Subject: TLGov: XG On recent allegations of corruption against the Ministry of Finance



H.E. Prime Minister Kay Rala Xanana Gusmão

Statement to the Press

On recent allegations of corruption against the Ministry of Finance

12 May 2009

For the past six months there has been a lot of news about corruption in the AMP Government. Many different ministries and Ministers have been accused of wrong doing, usually through the media rather than being given a fair hearing through the Courts.

Recently the focus has come on the Ministry of Finance where everybody from the Minister, to the Advisers and now including our donor partners are accused of being corrupt!

All this public debate about corruption is a positive sign that finally we as a nation are able to discuss these things in open and that we are not afraid to tackle them and this is something my Government is proud of as we wish to encourage this debate.

However, we also have a responsibility to get all the facts and represent them fairly so that our people, who are hungry for clean Government, are given all of the information, not just one part of the story. Sadly, this has not always been the case up to now.

Recent intensity of claims against Ministry of Finance

A good example is the recent number of articles about the Ministry of Finance.s multilateral project Public Finance Management Capacity Building Program (PFMCBP). In these articles we hear that this is an AMP project, which has a corrupt arrangement with the World Bank where there are advisers paid higher than anywhere else who do nothing other than maintain corrupt practices.

Let us look closer now at the whole story piece by piece.

For a start the PFMCBP project was approved on 21/03/2006 and became effective on 15/11/2006. This means that this was a project initiated under the previous Government. The project was designed to run for five years and this is why when the AMP Government came into power in 2007, we inherited it.

It is ironic that Fretilin now criticizes this program, particularly the high wages, when in fact the manner in which consultancy rates are applied have been the same.

In 2003, a Chief Procurement Project Advisor was awarded a contract of USD$396,000.00; on Sept 12, 2003, a contract award of $397,000 was granted to a Chief Financial project officer and on Jan 16 of the same year 2003, USD$210,000 was awarded to a part-time legal advisor. In January of 2005, the rates increased, a project manager was paid a salary of USD$477,000. The same month, still under Fretilin.s government, another contract was awarded for an agricultural consultant at a rate of USD$568,000 and a short term procurement advisor was paid USD$194,000.00.

As far back as 2002, under Fretilin.s first government, an architect was paid $426,000 for a short term consultancy, on July 14, 2006 a Tax and legal advisor to the Minister of Finance, this time under the PFMCBP, was awarded a contract fee of USD$330,000.00.

Even Alexander Downer, former foreign minister of Australia, defended the international advisors fees in the Australian Parliament in 2005, (Consultancy Services, Question No. 2565). When asked about a Strategic Management Advisor.s fee of $381,700.00, Mr. Downer replied “AusAID does not possess the expertise required for this position within the Agency. As per standard practice a suitable expert was therefore contracted to provide these services.”

But this does not just happen in Timor-Leste, it is all over the world. In Mozambique for example, a Procurement advisor was paid USD$600,000.00 while a Technical advisor was paid as much as USD$877,000.00. In the Soloman Islands a Telecommunication advisor was paid USD$400,000.00 while an Implementation advisor was paid USD$540,000.00.

This does not mean that my Government agrees with these wages, but these are the facts of international advisors fees It has been like this ever since Timor-Leste became independent. The levels of these wages are determined by the international competition. What I do not understand is why Fretilin is raising this issue now when they have been partaking in these practices. In fact, during their governance, when they were not able to get the donors to pay for the international advisors, they turned into the State.s budget with similar salaries and far less results.

Let me make one thing very clear. Discretionary hiring of advisors is not considered corruption or nepotism in any Government worldwide. Ministers should be able to get the best possible team to deliver the best possible results.

From the beginning, like with many Ministries at the time of the change of Government, there was no proper handover from the previous Government to my Government. This was sad and occurred across every Ministry of my Government except for Health. For example in Finance when we came in we found records in Customs had been burned, the computer systems damaged, many of the files were missing and the computer records showed many transactions, but not who had received the money.

The situation was bad, we quickly realized that this was why the previous Government had not been able to be transparent or spend their budget. But the size of the task facing us was indeed very large.

The problem was not just with the management of systems, it even spread to the management of projects.

When we came in, the AMP government began the long process of a full independent review of the Ministry of Finance. We asked an international firm of accountants Deloittes to analyse the situation. We also looked at the World Banks review of the PFMCBP project to see if we could make it work better.

