How the least good foreign advisers ended up working in Timor-Leste?

*Cosme da Costa Araujo

 

When Timor-Leste rose up from the ruins left by the destruction of 1999’s crisis, it faced an acute shortage of qualified human resources. Twelve years went by, dozens of reports, mostly prepared by technical assistants funded by donors, reported that the very same problem still exists. To resolve the capacity gap, one of the solutions is to employ foreign advisers. The task of these highly caliber experts are to help their local counterparts in their day-to-day work until such time they can stand on their own feet. Broadly speaking, foreign advisers are contracted to perform one or all of the following functions – to provide technical/policy advice, capacity building and to undertake in-line-job, if no local Timorese cannot stand up to the task.  

A string of unfortunate events unfolded over the year in Timor-Leste has caught us all by surprise. The shocking surprises come from the fact that foreign advisers, not all, had ill intentions and committed fraudulent acts of enriching themselves by stealing from the poor country they suppose to help. A number of highly publicized cases including the arrest of Bobby Boye, a Nigerian born US citizen, and a World Bank employee of Portuguese citizen, and a revelation of Roger Maguire as an Australian mole for oil companies, and the sudden termination of contracts of all international advisers working in the judicial system make us all wonder of what actually went wrong.

In this article I tried to raise and provide answers to the following question – how the least good foreign advisers ended up working in Timor-Leste. I defined “the least good advisers” as those foreign advisers who are proven to be intellectually incompetent, had limited skills and experience, and had past bad records to be deservedly called advisers. I had to be clear from the start that not all advisers who had worked or are still working in Timor-Leste are bad. I have known and had a privilege to work with many of the best ones in my short-span of working life.

I identified five factors, that are in my opinion, are partially or wholly responsible the least good foreign advisers ended up working in Timor-Leste.

Recruitment process – an adverse selection

I blamed the recruitment process for its fault in not detecting and even letting what I called “inferior qualities” of the supposedly foreign advisers to slip through and get the job. In an inexperienced country like Timor-Leste, and compounded by the recent economic crisis that forced lot of people out work, a job opening in Timor-Leste would be swarmed by the least good candidates. With the pools of least good candidates applied, our recruitment process eventually ended up with recruiting “melons”. As amo Martinho said "todas as porcarias estao aqui". The end products of their work were ended up being criticized. The good example is media law, which attracted lot of criticisms including “the unconstitutionality in some of its articles” and the remark made by Mari Alkatiri that “the adviser who wrote it treated Timorese as children”.  In my opinion the least good advisers do not know what they do and advise on; therefore, every decision made, based on their advice, is controversial.  One good example is the ruling on taxation dispute between Timor-Leste’s governments versus Conoco Philips. For my simple mind in order for a judge to preside over such a hearing, he/she, at least, needs to have knowledge, and experience in commercial law, accounting, taxation – a mere mundane general law is not sufficient.  With melons, I am not surprised to see most of the rulings are in favor of oil companies.

Moral hazard – when more is less
Despite foreign advisers been paid ten and thousands of dollars, a zillion times higher than their local counterparts, not to mention better facilities they enjoy, they still want to have more. For them more is less. The more they have, greedier they become. They took advantage of their local counterparts to fulfill their greediness. Moral hazard occurred when with superior information, knowledge, skills and experience, compared to their local counterparts, enabled them to have intentions or to take actions to behave inappropriately.  With moral hazards, the interest of the agents and the principles are not aligned. Agent acts to maximize his/her interest, in detriment to his/her principal. Bobby Boye, a Nigerian born, US citizen, was a vivid example of moral hazards – principle and agent problem.  With his skills, he managed to scam $3.5 million dollar from Timor-Leste, while working as tax adviser in the Ministry of Finance, knowing fully that the systems and people at his department will not be able to detect his trail. In addition, the recent resolution issued by National Parliament to suspend the contracts of all foreign advisers working in judicial system was another good example to cite. The resolution read that “instead of providing capacity building to the technical staff”, these international judges and advisers, “taking advantage of local staff lacking of capacity to achieve their personal gains”.

