Timor Leste 'running out of money'

Timor Leste 'running out of money'
Timor Leste’s gleaming new US$30 million finance ministry headquarters in the capital Dili is surrounded by slums, a stark reminder of the high levels of poverty in this young nation.

TIMOR LESTE - In an unusual power swop last month, Timor Leste's charismatic resistance hero Xanana Gusmao voluntarily handed over control of one of the world's newest nations to a mild-mannered medical doctor named Rui Araujo.

It was perhaps to the credit of this tiny nation, which gained independence only 13 years ago, after a violent separation from Indonesia, that the handover was greeted with little fanfare and seemed so unremarkable.

Mr Gusmao, the 68-year-old former guerilla fighter who became prime minister, will stay on as minister overseeing planning and investment. He also appointed several members of the Fretilin opposition as Cabinet members. Dr Araujo, 50, a former health minister, is a Fretilin member.

The dramatic move was welcomed by veteran Timorese politician and diplomat Jose Ramos- Horta, a Nobel Peace laureate, who said it heralded a shift to a new generation and signalled the nation's maturity.

"This should be an example for many other countries - particularly fragile democracies - that leaders should not hang on to power at any cost," he told The Straits Times.

"We now have one of the freest media in South-east Asia. We don't have a single political prisoner. And people involved in corruption are now getting nervous."

But beyond these welcome signs of political stability, the nation of 1.2 million people faces a stark and potentially overwhelming challenge.

This is one of the most oil-dependent countries in the world - and analysts warn that the revenues will soon run out.

Observers say such a hit to the economy could add to already high levels of poverty and even plunge the nation back into violence.

A report in January by the London-based Overseas Development Institute (ODI), an independent think-tank on global development, credited Mr Gusmao's charismatic authority with helping to "hold a young nation together".

But it noted that he and the nation's other leaders have also depended on oil and gas revenues to "buy the peace" and placate potential rivals.

In an ominous warning, the report stated: "The window of opportunity afforded by oil and gas resources to build peace, the state and an economy may be short."

Almost 80 per cent of Timor Leste's economy - and over 99 per cent of exports - come from its offshore oil and gas fields. But falling prices of resources in recent years have taken a heavy toll, with revenues plunging last year to US$1.8 billion (S$2.5 billion), from US$3 billion in 2013 and a peak of US$3.6 billion in 2012.

Also, the oil and gas income now comes almost entirely from the Bayu-Undan field, which is due to run out within five years.

Analysts say the threat to the nation's coffers is dire, and the government has failed to boost the non-oil sector, particularly farming.

"Not much has been done to develop other parts of the economy," said Mr Charles Scheiner, a Dili-based researcher at NGO La'o Hamutuk. "This is primarily an agricultural country, even though the government may dream of being something else. They need to improve the productivity of farming and reduce the need to import food."

The government has been praised for setting aside much of its resources intake in a wealth fund worth about US$16 billion.

It is also pinning hopes on the contentious Greater Sunrise gas fields, which could bring in more than US$30 billion, to be split 50-50 with Australia. But the development has been held up by long-running disputes over maritime borders and project terms.

Mr Scheiner said the wealth fund could finance government activities for up to eight years after Bayu-Undan is exhausted in 2020.

The Greater Sunrise project, if it goes ahead, could help for several years, but revenues would not arrive until the mid-2020s.

The government insists it has been boosting infrastructure and spending on road and electricity to expand the non-oil economy.

Officials signed a deal with Heineken in January for the drinks giant to build a plant near Dili later this year to turn out beer, soft drinks and water.

Analysts have welcomed the infrastructure moves, though some projects - such as plans for a multi-billion-dollar hub for the resources sector - have been criticised as excessive.

At times, the young nation's ambitions can appear overly bold, especially given estimates that more than half of the population live below the poverty line

"Timor Leste is not going to become the next Singapore," said Ms Sarah Dewhurst, a co-author of the ODI report. "They're not strategically located. They don't have the same level of educated populace. The climate is hot and arid."

Ms Dewhurst said the government should "focus attention on a sustainable economy where they produce things that other Timorese want to buy, such as food or shampoo, and export a few niche products such as coffee, organic agricultural produce, and, shortly, Heineken beer".

In the centre of Dili, a new gleaming glass office tower stands as an apparent monument to the nation's challenges.

The oil and gas bonanza enabled the construction of the US$30 million finance ministry headquarters, but the impressive building is surrounded by structures of a different sort - slums.

Living in one such rundown shanty is Mr Eufrajio Fernandes, 35, who is unemployed and lives from hand to mouth. He owns two pigs and some chickens and hopes to one day have a working farm, or just a job.

Pointing to the modern tower, he told The Straits Times: "They [the government] build a building like this, but there's no work. If there was work, I would do it."


This article was first published on March 23, 2015.
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