What we found was that the situation was worse than we had expected. The Deloittes team found that there had been “almost no training” provided to staff in key areas like Procurement. The existing documents, including some laws were too complicated for use in Timor-Leste and did not reflect the capacity of the staff in the Ministry to handle them. As a result there was an over-reliance on advisers to perform line functions many of whom only spoke English which was confusing the public even more. We found very poor record keeping, no 4 filing system and even the computer records were weak for example there was no record showing who the Government had paid for over half of its purchases during 2006/2007 fiscal year. The Deloittes report said that 54% of all public spending during that year was classified to a company called “no vendor”.

They found that many of the laws we had at the time were inflexible, not appropriate for the country at this stage of development which added to the difficulties.

We also reviewed our donor projects. We found that in the Ministry of Finance there were lots of projects all working independently. Some were not working so well such as the World Bank Supervisory Team who reviewed the PFMCBP project in 2007 indicated in their implementation report:

“...on the whole performance was rated unsatisfactory.1 Following elections in 2007, a new Minister of Finance took strong ownership of the program, and with the appointment of a country-based TTL in November 2007, the Bank and the Government agreed on a schedule of actions to bring the program to „full functionality. by December 2008.”

1 Implementation Status Report, 10/20/2007

So you can see what a mess we inherited:

* Poor systems

* Limited training of our public servants

* No records

* No coordination and guidance to our donor partners to help them make their projects work for our country

We knew that we had a big job ahead of us and that this would take many years to fix. This is why for example in the Ministry of Finance we undertook a major reform program.

We brought together many donors under the one roof and reformed the PFMCBP now, it is not just World Bank but is funded by many other donors. This way they can be better co-ordinated. Then once everyone was under one roof we began the process of improving the project. As we identified the needs of the Ministry, which was also going through its own reform, we adjusted the project to support the Ministry needs. This meant that where we no longer needed advisors, we let them go, where we needed, we either kept them if they were found to perform well or recruited new ones. Regarding their wages, there was nothing much we could do but either maintain them as set by the previous arrangements or match them against other international rates as I have already explained before. It is a fact of donor support that their advisers are paid well in order to make them willing to give up their homes and live in Timor-Leste for a short while.

Over time we have reduced the number of advisers. We have also looked at the problem of language and actively recruited more Timorese as advisers, taking them from institutions like the UN, other multilateral or bilateral agencies. Here again, we have had to match salary levels to attract them. All international advisers in the Ministry of Finance are also now required to undergo language training to improve communication with the Timorese local staff. All advisers also have to prepare counterpart training plans that are monitored on a monthly basis. In addition we re-organised the project and for the first time made project funds available for scholarships and training for local staff both in Timor and overseas.

These changes took time to make and there are still more improvements being made.

In terms of the Ministry of Finance, we re-organised the Ministry from ten departments that did not co-ordinate or work together into four general directorates. It took over a year of discussions but finally, the Ministry of Finance is now operating under an approved Organic law, which was not the case in the previous Fretilin governments. In fact, the previous governments never had an organic law for their finance ministry. Within each of these areas we undertook a great deal of reform. For example, in the area of

State Finances:

* We upgraded the computer records, so that staff can better understand the information. This year we are upgrading the computer system itself this will include for the first time having screens in Tetun and Portuguese.

* We put the Government payroll onto the computer system. Before cheques were done manually.

* We now have regular reconciliation with the bank accounts.

* We devolved procurement this involved the training of over 300 public servants.

* We standardised procurement records. We will soon computerise contracts so that they can be made available on the internet as well as tender results.

* We introduced new monthly reports for the whole of Government.

* We are slowly re-building the register of all Government assets. This was never maintained nor updated in the previous governments. That was why we could not even find the cars purchased or donated under the previous governments. We had very little accurate information on the state of Government assets.

* Now, we have developed rules for the disposal of assets

In the Revenue and Customs area:

* We introduced a new tax and customs law which was implemented from 1st July 2008.

* We introduced a new computer system in tax and fixed the computer system in customs to monitor and track tax payments.

Within the Macro-economy sector:

* We have for the first time created an overall model of the economy which we use as a basis for our budget this is a complex task but important to help us manage our resources effectively.

But this is not all, we are also investing in the long term training of our people. We have allocated five million dollars to this under the PFMCBP.

