Subject: AFR: Lisbon leads new Timor invasion

Australian Financial Review December 7, 1999

Lisbon leads new Timor invasion

By Geoffrey Barker

A helicopter carrying Joao Manuel Tubal Goncalves and several suitcases full of newly printed Portuguese banknotes landed in Dili from Darwin last Sunday week. At the same time, a container with six tonnes of Portuguese coins was unloaded in Dili harbour.

The next day, Banco Nacional Ultramarino, Portugal's major overseas bank, opened for business in a bare but freshly painted building that stood relatively undamaged in the wreckage that passes for Dili's central business district.

More than 400 years after they first set foot on East Timor in search of sandalwood, and 25 years after they abruptly withdrew from their neglected colony as it plunged into civil war ahead of the Indonesian invasion, the Portuguese were back.

Their objective: to re-establish economic influence over independent East Timor under the United Nations Transitional Authority.

BNU, at present the only bank in East Timor, is the spearhead of the Portuguese push.

The catalyst for the fast move by BNU director Goncalves and his staff was a controversial UN decision to make the escudo the official currency of East Timor - despite the fact that no-one in East Timor wants to accept it. The main currencies in use are the Australian and the US dollar, and still (for the time being) the Indonesian rupiah.

As Goncalves tells the story, BNU's return was motivated primarily by Portugal's desire to meet its obligations to some 800 Timorese still entitled to Portuguese pensions paid in escudos. Judging by the crowd of hundreds of East Timorese milling around the bank's locked front door last week, a lot of people were looking for their pensions.

Sitting in a slightly chaotic office, at a desk containing a computer screen and some Telstra bills, Goncalves says the escudo is fully convertible and euro-denominated and the bank is willing to change escudos for any other currencies it has or its customers want, except the rupiah.

With some pride, Goncalves notes that some customers are already opening accounts to deposit part of their escudo pensions.

But given that no-one in East Timor wants escudos, and that escudos buy few Australian or US dollars, the pensioners would seem to have little option but to stash them away in the bank and hope that they gain value when East Timor revives its economy.

In fact, BNU's move seems clear evidence that Portugal is moving to set up an economic enclave in East Timor, presumably in order to retain an Asia Pacific presence after Macau's return to China.

Senior Australian foreign policy officials are not pleased about the prospect of enlarged Portuguese influence in the region. Pointing to the history of East Timor, Mozambique and Angola, they note that Portugal's post-colonial record is tainted and they question Portugal's economic capacity for effective and reliable long-term economic support.

There may even be a hint in some Australian attitudes that East Timor's apparent willingness to entertain approaches from its former colonial master reflects a lack of acknowledgement of Australia's economic and political support and role in peacekeeping.

But so far, Australian banks have shown no interest in moving into the East Timor vacuum, although Telstra has established a mobile phone service, and Australian firms in Darwin have snatched a lead in providing shipping services, construction and other materials, rental cars and rough-and-ready hotel accommodation and meals in Dili.

The Portuguese Foreign Minister, Jaime Gama, visited East Timor last week, pledging to make it one of Lisbon's foreign policy priorities.

Given Portugal's 400-year history of exploitation and neglect in East Timor, Gama's pledge seems a late recognition of some responsibility for East Timor's plight.

He told The Australian Financial Review that Portugal had already injected some $US60 million ($95 million) into East Timor between March and December, and expected to contribute $US75 million next year.

It also intended to support East Timor's balance of payments for five years at a cost of up to $US100 million a year.

Given this level of support, the East Timorese may happily embrace the escudo as the nation's currency, especially if it brings Portuguese investment in its wake.

Gama tries to play down suggestions that Portugal is moving to economically recolonise East Timor. "We are present in the Orient in a modern version - as we are in Goa. We expect East Timor to be independent, with good relations with its neighbours Australia and Indonesia and regional bodies like ASEAN and APEC," he says.

But given the use of the Portuguese language and the re-establishment of an essentially Portuguese continental legal system in East Timor, there seems little doubt that Portuguese influence, economic and otherwise, will be cemented in place fairly quickly.

According to Goncalves, BNU's role will be to pay Portuguese aid subsidies to East Timor as well as old pensions. He notes that the escudo was the local currency before the Indonesian invasion.

At present, Goncalves says, the lack of a financial legal system prevents BNU from making loans until laws are in place. He says BNU is a commercial bank which has always been very active in assisting small to medium-sized enterprises.

Goncalves says neither Portugal nor BNU feels any debt to East Timor. "We do not think like that. We are willing to help as much as we can."

He says that in Portugal the BNU group is setting up an East Timor development company, partly State-owned, partly private, to undertake infrastructure projects. "There are companies which are very interested," he says.

Gonclaves says that if East Timor becomes "a very low-tax territory", the capability of the people, the land and offshore resources could make it a very good place for investment by Portuguese firms.

No country has spoken up more than Portugal in defence of East Timor, according to Goncalves. "Ask people to wear white for East Timor or to put white sheets in windows for East Timor, or to form human chains for East Timor, and they do it in Portugal," he says.

"There is a deep understanding. The Timorese have a connection with us. We are not coming as we did before. That is out of the question. We are not coming with the ideas of the past."

But the Portuguese are clearly coming, and the bankers are leading the way. Meanwhile, for Christmas, Australia is exporting John Farnham and the Duntroon band. Fine entertainers, but no match for a suitcase full of escudo banknotes.


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