Job phobia – fearing of job insecurity
An adviser is recruited for a definitive period to accomplish an established mission. Once he/she accomplished his/her mission, he/she is no longer needed. He/she is not here for permanent placement. What happened in Timor-Leste is what I call “job phobia”. Most foreign advisers, those I have seen and known of, want to stick to their jobs as long as they could. Because of fearing job insecurity, many advisers took ages to finish their jobs. Some are reluctant to transfers their knowledge and skills to their counterparts. Some once they know that the locals are starting to do the job, they remove them to other departments. How can a 12 year of capacity building have not yet enable Timorese judges to stand on their own feet. The simple answer is that either there was no real capacity building took place or Timorese are too dumb to learn.

Malae syndrome – appearance does matter
I used to hear this famous saying “don’t judge a book by its cover”. In the context of Timor-Leste, I could paraphrase it and say “you cannot underestimate the capacity of someone because he/she is a black Timorese”. But in Timor-Leste, people do judge others by looking at the cover – who you are. In years of dealing with fellow Timorese, they had what I called “malae syndrome”. The Timorese trust more “malae” than their fellow Timorese. For the Timorese, everything that is regurgitated by a malae adviser is blindly believed to be true and most likely to be implemented. The problem of “malae syndrome” is that foreign advisers owe loyalty to no one but him/herself. With the recent incidents, hopefully, had taught us all an important lesson learned that is don’t indeed judge a book by its cover.

We don’t know what we really want
Linking back to “malae syndrome”, the ubiquitous of foreign advisers in Timor-Leste simply show that we don’t know what we really want. I am not malae phobic, but evidence show that in some ministries, the ratio between adviser and staff is literally 2:1. I saw in some ministries malae taking minutes of meeting, setting up meetings, collecting timesheets, processing payments, acting as secretaries, drafting emails, itineraries, timing speech, and maybe even carrying begs of ministers, and DGs. In some ministries foreign advisers took over simple tasks that are ably done by local Timorese. Do we really foreign advisers to do all the things I have just mentioned about. Of course not.

My simple solutions
Having identified the five factors that, in my view, are responsible for having least good advisers working in Timor-Leste, the following are my simple suggested solution to address the issue - (1) identifying priorities areas that do need really foreign advisers support, (2) scaling back on foreign advisers through Timorisation process, and (3) reintroducing Capacity Development Coordination Unit to coordinate and monitor adviser’s effectiveness.

Is Timor-Leste a failed state?

Guteriano Neves

 

Introduction
There are numerous challenges that Timor-Leste is facing that people often talk about around the country and widely acknowledged across different spectrum of society. These challenges are not unique for Timor-Leste. However, when it is played down in Timor’s context, they are not as simple as its appear on the surface. It becomes more complicated. These are not the result of solely government’s lacking of coherent and integrated policy, or an already failed-state. These are the product of interactions of various factors and actors in the society. This article takes a look at two issues: institutional issue and petroleum dependency. Rather than viewing it as a product of a failed-state, these are challenges that Timor-Leste is facing.

Is Timor-Leste a failed state?
From 2006 onwards, Timor has been frequently labelled as a failed state. Theoretically, there are some conceptual issues regarding ” a failed state” in the development cycle. Most of the time, this concept is used to categorise many countries, such as Somalia, South Sudan, Congo, Afghanistan, etc that are facing political instability. The tendency is to simplify the complexity that these countries are experiencing. Deploying the term above implicitly implies that there are already dysfunctional state institutions within the society. Furthermore, the concept “failed-state” also implies that building a state and building a nation is a short-term project that can be achieved in certain period of time. As a matter of fact, nation-state building is a complex process, which determined by various factors, not only the state institutions, but also the social interactions and international context.

 

Specifically for the Timor’s case, most of the argument concentrate on the challenges that Timor-Leste is facing. This includes but not limited to financial sustainability, food security, malnutrition, import dependency, quality of spending, malnutrition, allegation of corruption. While it is important to acknowledge these challenges, the tendency to simplify the challenges that the country is facing and omit its contextual realities, will not be helpful. Therefore, it is important at least to consider contextual setting where these challenges exist, such as its history, politics, economics and social setting that underline these problems. Beyond the surface, these challenges are not something uniquely define Timor as a whole. What unique about Timor is the underpinning factors of these problems that the country is dealing with.

 

There are certain issues that the government should have responded better. No one denies that. However, there are some issues that require long-term approach, and contribution from different actors. These underlined difficulties are often missing or neglected in the way Timor is described or reported.

