Subject: Lusa: Major economic challenges ahead, reduced oil revenues - IMF report

East Timor: Major economic challenges ahead, reduced oil revenues - IMF report

Dili, Oct. 13 (Lusa) - The International Monetary Fund says that East Timor faces "significant economic challenges" and cautions that the new nation`s future oil and gas revenues will initially be "substantially less than predicted".

In its annual assessment of Timor released Tuesday and drawn up after consultations with senior Dili officials last month, the IMF notes that Timor continues to experience serious unemployment over two years after its independence from Indonesia.

The world's newest nation, also Asia`s poorest, will continue to rely on international donor aid to balance its budget, says the IMF report, which also recognizes that Dili will have to use some of its oil wealth to "meet pressing investment needs for infrastructure and human capital development".

Some of Timor`s hydrocarbon earnings, however, will need to be put aside for future non-energy sector investment and Dili`s non-oil tax base will have to be broadened over the long term to prevent over reliance on hydrocarbon revenues, says the world financial body.

"Deep-rooted structural problems" including weak infrastructures, low productivity and a judicial system unsuited to the needs of business activity also pose serious obstacles to Timor's development and breaking of its aid dependency, says the IMF.

Meanwhile, Prime Minister Mari Alkatiri has said that details of Timor`s petroleum fund will be will be presented for public consultation in coming days days ahead of its expected approval by the Dili National Assembly in mid-2005.

Timor's oil fund plan was announced in November, 2003 and the concept has been borrowed from Norway, which has created a similar body to manage its oil revenues from the North Sea.

In comments to Lusa Wednesday, Alkatiri said Dili`s petroleum fund would ensure that Timor's state budgets were subject to "rigorous control mechanisms".

The Timorese leader also commented on last month`s negotiations with Australia on disputed maritime borders in the Timor Sea and his government`s efforts to get a larger slice of future hydrocarbon revenues from its larger neighbor.

"There is no deadlock. Negotiations have been productive. There has been progress in each round of talks, but we are still a long way from reaching a solution".

A first round of talks on the contentious Timor Sea oil carve up between Dili and Canberra took place in April, resulting in an impasse as Timor pushed for a redrawing of sea borders to a midpoint between the countries as a basis negotiations.

Oil companies involved in Timor Sea gas and oil developments threatened to pull out of projects if Dili and Canberra's dispute dragged on into 2005.

After a second round of talks in September, both governments said they were more optimistic of mutually satisfactory resolution of their dispute.


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