Friday, April 18, 2003
ASIA FILE
Can oil fuel East Timor's growth?
The GDP might tumble to a negative two per cent growth this year and won't recover to more than a 1.2 per cent growth in 2004. East Timor will simply have to just hang in there and try to survive before oil and gas revenues start flowing in, says Barun Roy
Published : April 18, 2003
It's a strange situation, but one that shows up how poor East Timor really is. Some 1,600 Timorese had fled to Australia after the 1991 Dili massacre by the Indonesian military and have lived there since. Now that East Timor has gained its independence, Australia is pressuring them to go back, but East Timor doesn't want them to return.
"Coming back means we'll have 1,600 more mouths to feed and we are not yet ready for that," President Xanana Gusmao told a group of Timorese factory workers in Melbourne last month.
Gusmao wasn't being inhuman. The economy he sits over is still too fragile. His government has just signed an agreement with Australia for oil and gas development in the Timor Gap, which is expected to earn the country some $8 billion over 20 years, or $400 million a year, starting 2006. But that's in the future. In the meantime, he has to depend on meagre aid from foreign donors to get the country on its feet. The task isn't easy.
When the Indonesians withdrew in 1999, the country lay in a shambles. Almost 85 per cent of its infrastructure - roads, ports, water supply and electricity - had been destroyed. Towns and cities and factories and fields were burnt down. Rebuilding has begun but the progress is slow.
Even now East Timor's rice production isn't enough to meet even half what's needed to feed a population of 800,000. Industry consists of odds and ends like printing, soap manufacturing, handicraft and woven cloth. Forty-two per cent of the people live below the poverty line and the unemployment rate, in various forms, is a dizzying 70 per cent.
The social problems are as serious. Schools are short of even ordinary things like paper and pencil. There are no more than 50 trained doctors left in the country - many had fled during 1999 and haven't come back - and the few health centres that are there lack equipment and medicines to treat patients.
The law and order situation is very fragile, and student riots last December revealed the inadequacy of the country's police and defence forces. There are signs that pro-Indonesian militias from West Timor are staging a comeback as UN peacekeeping troops prepare to depart in June next year. The UN withdrawal will hit the economy hard as the 6,500 or so UN personnel are actually the only big spenders in town. The government fears the GDP might tumble to a negative two per cent growth this year and won't recover to more than a 1.2 per cent growth in 2004. The public sector is in no position to make a difference and the private sector is small and weak. Labour skills are low. Donor funding helps but clearly isn't enough. So, in the next three years, East Timor will simply have to just hang in there and try to survive before oil and gas revenues start flowing in. The oil and gas treaty with Australia, which came into effect on April 2, demarcates a Joint Petroleum Development Area (JPDA) in Timor Sea between the two countries. All revenues accruing from the development of this area will be shared 90 per cent by East Timor and 10 per cent by Australia. East Timor's major interest in JPDA is the Bayu-Undan field - which it fully controls - with a life of 20 years and a gross value of around $20 billion. Gas from this field is to be piped to Darwin, in Australia's Northern Territory, for processing and export, mainly to Japan.
JPDA also includes part of another, and larger, field called Greater Sunrise, which is owned by Australia. Under the treaty, 20.1 per cent of the revenue generated from Greater Sunrise will be attributed to JPDA, which the two countries will then share on the agreed 90 per cent -10 per cent basis. The government is aware that the various institutions will have to be in place to make the best use of oil and gas revenues. It's also contemplating creating an oil fund to channel oil savings into wise investments.
Meanwhile, an effort is being made to open up a second front in the economy, based on coffee, to serve as a buffer. Coffee is East Timor's major agricultural commodity, grown in its highlands where the soil and altitude are right, and the Indonesian rulers used to earn some $20 million from its export.
It's high-quality arabica, wholly organic, and highly cherished by espresso lovers worldwide. Most of the factories destroyed in the pre-independence violence have been rebuilt and the farmers - some 45,000 of them - have re-established a dependable planting cycle.
Now, the government has arranged to have part of the production processed in Australia at a $10 million plant opened recently. Better processing of beans, the government believes, will immensely enhance the attractiveness of Timorese coffee and an export earning of up to $50 million a year isn't considered unreasonable to expect.
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