 

For that, one way is to contextualize the discussion on weather Timor is a failed state or not from institutional point of view. Many have discussed about the challenges that institutions are facing. Building institutions is a long-term and dynamic process. Socio-conomic and political setting change over time, and therefore our approaches for building these institutions also should change accordingly. It will be ahistorical and oversimplification to argue that the current institutional problems are merely the result of the current policies. Historical legacies of the Portuguese colonisation, the Indonesian military occupation, and the United Nation Transitional Administration of East Timor (UNTAET) are not to be ignored completely. They are, by all means, the essential rubrics that contribute to the life of most institutions in Timor-Leste today and the way people view the institutions.

 

Amid these challenges, it is valid to argue that these institutions are not collapsed or dysfunctional. During and after 2006 crisis, many scholars and journalist labelled Timor’s case as a failed state; the reality is that during the crisis and afterwards, the institutions were not collapse or dysfunction. The violence was contained in Dili. Outside of Dili, the people lived normally. When the Prime Minister at that time, Mari Alkatiri resigned, the process went on according to the constitution. FRETILIN retained control over the government and the Parliament until 2007. Amid the international uncertainity about the short-term security, Timorese went to three-consecutive elections in 2007. These elections were internationally recognized as the democratic elections. During 2012 three consecutive elections went on peacefully and democratically, and the power transition went on smoothly.

 

On the other hand, as a democratic society, discussion on state’s performance should not be limited to the way institutions address issues. One needs also to consider that the state is “an” institution that exists within society. There are numerous institutions that shape the way society is organized, and how individual behaves. Therefore, it is critical also to consider the space for the people to participate and to shape the public policy and development agenda. In this regard, there is relatively an open space for the people to discuss about issues on public policy that has direct impact on their lives. Non Governmental Organisations (NGOs) are playing active roles in shaping public policy discussion, and development agendas. Issues, such as petroleum dependency, import dependency, financial sustainability, transparency, corruption, have also been discussed at different level of discussion. People talk about public matters in the cafe, in the restaurants, in the street, in the community meeting, family gathering, wedding party up to traditional ceremony. Social network like Facebook, and Blog become a venue where people contest government’s program and policies. Politics is everywhere in Timor.

 

Another issue relates to the discussion on failed state is the relationship between state and the society. While state is new, society is not. The society has been existing for generations, with its own culture, practice, tradition, and structure. There are various factors and actors that are at display. Timor-Leste’s society, although its small, it’s diverse. Some of the challenges are not merely the result of failed-policy by the state, but also the product of social dynamic within society.

If the state is the result of a social contract, as the enlightenment thought goes, then it needs to build its legitimacy from the society, because it is one of the great determinant factor in the nation and state building process. This is a never-ending business, as this interaction between state and society is a dynamic process. As a matter of fact, there are many developing countries that are still facing this similar issues especially, when as the state is perceived as an agent that strengthens social inequalities, failing to provide social services and fails to construct a strong national identity that binds people together, or does not have a common objective that could unite people. As a dynamic process, society’s expectations change over time, therefore the way state institutions address the problems, and and its required capacity to do so is also changing.

 

Finally, state is not merely a product that consists of institutions. It also depends on the legitimacy from the society. Claiming legitimacy from the society is a continuos process, determined by the ability of the state to address these issues that affect people’s daily lives, to provide service, and at the same time, building a sense of identity that bind Timorese together, and building a sense of ownership from the society. At the end what is most important at this point is that people have have confidence on their future, have ownership for their own future; that their future, and the future of their children will be better off. This, again, of course is not an easy task. It is important to acknowledges that all the challenges are there, as such discussion on these challenges are relevant.

 

Petroleum Dependency is not limited to state’s finance
Fiscal sustainability is an issue that people is aware of in Timor-Leste. Most parties seem to be agreed that it is a result of oil-dependency and lack of coherent policy to develop non-oil sectors. However, there is a tendency to simplify the petroleum-dependency within the financial sustainability only. The reality is that there are many critical issues associated with the petroleum dependency that reinforce each other in a country where private sector was underdeveloped, and majority of the people are still living in subsistence agriculture. Among them are: vulnerability associated with dependence on a single commodity, low domestic production, state’s – society relations, and the healthiness of a society. These problems are not addressed through discovery of another oil fields, and build another oil industry that dominates the entire economy. Another oil industry; without development of other non-oil sectors, might provide revenues for the state, but it reinforces current development model, which is unsustainable.