Part of the Ministry of Finance reform was the restructure of the ministry itself. This meant new posts were created where a need was identified, other posts were abolished where we no longer needed them. To fill in the most senior posts, four Director-Generals and 12 National Directors, the Ministry recently completed a very extensive world-wide recruitment program to try and find the best Timorese staff for these posts. We had 190 applicants who through a rigorous process of written tests, group interviews and individual interviews were narrowed down to nine successful candidates.

From these nine candidates four have been selected on a probationary basis to be Directors General and their appointments will be on a performance basis.

Again this took time and whilst this extensive process was going on the Ministry did rely on having international advisers support the vacant positions until they could be filled. But as you can see this was part of a process to fill these positions, not an attempt to deny Timorese access to these key positions as accused by some.

However, the recruitment exercise also highlighted how few Timorese have been given the skills they need and the access to a quality training and education program. As I have mentioned we are seriously looking at this problem but in the meantime it will mean that we will need to rely in international staff to make sure that we can maintain and improve our systems so that we can deliver our services to the population.

I hope that now the whole story makes a bit more sense. Maybe now you can understand better why the previous governments struggled in the past to deliver services. One reason was that it could not get money out to the line Ministers, the other was that staff were not given proper training and the third was that there was no proper coordination with the efforts of our donor partners. This may be why poverty in our country reached 49% by 2007.

The AMP Government has been working tirelessly to address these problems. We have had success, the economy is now growing. In 2007 it grew by 8% and in 2008 by 12.3%. The AMP Government has been able to maintain growth rates at levels that for the first time will reduce poverty. We have achieved records levels of execution. Our execution rates have been the highest recorded since independence, a 283.6% percent increase from 2006/2007, meaning that for the first time line Ministries are getting the funds they need and have the capability to spend these moneys on the nation and the people. Vulnerable people are beginning to get their needs met folk such as the veterans, the aged are getting the recognition they deserve. Because of this, we have also been able to create 47,000 casual and temporary jobs in 2008.

We have overcome many hurdles to get this far and we recognise that there are still many challenges ahead as we try to continue our efforts to improve the lives of all of our people. Whilst it is true that there is still much to be done, this does not mean we will not continue on down the road of reform and improvement, but it is a long road. We should understand and learn from the failures of the past in order to build a better future.

As I said at the start the AMP Government has always stood against corruption and for transparency. This is why we initiated the Anti-Corruption Commission 8

and the various reforms across every level of Government. This is also why now there is more information available about Government operations than before.

With no records, a private sector unwilling to reveal the truth in case they lost out, it is difficult to prove corruption. Nevertheless, there are cases that the Ministry has been following up. However, this has been a complex and time consuming issue. In order to be fair to all concerned we have had to review the initial investigations and assist in having documents translated, statements re-taken and then the cases will be presented back to the relevant institution. Although this is not the responsibility of the Ministry of Finance, it shows the commitment to clean Government that exists within the AMP government.

But at the same time I am saddened, that sometimes people also use illegal means to obtain information. This means that the information they receive is tainted, inaccurate and misleading. It saddens me that people would use such means to try and manipulate and confuse the public. However, at the same time it makes me and the AMP Government more committed to clean Government that is accountable to the people. But for that to happen the people have to be given accurate and full information.

This is something we will need to work and pursue tirelessly.

In the meantime, expect that there will always be people who will deliver half truths and will twist the facts to promote their self-interests. But we trust that the people of Timor will remember who took the country down this road to transparency and economic growth; who has shown its commitment to the poor and the vulnerable; and therefore at the end of the day, who they can or can not trust in terms of actually telling the truth.

Speaking about telling the truth, leads me to speak about freedom of the media to tell the truth. You who represent and report for the media have a very great responsibility. Your freedom to tell the truth is enshrined in our Constitution. I urge to question your informers, seek some evidence, some extra support for their allegations. Do not allow yourselves to be manipulated for when you do, you abuse the very freedom which supports your profession.

I am also saddened by the repeated attacks on our donor partners, they are not corrupt and the people of Timor-Leste are not corrupt.

We are all human beings working in very hard circumstances to improve the lives of our fellow citizens. This is what matters.

The AMP Government wants to make sure that every Timorese citizen sees an improvement in his quality of life.

And we will continue to work hard to make that happen.

Thank you.

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