Subject: FT: East Timor sees oil cash easing aid reliance

East Timor sees oil cash easing aid reliance

By John Aglionby in Dili

Published: May 8 2007

When Francisco Guterres, East Timor’s parliament speaker and one of the two candidates in Wednesday’s run-off presidential election, wanted his house floors retiled he employed 15 local labourers. “But I had to employ an Indonesian foreman to oversee the project too, because the Timorese couldn’t do the job properly,” he says.

To Mr Guterres, chairman of the ruling Fretilin party, the anecdote speaks volumes about the scale of the challenges facing East Timor as its voters prepare to elect a largely-ceremonial president and, in the coming three months, a new government.

Almost eight years after Indonesia’s scorched-earth withdrawal after 24 years of brutal occupation and even after the spending of more than $3bn in foreign aid in a UN-led nation building effort East Timor’s economy remains in a parlous state.

Unemployment is 40 per cent and rising, 45 per cent of the 1m population survive on $1 a day or less, and just 50 per cent of the adult population is literate.

The government bureaucracy remains fragile after a year of political turmoil, spurred by the May 2006 collapse of the security forces amid communal violence that led to the deployment of foreign peacekeepers.

Even as foreign aid has poured in since 1999, budgetary constraints have hampered economic development. The government has had, for example, only a little more than $1m (€730,000, £500,000) to spend on infrastructure annually. The total budget for the mayor of Baucau, the country’s second city, was just $800 last year.

José Ramos-Horta, the Nobel peace laureate, current prime minister, and the second candidate in today’s election rejects suggestions that East Timor has become a failed state.

“It would take you two or three years more or less to have a successful fish and chip shop in London,” he says. “So it is completely wrong for people to expect Timor Leste, after four or five years, should be successful in every aspect.”

Mr Ramos-Horta, who took over the prime ministership after last year’s crisis forced the resignation of Fretilin’s Mari Alkatiri, hopes to turn the country around by allying with Xanana Gusmão, the outgoing president. The latter has formed a new party to challenge the leftist Fretilin in the next election.

Mr Ramos-Horta’s ideas in-lude outsourcing elements of the bureaucracy until the Timorese have developed sufficient skills. “Why should I have an incompetent individual running our procurement when I could have a prominent British consultant do it for me.”

Analysts lay part of the blame for the economic problems on Fretilin’s leftist policies, which yielded things such as a delay-plagued centralised procurement system.

Pitiful government salaries have compounded the problem, driving many of the most competent people to the aid community where drivers can earn twice the $250 monthly salary of Amândio Soares, the senior official in the mines and energy directorate. “I’ve never seen as big an aid industry as a proportion of the country,” says Roger White, adviser to Mr Soares.

Some of that should change under the new government because this year East Timor will be able to use significant revenues from the oil and gas extracted from the Timor Sea. Analysts estimate oil revenues for 2006-07 of $644m will go into a petroleum fund, established in 2005, containing more than $1bn and expected to grow by more than $1bn a year for the next 20 years.

The government has said it expects to be able to spend about 3 per cent of its petroleum wealth in perpetuity. That could make a big difference, diplomats say, particularly if spending means many of the now restless youth can be put to work.

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