Firstly, it is economically not sustainable for any country to depend solely on a single commodity. It is even worse if the source of dependency is to depend on a non-renewable resources, such as oil. Thus, even if Timor-Leste has more oil reserve than it currently has. This would not solve entirely the vulnerability of depending on a single commodity. It places the country in vulnerable position toward the prices of oil at the international market. Therefore, economic diversification for the long-term is an imperative for Timor’s future.

 

Secondly, oil in Timor was already being explored during an illegal occupation. Therefore, when Timor-Leste finally regained its independence in 2002, there was no much space for Timor-Leste to decide when it should to start extracting the oil resources from its resource. On the other hand, oil money tends to disincentive other non-oil sectors, if the money began to pours into domestic economy in a situation where the non-oil economy is still underdeveloped. The oil money incentivize consumption, and disincentivize domestic production. It attracts imports dependency; e.i. once you have money, it is easier to buy goods and services from the outside, rather than to producing it in domestically. Economically, from cost-benefit point of view, it makes sense, because with high inflation, it is less expensive to import than to produce. This has been the case in Timor’s experience during the last six to seven years.

 

Thirdly, oil in Timor was already explored during an illegal occupation. When Timor-Leste regained its independence, there was not much space available for Timor-Leste to decide on when it should start extracting resource. When oil money began to enter into domestic market in a condition in a situation where non-oil economy is underdeveloped, it directly or indirectly makes harder for non-oil economy to grow. Oil money incentivizes consumption, and disincentivize domestic production. It attracts imports dependency. Once you have money, it is easier to buy goods and services from outside than to produce it in domestic market. Economically it makes sense to do so. With high inflation, it is less expensive to import than to produce domestically. This has been the case in Timor’s experiences during the last six to seven years.

 

Moreover, dependence on oil is not healthy for society. Oil is a capital-intensive and not labor intensive industry. Oil does not create as many jobs as agriculture or small-scale industries. There are only a small minority of people that benefits it especially, those are directly connected with the oil industry. In Timor’s case, are the people who connect directly to public sectors. In this case, the contractors, the government officials, and the politician. This does not mean that all of the East Timorese people do not benefit from it; but it in relative terms, elites are the ones benefiting more than the rest of the people. It creates inequality between the poor and the rich, urban and rural, and men and women. There is a small number of people who live in Dili. Oil-dependent economy promotes rent-seeking behavior and rent-seeking activities. As the oil provides easy money, the tendency to spend it is also easily. Once the money is poured into the market through State’s annual budget in big amount – in relative term for the domestic economy – it incentivizes people with political and family connection to involve in rent-seeking activities. These involve obtaining the contracts without proper procurement process, being broker for the foreign – owned contractors, or waiting for public transfers without having to work hard for it. This is not limited to public officials, but it also involves the contractors, interests groups, businessman, as well as society in general.

 

The whole point is that the issue of petroleum dependence in Timor-Leste is not limited to financial sustainability. Framing the issue in this narrow context open the space to think that finding another oil reserve and build domestic oil production will be the solution for Timor’s economy. However, issues associated with oil-dependency is not limited to financing state’s activities. It is also about vulnerability, healthiness of the society, apt development model, and inclusive development, where it does not only benefit everyone. According to research studies, that are publicly available, oil revenues will continue to decline in the near future. The solution is not only to reduce transfers from Petroleum Fund or discover another oil fields and extracting it as soon as possible. Long-term solution will require investment on more sustainable sectors such as education, health, agriculture, industries that will substitute imported goods and services, and building basic infrastructure.

 

Conclusion
It is important to acknowledge the the and the complex challenges that Timor-Leste is facing. These challenges, although not unique for Timor-Leste, the context of which these challenges exist are unique in Timor’s own history, social, political and economic setting. Timorese have to live with these challenges and working together to overcome them. Viewing these challenges as the product of social and political dynamic and using these challenges as the basis to claim that Timor-Leste is a failed state is ahistorical, missing the context, and it is an oversimplification of the issue. There is no single solution and short-term approach for these challenges. It will require a holistic and long-term approaches. One thing for sure! At the end of the day, Timor’s infinite resource is not the oil and gas, but its people who have fought with high determination for the independence and who have gone through very difficult circumstances in their lives.

