Poverty, Economy Trouble East Timorese Mon May 19, 9:46 PM ET

By MICHAEL CASEY, Associated Press Writer

DILI, East Timor - A year after independence, dozens of burned-out buildings dot East Timor's capital — haunting reminders of the country's bloody history.

Unemployed men hang out on Dili street corners hawking phone cards, oranges and cigarettes. In the countryside, residents live on as little as 55 cents a day. Clean water and electricity are luxuries most do without.

The impoverished state of this half-island has cast a shadow over celebrations planned for Tuesday, its first anniversary of independence.

On Monday, a few people danced in the streets and a church service was held at the Dili Cathedral. Flowers were laid at the Santa Cruz cemetery — where 200 people were killed by Indonesian soldiers in 1991.

Timorese say they are glad to be free of the gunfire, militias and repression that marked Indonesia's 24-year occupation. But they complain an economic payout from independence — jobs, housing and basic services — is overdue.

"Under the Indonesian government, we were physically oppressed. We were beaten up," said Nelson Belo, a prominent activist who was jailed by the Indonesians. "But at least people could produce goods and sell them. Now, no one has money to buy anything."

After four centuries of Portuguese rule and Indonesia's brutal reign, East Timorese voted for independence in a 1999 U.N.-sponsored referendum. The Indonesian military and its proxy militias responded by laying waste to the former province, killing 1,500 Timorese and forcing 300,000 from their homes.

The United Nations administered the country for 2 1/2 years and then handed it to the Timorese on May 20, 2002. Global leaders welcomed the arrival of the world's newest nation but the jubilation didn't last.

In December, riots broke out in the capital after police opened fire on angry protesters. Crowds torched dozens of buildings — including the residence of Prime Minister Mari Alkatiri. Two people were killed and dozens injured.

A month later, alleged militiamen attacked the village of Atsabe and killed six people. Then, gunmen shot up a bus near the border with Indonesia, killing two people.

Despite the setbacks, most diplomats and Timorese leaders say the government is progressing — establishing democratic institutions, addressing past rights abuses and strengthening relations with Indonesia.

"There is bound to be some letdown after the euphoria if you look at May 2002 as a starting point," said U.S. Ambassador Grover Joseph Rees.

"But if you look at what people were saying in 1997 or after the campaign of terror in September 1999, you've got to say things are a lot better," he said. "East Timor has the potential to be a model for other countries in the developing world, a model of good government, free-market economy, inclusive democracy and acceptance of universal values."

Parliament is up and running, seven universities are open and civic groups are thriving.

U.N. and Timorese prosecutors have indicted 261 people for human rights abuses in 1999 and convicted more than 30, despite a parallel process in Indonesia that human rights groups have called a whitewash.

A former torture center has been transformed into a truth and reconciliation commission and a military headquarters into an arts center.

About 270,000 of the 300,000 refugees who fled over the border to Indonesia in 1999 have returned home.

President Xanana Gusmao acknowledged the difficulties but called on his fellow Timorese citizens to be patient. A former freedom fighter and the country's most popular politician, Gusmao said the country was "moving in the right direction."

The first year "has been a good lesson that our government can use in the next year," he told The Associated Press. "People understand the difficulties."

Outside of Dili, basic services remain woefully inadequate. Only four of 13 districts have phone service, 75 percent don't have electricity and 60 percent don't have access to clean water.

Many ministries are hampered by a lack of experienced staff, the worst being the judiciary. Courts don't function for weeks, inexperienced judges ignore or misinterpret the law and jails are crowded with defendants never charged with a crime, rights activists say.

Foreign investors have been scared off by the country's high wages, red tape, legal uncertainty and security concerns. As a result, the World Bank (news - web sites) and others predict the economy will shrink in 2003 by 2.9 percent. Unemployment estimates reach 80 percent.

"Foreign investors are not very confident about the future," said Jose Rodrigues Jardin, the head of Timor Telecom, the country's largest foreign investor, which plans to spend $50 million over 15 years.

"There is political instability," he said. "People have no jobs. Just look at what happened in December. What happens when the United Nations leaves?"

On Monday, the U.N. Security Council voted unanimously to extend the U.N. peacekeeping mission's mandate for another year. The United Nations Mission of Support in East Timor, known as UNMISET, bolsters the country's administration and law enforcement and helps secure its border with Indonesia.

There are fears among Timorese that militia members — some who remain across the border in Indonesia — may launch attacks once U.N. peacekeepers leave in June 2004, testing a newly formed Timorese army.

Cesarina Soares, a 29-year-old mother of five, says her family can afford only one meal a day. But she says life is better now than before, when the Indonesian army jailed her husband six times on charges of being a rebel spy and militias burned down her home.

"Independence is good," she said. "We can't pay for our own home. But we feel free. We feel proud."

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