a sufficient market domestically, nor does it have the requisite skills,” Damien Kingsbury from Deakin University in Melbourne said.

Downstream energy industries are touted as the nation’s best hope, but Kingsbury called an estimated $10 billion development of the southern coast as an oil and gas supply base and refinery “questionable at best”.

Charles Scheiner from the Timor-Leste Institute for Development Monitoring and Analysis said the plan was “a very attractive dream for the kind of lives the people deserve”.

It should focus, however, on realistic goals, such as improving health and education, which received only some 10 percent of the budget, he said.

“Timorese don’t need propane, or diesel fuel. They need food and water, and 80 percent are farmers, so that’s where the focus of economic development should be,” Scheiner said, adding only two percent of the budget goes to agriculture.

Deputy Prime Minister Fernando La Sama de Araujo said the government recognized the scale of the challenge but was still hopeful it could improve people’s lives.

“We can’t say we’re going to solve the poverty issue 100 percent, but we’re trying to reduce it. And we’re optimistic the government can tackle it.” – Rappler.com