 

The author is Researcher at the Department of Research and Analysis of Presidency of Republic of Timor-Leste, and 2014 The Asia Foundation Development Fellow.

 

https://aitaraklaranlive.wordpress.com/2014/09/15/is-timor-leste-a-failed-state/

Inequality in a Petroleum Dependent Country: A Timor’s Case

Inequality in a Petroleum Dependent Country: A Timor’s Case[1]

Guteriano Nicolau Soares Neves

 

 

First of all, I would like to thank The Asia Foundation for organizing this Forum. My biggest gratitude goes to distinguished audiences for making your busy time available to be here with us. I highly appreciate it as it provides us a rare opportunity to offer different views about Asia’s growth, especially from my country; Timor-Leste. In this golden opportunity, I would like to share a little bit with you about the issue of inequality in my country; a country where I spent most of my life, a country where I grew up with and defines who I am today; a country where, its people have shown their determination to fight against the biggest military force in the region, and are still struggling to overcome the tragedy of the past, and to look forward for a better future.

 

I come from a country, where perhaps only few of you have heard about; and if you do, perhaps what you have heard is about war, violence, conflict, the poverty, fragility, or failure. It is true that Timor-Leste has been going through difficult time in struggle for independence, and in the process of building its state institutions and develop the country toward better future; a future that everyone is dreaming for. The challenges are indeed, enormous.

 

But Timor-Leste is not merely defined by the violence, fragility, poverty, failure and other negative notes. Our history of struggle has also taught us about persistence, dedication, heroism and humanism that some of these values defined our collective memory as a nation, and define our character to face today’s challenges. Many of our leaders have given the best period of their life to fight for independence during Indonesian military occupation. Many of our best Timorese gave up their life just to fight for a nation’s freedom.Hopefully, Timor’s experiences can provide some positive lessons for other countries in the region and in the world.

 

Talking about inequality in Timor, it is an emerging issue. In my personal interaction with the reality, issues like poverty or inequality, is not something that I know only through news, or political rhetoric, or statistical numbers. It is not only about how many dollars do they make everyday. It is something that I see it, I experience it, and I live with it, and therefore, it builds personal commitment to contribute to transform it, based on my capacity. I encounter it when I see people don’t have access to water, kids travel long-distance to school, farmers travel long-distance to bring their local products to market, and various forms of poverty and inequality.

 

But one should not treat inequality as merely a product of current policy. Inequality in Timor – Leste is not a product of one single generation; or not merely a product of current policy. It has been there over generations, and the result of various factors and actors at display. And the current economic development model, which relies on Petroleum, and centralized in Dili, obviously will deepen this inequality, if it is not carefully addressed. Therefore it is important to depart from acknowledging that although it is a regional and global issue, when it comes to specific country, context does matter.

 

During 450 years of Portuguese colonial administration, Timor-Leste was underdeveloped. Many policies were discriminatory, to enforce the ruling class. Popular memory among Timorese is that Portuguese education system was intended only to prepare local people to work for colonial administration, and for those who worked with Portuguese or the generation of kings. Therefore many Timorese who were born during colonialism did not have opportunity to go to school.

 

During Indonesian military occupation, amid the structural violence, it did expand public service, such as education, health, and build some roads. Many of the roads built by Indonesian are still used by Timorese today. Indonesian administration during Soeharto’s era was centralised in Jakarta; hence, Timorese did not make decision for their own future. When Indonesian military left Timor in 1999, it undertook what was later known proved to be “systematic and structural” destruction campaign, killed more than one thousand people, displaced 80% of people, and destroyed around 80% of basic infrastructure.

 

UN administration during two and a half years did not change much. It was centralised in Dili, therefore, it reinforced Dili’s position in term of economy. Many international staffs came to Timor, and lived in little boxes, without much interaction with the rest of the economy. They should have done more, given the resources that the international community has and the size of the country.

