Associated Press

May 25, 2008 Sunday 1:37 AM GMT

East Timor president says falling US dollar hurting country's rebuilding efforts

By DERRICK HO, Associated Press Writer

SINGAPORE

The depreciating U.S. dollar and rising oil prices are taking a toll on East Timor's efforts to rebuild its shaky economy, the impoverished Southeast Asian country's president said.

East Timor, Asia's youngest nation, celebrated six years of independence this week following decades of harsh Indonesian rule. It is struggling to achieve economic and political stability despite being rich in oil and gas resources.

President Jose Ramos-Horta said in a speech late Saturday that most of the country's petroleum revenues are invested in low-interest U.S. Treasury bonds, whose return rates have further been affected by the falling greenback.

Ramos-Horta told the Singapore Foreign Correspondents Association that when he was foreign minister five years ago "I was alerting my colleagues to pay attention to the coming devaluation of the U.S. dollar, to the coming increase in oil prices."

He said he told them "let's start diversifying our investment portfolio. Well, no one listened."

Although not a major oil and gas producing country like Kuwait and Qatar, East Timor's offshore hydrocarbon resources earn it $100US million (euro65 million) to $200US million (euro130 million) a month. By the end of the year, the country will have US$ 3 billion (euro1.95 billion) in its state petroleum fund, said Ramos-Horta.

But the country whose 1 million people earn an average of less than a dollar a day cannot rely heavily on these earnings because of their low yields, Ramos-Horta said.

"More and more, we will continue to invest in agriculture and fisheries in order to be not so dependent on oil and gas revenues," he said.

"It doesn't take too much intelligence to realize that with the dollar depreciating, more likely oil prices will go up. That means possibly in Timor and (in) many developing countries, we are going to see a lot of instability. And poverty levels will increase," he said.

The Nobel Peace Prize laureate, who survived an assassination attempt in February, did not elaborate on what he meant by instability whether political or social.

Looking healthy, Ramos-Horta said his government has been able to cope with the recent hike in rice prices but warned that it cannot always rely on rice imports.

He said climate change and the industrialization of rice-producing nations such as China, India and Vietnam will mean land for agricultural purposes will be reduced and these countries will need more rice for themselves.

"(East) Timor cannot allow ourselves to be choked to death because of this. We need to invest more on land and agriculture," he said. He also said the country will be investing in infrastructure including roads, a new port and alternative energy sources to produce electricity.

The country's top aid donor is Australia, but Ramos-Horta said it was also looking to Middle-Eastern countries, such as Kuwait, for "soft loans" to rebuild the country.

He also said the government hopes to eliminate unemployment now about 40 percent in two years and complete its infrastructure in the next five to ten years.