OPTIMISM ON THE LONGER TERM ECONOMIC OUTLOOK FOR EAST TIMOR

Australian Foreign Minister Alexander Downer is in East Timor. It's the first such visit since Indonesia invaded in 1975.

And, with people registering for a United Nations-sponsored vote on the future of the territory, the focus is sharpening on whether East Timor has the economic capacity to go it alone.

Most of East Timor's money comes from Indonesia, funds which will be cut off if voters reject its offer of greater autonomy in favour of complete independence.

Finance Reporter Tim Cribb assess the territory's economic outlook:

CRIBB: If East Timor votes next month to reject autonomy with Indonesia and opts instead for independence, it will enter the global economy as one of the poorest countries in the world.

In 1997, it ranked only marginally ahead of the five poorest countries in Africa, with a per capita income of just 168 US dollars a year.

Pro-independence leaders argue that an independent East Timor can be economically viable. The pro-Jakarta group says it simply can never afford to go it alone.

But that, says Timorese economist Helda De Costa, is too pessimistic.

DE COSTA: A lot of people are talking about East Timor being unviable. It's understandable because East Timor has never been able to run its own affairs, due to the historical and colonial legacy.

But if East Timor is given a chance, I believe, from my own economic perspective, I believe that East Timor will be viable not in the near future, but in the next 15 to 20 years. If we put all the economic policies in place, we can say that East Timor is viable in comparison with other small countries.

CRIBB: Economist Michael Backman, author of "Asia Eclipse - Exposing the Dark Side of Business in Asia", paints a picture of cautious optimism for an economically viable, independent East Timor.

BACKMAN: It does have quite a few natural assets, contrary to what is often said. And I think there's a lot of potential there for the people. And the other thing also that we should remember is that there is now a very large diaspora of East Timorese, both indiginous people and ethnic Chinese right around the world. And I think this is going to be a tremendous resource for a sovereign East Timor.

CRIBB: How long before East Timor can stand on its own feet?

BACKMAN: It's a very big question. Obviously it's going to require a fair amount of support from many sources. I think the Catholic Church, Australia obviously, the IMF, the World Bank and other donors, and Portugal of course, are all going to have to chip in for quite some time to come. But I really don't think it's fair to say that it's the basket case that many people would have you believe.

After all, if it was such pitiful situation, why did the Indonesian military move in in the first place? And why are they so reluctant to leave? The answer by and large is because it is very profitable for them to be there.

CRIBB: What does the East Timorese economy look like at the moment? BACKMAN: Well, it's not a pretty picture. After all, it's the effect that occupying armies tend to have on local economies. I mean, if you want to have sound capital formation, one of the ways not to have it is to have an unfriendly occupying force there.

And there are many structural problems. There's problems obviously with tax collection and so on. Infrastructural problems. But all of these things will improve once the political situation settles down and there's a better policy framework, and so on.

I think the one thing you can say about the East Timorese economy right now is that right now is as bad as it's going to look.

CRIBB: One of the main forms of income that pro-independence leaders tout is from oil and gas deposits in the Timor Strait, between Australia and East Timor.

The Timor Gap, once hailed as a repository of 11 billion dollars worth of oil and gas, brings in a mere five to six million dollars in royalties, divided between Australia and Indonesia.

Backman says it just won't prove to be the windfall expected.

But he says there are other elements there for a self-supporting state.

BACKMAN: One of the main things the economy has going for it is coffee. And, fortunately for East Timor, the main coffee that's grown there is "arabica" coffee that is sold at quite a premium on world markets. Certainly it's sold at a premium to more robust coffee.

The other thing that the place has a lot of is very high grade, high quality marble. You can see all this marble right now in hotel lobbies and so on in Jakarta. And I believe in some parts of East Timor you have entire mountains of marble.

So there's yet another thing. Gambling of course - you could always operate a casino or two in East Timor.

Also as a sovereign country, East Timor can generate cash in ways that it currently can't. For example, it could possibly reserve some satellite space. Another thing it could do is to sell fishing rights. There are quite a few options.

CRIBB: Coffee is touted as a 30 million US dollar income earner for East Timor, a quarter of its current estimated funding by Indonesia.

Loss of the Jakarta money, 120 million dollars by most estimates, will be a major concern for any new East Timor government.

Pro-Independence spokesman and Nobel Peace Prize winner Jose Ramos Horta has said East Timor will need up to 200 million dollars a year in foreign aid for five years.

But replacing aid with direct foreign investment will not easy.

HOGARTH: I don't see any quick move from foreign investors to rush in and get involved.

CRIBB: Rob Hogarth, partner at KPMG and President of the Australia Indonesia Business Council.

The Indonesian Chamber of Commerce and Industry tried in vain to put together groups to explore opportunities, particularly in mining.

Investment beyond the funds pumped in by the Indonesian government has been virtually non existent.

Mr Hogarth says security, and how business will be funded, are important considerations.

HOGARTH: I would expect that in the first few years at least most projects will have to be funded by some form of aid. Of course the big exception to that is oil that's known to be in the Timor gap area. And it's understood that East Timor will continue Indonesia's approach to the cooperation arrangements with Australia in respect of those areas

CRIBB: Mr Hogarth says security will be the first concern of foreign investors before they look seriously at East Timor.

HOGARTH: Hopefully that can be fixed pretty quickly. Then I think foreign investors will be looking at what the new government's attitude would be to foreign investment.

Both the leaders have expressed a view that they would have a very open foreign investment regime, so that should be okay. Then once that's established, it's just a matter of the economics of business. And being such an impoverished economy, that's going to be difficult, I would imagine.

CRIBB: East Timor is no Singapore or Hong Kong, but it does share many of the same features of the South Pacific micro states, such as Vanuatu, Fiji, and Solomon Islands.

All have limited arable land or natural resources and small populations, but they are essentially going concerns economically. Economist and author of "Asian Eclipse", Michael Backman.

BACKMAN: You know, being small doesn't mean that you can't survive. In fact, right now in the world there are something like 35 sovereign nations which have populations of less than half-a-million each. And those countries tend to out-perform larger countries. They're certainly disproportionately wealthier than many other larger countries.

So frankly, I believe that probably the best option for East Timor, if it wants to improve itself commercially and economically, is to leave Indonesia. And, as you've mentioned, a lot of the micro states in the South Pacific, they can survive, some quite successfully.

If you look at Fiji, for example. Fiji actually has about the same population and roughly the same land mass as East Timor, and yet nobody out of Canberra or anywhere argues that Fiji should be taken over by anyone, just because it's simply small.

CRIBB: An economically viable East Timor will depend on what happens after next month's referendum. Clashes between pro-independence and pro-Jakarta groups have been escalating and it will be neccessary for rivalries to be put aside.

Timorese economist Mr De Costa says it will be no bed of roses for an independent East Timor.

DE COSTA: Of course, there has to be a hard-working attitude by all the people of East Timor. And to do so we have to forgive and to accept our own mistakes in the past, sit down together, reconcile our differences, and look forward to building our democratic institutions, democratic government. And of course this won't all happen overnight.

(first broadcast on Friday 30 July 1999)

© 1999 Australian Broadcasting Corporation

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