Therefore, when we talk about Timor’s current challenges; its economic development, its internal dynamics, including inequality, we need to take into account what Portuguese administration, Indonesian occupation, and UN transitional administration left. And secondly, especially at current dynamics, we cannot ignore the impacts of oil dependency, and how it affects different segments of the society.

 

What I would like to share is how oil affects socio-economic dynamic in Timor-Leste. There are few notes that I can share.

 

Since 2005, Timor-Leste has received multi-billion dollars from the oil and gas revenues. It also forms Timor-Leste to be the second most oil-dependent country in the world. Around 80% of state’s revenues are from oil, and around 88% of state’s annual expenditure is derived from oil. During the last five to six years, Timor-Leste has experienced significant non-oil economic growth rate; around 10-15%, and in this year, the projection is about 8%. And this economic growth rate is primarily driven by public sector expenditure.

 

Oil facilitates state to expand its programs; but not the economy. Oil, like other non-renewable resources, has very special characteristics to the economy, and to the society. Oil does not create many jobs as the other sectors. In Timor-Leste, although oil accounts for 80% of the total GDP, the only good thing about oil in Timor’s context is that it provides revenues for the state to implement its programs. So what happens in such structure of economy is that state receives revenues from the oil, but the rest of the economy gets nothing directly. In this context we already see the inequality between state and the society that oil industry has.

 

Because only state receives revenues, people that have direct impacts are people who work in the public sector or have connection with the public sector. In Timor’s context, it includes public servants, contractors and business sectors, politician, and veterans who get subsidy from the State. Most of these groups are in Dili. As such, this development model benefits Dili, and marginalises the rest of the country. Although other segments of the society also are benefited, but in relative terms, only small groups of people that benefited more than the rest.

 

It enforces the privilege of the City over the rest of the economy. Many statistics speak for it. Most the public servants, and middle to high level officials are in Dili. Most of private sector employments are in Dili. And most of the companies that provide services like hotel, restaurants, wholesale and retail sectors are in Dili. The rest of the country most of them work in low productivity and seasonal agriculture, involve in small-scale government-funded infrastructure programs, private-house construction, and other self-employment activities.

 

Another problem with the oil-dependency economy is inflation, especially, when fiscal policy is not well-thought off. Although Timor-Leste experiences high economic growth amid global financial crisis, at the same time, inflation was also high, reach double digit since 2008, and has decreased this year. Many commentators, including World Bank, and IMF agreed that this inflation is due to expansionary fiscal policy. To look specifically, inflation affects poor more than the rich. So, in term of wealth distribution from oil, rich are benefited from the oil revenues, but poor are suffering from the oil boom when the money poured into domestic market. In other words, rich are getting richer, and poor are getting poorer. Worse than that, price of basic needs such as food are the biggest contributor for the inflation.

 

Oil provides easy money, therefore, makes it easier to spend. But when the money easily spent into the domestic market, it disincentives people to produce. As result, it attracts demand for the imported goods and services from other countries, especially Indonesia. Timor-Leste, last year, suffers more than one billion trade deficits in goods and services. The only significant good that we export is coffee; which some of them get through to the United States. And economically it makes sense, because with the high inflation rate, it is more expensive to produce, than to import. So if the people makes decision based on free market economy, and rational choice based on free market thinking, people are rational. But to think of more sustainable approach, it is a problem. When to frame it in Timor’s context, it means that the rural area, which supposed to be the production base, lost its importance in the economic structure, and the most of money, does not trickle down to local economy.

 

These challenges are widely acknowledged in Timor-Leste. Many Timorese are conscious about it, so we discuss it in every moment. As it is a complex issue, it takes long-term and holistic approach. It will not be solved through state’s policy alone. State can establish long-term plan, but it requires mobilization of resources from different sectors of the society to achieve it; not only money, but energy, opportunity, knowledge to explore, and knowledge to innovate.

In a democratic society, as everyone is conscious of important roles they played in the past, so as everyone should bear responsibility to the failure of the past. Not only success that belongs to everyone; but also courage to take responsibility of the failure.

I thank you all for your attention, and I am looking forward to have more fruitful discussions.

 

[1] This topic was presented at The Asia Foundation Development Forum: Challenges and Voices for Asia’s Future. This Forum was organized by The Asia Foundation at San Francisco, on September 18^th, 2014.

