Subject: AsiaWeek: E Timor Reuilds

RECOVERY: EAST TIMOR REBUILDS: Now at peace, the nation restarts its economy Penny Crisp and Warren Caragata, Dili

05/05/2000 AsiaWeek

Gino Favaro has big plans for Hotel Dili. The waterfront establishment in East Timor 's capital has been in his Italian-Australian family for 30 years. Favaro is bullish, too, about his overgrown coffee plantation in the hills. As vice president of the local chamber of commerce, the 42-year-old believes East Timor has a chance to become more than just another basket case forever dependent on foreign charity. Given that the world's newest independent state doesn't have much of an economy to speak of, Favaro's is a somewhat rosy view.

Even before the militias and soldiers torched many of its settlements last August, East Timor ranked just ahead of the five poorest African nations. GDP per capita was about $430, and 30% of households were impoverished. Experts reckoned the half-island would need up to $200 million a year in foreign aid for five years. Since the August 1999 referendum, the World Bank, which along with the U.N. oversees reconstruction, estimates that GDP has fallen by 40%-45% for the 800,000 mostly displaced residents. Jakarta's annual budget contribution of about $120 million is no more. Four out of every five working-age people in the cities are jobless.

For now, the trappings of a nation - a civil service, parliament, central bank, health services, schools - are mostly on hold. There are a new court system, complete with East Timorese judges and prosecutors, and the beginnings of a police force. However, basic needs remain the priority for the U.N. Transitional Administration in East Timor and the islanders' National Consultative Council, which have met regularly since December.

Only recently has it been possible to make a phone call, with about 4,000 of the 12,000 lines restored. Transport and power are problematic. "Only a quarter of East Timor and half of its people have access to intermittent electricity," says an article co-authored by East Timor leader Xanana Gusmao, World Bank managing director Sven Sandstrom, IMF deputy managing director Sugisaki Shigemitsu, and U.N. administrator Sergio Vieira de Mello.

The IMF is helping set up economic management systems. The few banks that reopened offer limited services - and none of the Indonesian ones, where most locals kept their savings, are back in business. The greenback is the official currency; Indonesian rupiah, Australian dollars and Portuguese escudos also circulate in the former Portuguese colony. Lack of industry has proved a kind of boon, however. A good spring harvest predicted by the U.N.'s de Mello should benefit the 90% of East Timorese who are peasants.

They could use the bumper crop. The militias largely ravaged rice and other staples, with output forecast at 25%-40% below last year's levels. Seeds, tools and labor are priorities, and livestock must be imported. Breeders for poultry farming were completely destroyed. But thankfully, most of the top export, arabica coffee, had been harvested before the violence. Coffee sales could exceed the average of about $30 million.

Offshore oil from the Timor Gap between Australia and the island provides about $6 million a year in taxes, split between Dili and Canberra. De Mello and Australian officials recently approved a gas project led by Phillips Petroleum. The Bayu-Undan field could begin producing by 2003, providing "tens of millions of dollars" a year, says de Mello.

There are also marble and sandalwood for export, though most sandalwood stocks were also destroyed. There are high hopes for tourist ventures. East Timor could also generate cash by bidding out satellite space and fishing rights. A large diaspora of both indigenous people and ethnic Chinese send home money. Some have returned to run hotels, car-rental and construction companies.

Indonesia remains the natural trading partner, but bitterness and mistrust on both sides pose obstacles. So do Indonesia's own economic problems. Speaking privately, many observers say the country is likely to end up as another Papua New Guinea. "It is still very challenging," Favaro admits.

When Indonesia invaded in 1975, Favaro's family was one of the last to leave. By then, they had been residents for five years, since Gino's father Frank sold his Darwin car dealership, bought the Hotel Dili and moved his family to the city in 1970. A few months before the Indonesian invasion, the family abandoned the property and returned to Darwin. Gino, the eldest of five, managed a hotel, sold real estate and set up a natural food store. The family kept trying to regain its Dili property, but interest gradually faded - except Gino's. "Everyone else had given up," he says.

In 1994 Favaro sold his businesses and decided to reclaim what had been taken from the family in his youth. He succeeded in 1998, though he has had to flee three times since then. "The locals call us locals," he explains. "Not only have we been here a long time but we have experienced the same devastation and hardships."

Repeated rebuilding has been physically, emotionally and financially draining. Favaro spent about $150,000 refitting the hotel -an effort demolished in last year's violence. Even buried power cables and water pipes were stolen. It took another $150,000 to get back into business. "You wake up sometimes and wonder why you did it," says Favaro.

Despite everything, Hotel Dili thrives. Its motel-type rooms cluster around a large patio set with tables shaded by thatched umbrellas. Dili harbor is across the road, even if goat droppings litter the dirty beach. The hotel is also a leading nightspot where foreigners gather to drink Australian beer and eat dishes by an Australian chef, the only expatriate in Favaro's staff of 35.

Business people and other expats have booked his 21 rooms long-term. With Dili hotel space at a premium, Favaro expects to be at full occupancy for some time. To relieve congestion, he is trying to convince his kin in Australia to finance a $4.7-million, 250-room addition on a nearby property of his. The family is near agreement; Favaro hopes to open the new unit in a year. The current hotel will then be transformed into a new restaurant and bar, at a cost of $1.2 million.

Favaro also represents a Dili shipping agent and has a travel agency. His coffee trading company has begun natural gas distribution, an outgrowth of his restaurant's need for stove fuel. His 20-hectare coffee plantation near Dili ran wild during the family's exile. Getting it back into production will take about two years. Down the road, maybe a convention center, he muses.

Another optimist is Jose Ramos-Horta, the former independence activist who shared a Nobel Peace Prize with Dili Bishop Carlos Ximenes Belo. "We have the resources and leadership so that Timor can be prosperous," says Ramos-Horta, who has ended 24 years of exile in Australia. He would like to see the territory jump direct from ground zero to the 21st century, as a wired outpost of the New Economy.

"Why is it far-fetched?" he queries as chickens peck at the dirt nearby. "We don't have anything, so we can start with the best technology." Then reality check: he says "we will have made it" if East Timor can eliminate the scourges of malaria and tuberculosis.

No doubt there is money to be made in Dili, at least from well-paid development specialists and aid-agency staff. Some $520 million in aid pledges pass through two funds managed by the U.N. and the World Bank. But many fear that the corps of expat experts, along with the inevitable carpetbaggers, is creating an unbridgeable wealth gap between itself and the great majority of East Timorese . Lifting the poor masses will clearly be the nation's biggest challenge for years to come.

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