Subject: E Timor: Portuguese escudo causes mass confusion

Sydney Morning Herald Friday, December 3, 1999

To market, to market,with a fistful of useless cash

By MARK DODD, Herald Correspondent in Dili

As East Timor struggles to rebuild, a United Nations decision to introduce the Portuguese escudo into the fragile economy has caused mass confusion among an impoverished population now faced with a choice of four currencies, none of them freely convertible.

One kilogram of freshly harvested potatoes will cost 20,000 rupiah at Dili's Mercado Municipal (central market). The UN shop in the UNTAET headquarters office charges $A5.20 for one 100 gram jar of instant coffee, while guests at the Turismo Hotel in Dili pay Alex the manager in US dollars.

Neither premises accept alternative currencies. Now add the following.

Portugal's overseas bank, Banco Nacional Ultramarino, which began trading here this week, pays out to ex-public servants of the former Portuguese colony crisply minted escudo notes. The bank also buys Australian and US dollars, but sells only escudos.

Unlike the Australian dollar and the Indonesian rupiah, the Portuguese currency is as good as useless in this one-bank territory because it cannot be converted.

Stallholders won't touch it, neither will the UN shop, nor Alex the hotel manager. The driver of one foreign mission who gets paid in escudos is unable to spend them because there is no foreign exchange. How does he buy food for his family?''What can you do with the escudo if you cannot spend it at the market?'' said one diplomat.

The saga of the escudo can be traced to one senior UN officer in Dili, Mr David Harland, a New Zealander, and the Acting Deputy Special Representative for the Secretary-General (DSRSG).

According to a senior UN official familiar with East Timor's currency quagmire, following meetings in New York between the UN, Australia and Portugal about procedures for paying former East Timorese public servants their pensions, Mr Harland signed an agreement allowing Banco Nacional Ultramarino to open business.

The move has its supporters, including several senior leaders of the National Council of Timorese Resistance (CNRT) - among them Mr Jose Ramos Horta, the CNRT's ambassador at large.

According to diplomats, Portugal's generous offer to underwrite East Timor's balance of payments for five years, amounting to about $US100 million a year, may be one incentive for an appreciative UN to adopt the escudo as the local currency.

The former head of the UN Mission in East Timor, Mr Ian Martin, raised concerns about the establishment of a Portuguese bank paying escudos to public servants. ''It should be done through the UN and should be fully integrated,'' he said.

Diplomatic sources in Dili told the Herald that Mr Harland was anxious not to upset the Portuguese. At any rate, he undid weeks of discussion in New York that aimed to have Portugal's contributions paid through the UN Trust Fund for East Timor.

The International Monetary Fund is keen to see a foreign exchange service established in East Timor.

Australian diplomats told the Herald that Australian banks were cool about setting up in East Timor, although Westpac is considering providing banking services for the UN operation.


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