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Life after oil: The truth behind East Timor's fading future
ASEAN Today - February 7, 2017
Victoria Wah – East Timor's economy has a positive future thanks to a low inflation environment and significant infrastructure development says a cheery but misleading press release from the government.
The International Monetary Fund says the country's economy is, "expanding at a satisfactory pace" and is, "likely to maintain the momentum into next year," the statement adds. Government officials also point to World Bank projections of rising growth of 5.0 and 5.5% in 2015 and 2016 respectively.
Steady increases in real non-oil GDP in 2015 and 2016 are driving this optimism, and projections show this figure rising by 26.2% (from US$1,412 million in 2015 to US$1,782 million) in 2017. The government says this was due to more spending, particularly on infrastructure projects, and this will enable the private sector to flourish and create higher domestic revenues in the future. However, oil revenues currently provide 90% of government income so any decline in production or spending in this sector will have a significant impact.
A declining economy in the long run
The truth is that the Timorese government has cherry picked these reports as it goes into presidential elections in March and parliamentary elections in July. Since reaching its peak in 2012, Timor-Leste's oil and gas revenues have spiraled downwards, and reserves will drop to the bare minimum by 2022.
The World Bank says, "Development of the domestic economy will be essential. With no new oil fields under development and current wells depleting rapidly, Timor-Leste is expected to be a post-oil country in as little as five years' time." The IMF adds, "The medium-term outlook, however, depends critically on economic diversification."
Limited efforts to diversify the economy and address poverty
East Timor's government acknowledges this, saying it, "will continue focusing on expanding and modernising our agriculture sector, building a thriving tourism sector, encouraging much higher levels of private sector activity and activating industries, including the growth and expansion of small and micro businesses."
But is the damage already done? The government's neglect of job creation in areas other than oil means youth unemployment is currently at 60% in a nation where over half of the population is under the age of 19. This means new efforts to open avenues into the other significant economic areas, coffee and forestry, are particularly important for the future.
The agriculture and fisheries sectors get US$3.2 million in the 2017 state budget, an increase from US$2.5 million in 2016. However, big petroleum projects still make up a significant chunk of spending. For example, the Tasi Mane project for infrastructure on the south coast receives US$49.3 million.
Excessive spending on fruitless petroleum projects
However, organisations like activist group La'o Hamtuk say these projects depend on the commercialisation of the disputed Greater Sunrise oil and gas field in the Timor Sea. This means that unless there is a resolution to the spat with Australia over ownership the planned petroleum export pipeline will never be completed.
These big projects are also unsustainable and cannot solve structural poverty issues. Charlie Scheiner, an analyst at La'o Hamutuk, explains, "The new sources of income that East Timor desperately needs will not come from unsustainable extractive projects like Greater Sunrise, but from a productive, diverse economy based on East Timor's human and renewable resources."
Centralised government with no opposition against wasteful spending
To solve these problems, East Timor needs a more diversified economy. However, investments in mega petroleum projects are politically-motivated rather than for the public benefit, and Prime Minister Rui Maria de Araujo has not moved away from old policies and expenditures. The national unity government also poses a challenge as there are no strong and widely-supported opposition parties to fight for better state spending.
The People's Liberation Party, formed by President Taur Matan Ruak in 2015, holds a 20% share in political support and could yet change that narrative if its populist following builds. Ruak says the country is an autocracy that serves the wealthy elite and pours scorn on projects like plans to build an international airport to serve a population of 65,000 people. According to the President, "The state of Timor-Leste is far too centralised. It centralises skill, power and privileges. It excessively wastes resources, allowing thousands of Timorese to become second-class citizens."
Simply put, in the face of a fragile economy the government has not done enough. Instead, it focuses on profits rather than people, funds big-ticket projects with little social benefit and chases prestige achievements like ASEAN membership. This should be a huge concern for the Prime Minister, and countries in the region, as the threat of a failed state and possible refugee crisis grows. Despite their big claims of progress, Timor-Leste is actually spiralling downwards. Unless its leaders act swiftly, Southeast Asia's youngest nation will soon be in total jeopardy.