Subject: Indonesia looms as East Timor's top trade partner

Indonesia looms as East Timor's top trade partner

By Joanne Collins

DILI, East Timor, Jan 6 (Reuters) - East Timor is likely to count Indonesia, its old and often brutal master, as its top trade partner as the devastated fledgling nation strives to rebuild, the United Nations and World Bank say.

Laid waste less than five months ago by pro-Jakarta militias opposed to independence, East Timor is still tied economically to Indonesia despite its bloody severing of sovereign ties.

U.N. chief in the territory, Sergio Vieira de Mello, named the Indonesian-ruled Western half of Timor island and two major Indonesian cities as likely centres of the trade.

``It is clear to me that West Timor in particular and other areas like Surabaya and Denpasar will become the main trade partners of East Timor,'' he told Reuters on Thursday.

Most investment in the fledgling nation, which voted for independence on August 30, has so far come from Australia, but Indonesia has regained a firm business footing in the territory it ruled as a province for 24 years.

Government-owned Merpati Nusantara Airlines said this week it would be the first to resume commercial flights. The first diplomatic mission in East Timor will be Indonesian.

IN A TIGHT SPOT

The World Bank says it makes economic sense for East Timor and Indonesia to exchange goods and services, especially as the Indonesian rupiah is the de facto legal tender in East Timor.

``East Timor is in a really tough spot -- it's surrounded by Indonesia which is a really good market...,'' a World Bank official said.

``I don't think it's impossible for Indonesia to be the number one trading partner of East Timor but there are political issues.''

One of those is the border between East Timor and Indonesia's West Timor, which is still officially closed.

Independence leaders Xanana Gusmao and Jose Ramos-Horta plan a regional tour to canvass investment opportunities beyond Indonesia.

Ramos-Horta told Reuters that on January 23 the two men would leave for China, South Korea, the Philippines, Thailand, Malaysia and Singapore.

``This is a great opportunity for a lot of infrastructure to be developed -- tourism and agriculture,'' Ramos-Horta said.

``There is tremendous agricultural potential along East Timor's south coast where the country is very fertile and production could feed the entire territory and be exported to northern Australia.''

Agriculture would be the mainstay of East Timor's economy, Vieira de Mello said.

Arabica coffee would be the main export earner, with 8000 tonnes exported in 1999 valued at $20 million to $22 million.

It would be followed by rice and maize, which are still at subsistence level.

Vieira de Mello, a Brazilian, said East Timor's mineral base was an unknown quantity and that income generated by gas and oil would be limited but important in the two to three years the United Nations took to guide the territory to full independence.

``We're not talking about an income of hundreds of millions of dollars per year at this stage, but under $10 million per year for the next two to three years,'' he said.

But the United Nations' focus is on the nuts and bolts of the economy: establishing a central fiscal authority, an official currency and a central payments office and tackling unemployment.

``What we're trying to do is to establish the basis of a sound economic environment... and once we have established this legal basis for the economy to be re-activated then obviously you need an injection of capital to tackle the fundamental problem here which is unemployment,'' Vieira de Mello said.

He said funds announced at a donors' conference in Tokyo last month would be used to launch rehabilitation and reconstruction projects to provide thousands of jobs across the country.


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