 

https://aitaraklaranlive.wordpress.com/

 

Kontenti ho PM Xanana Nia Speech - Revizaun Lei Orsamental

Iha loron 15 Outubru 2014, Governu, lidera husi PM Xanana no akompania husi membru governu sira, aprezenta ba Parlamentu Nasional revizaun ba Lei Orsamental, liu-liu paragrafu 5 husi Artigu 8, Lei No.2/2014.

 

Hanesan ema nebe'e durante ne'e servisu iha Jestaun no Investimentu Fundu Petroliferu, iha liafuan ruma nebe'e fo sai husi PM durante debate ne'e nia laran nebe'e halo hau senti kontenti. Tamba ida ne'e maka mensajen nebe'e durante ne'e ami nia servisu hato'o.

 

PRIMEIRU - GASTA DIDIAK
PM hateten nune'e ba membrus deputadus sira, "Governu hasoru dilema ida entre gasta lalais ka gasta didiak". Hafoin nia rasik hatan hodi dehan "hau prefere ida ikus". Ida ne'e ligadu fali ho hau nia mensajen uluk nebe'e dehan "budget execution rate" laos indikator ka sasukat diak ida ba sukat ema nia dezenpenhu. "Budget execution is not an appropriate performance measurement". Ita "gasta lalais" hodi atinji "taxa exekusaun" ida nebe'e bo'ot, maibe prezudika fali "kualidade" ekzekusaun. Deputadu Bianco husi Fretilin reforsa liu tan hodi dehan "maske Governu ekzekuta to'ot 100 ka 200 pursentu, hau sei la satisfaz nafatin". Nia fo razaun katak "hau prefere liu ho taxa ekzekusaun ki'ik mas fo duni rezultadu". Fiar katak mensajen ida bele habelar liu tan, atu nune'e, ita hotu, konkorda katak dezenpenha governu nian labele sukat tuir "taxa ekszekusaun" maibe hare liu ba "kualidade ekszekusaun".

 

SIGUNDU - INVESTIMENTU FO RETORNU
PM, durante, debate ne'e mos hateten, "ami lakohi hasai osan hotu husi Fundu Petroliferu. Ami so foti sekuandu presiza. Diak liu tau osan iha Fundu Petroliferu hodi fo retornu investimentu diak, duke tau iha Konta Estadu nian nebe'e la fo returnu ida".

Durante ne'e iha ami nia preser no aprezentasaun, ami sempre fo hanoin ba nai-ulun sira katak foti osan husi FP kuandu presiza deit, laos foti hotu kedan pois rai hela deit iha Konta Estadu. Razaun ne'ebe ami hatoo maka se kuandu husik hela iha FP bele fo retornu, maske ki'ik, duke tau iha Konta Estadu ne'ebe fo zero retornu.

Hau fiar se karik pontus importantes rua ne'e, liu-liu ida primeiru ne'e, implementa duni, Timor-Leste sei la sai nasaun failadu ka hasoru "resource curse" hanesan ema barak dehan.

Government's official response to Charlie Scheiner's Article "Resource Curse in Timor-Leste"

Briefing Note To Respond to "The Resource Curse in Timor-Leste" Article Authored by Charles Scheiner (La’o Hamutuk)

 

Introduction  

An article was recently published on the resource course in Timor-Leste. The first part of this briefing note considers whether Timor-Leste is suffering from the resource curse. The second part critiques some of the specific arguments used in the resource curse article.

Part 1: Is Timor-Leste Suffering from the Resource Curse?

Defining the Resource Curse
The resource curse occurs when natural resource wealth causes conflict, macroeconomic instability and poor quality public spending. These in turn lead to stagnant or falling economic growth and living standards and result in countries that are wealthy in natural resources developing more slowly than other countries.

 

Conflict
Resource wealth in countries like Nigeria and South Sudan has contributed to political instability and conflict. It is, however, clearly not the case that resource wealth has contributed to political instability in Timor-Leste. Political instability in Timor-Leste from 2006 to 2008 was not over access to natural resource wealth. In addition, since 2008 Timor-Leste has enjoyed political stability and increased security even as oil production and oil revenues have increased. Indeed resource wealth has directly contributed to political stability in Timor-Leste, as the Government has used this oil revenue to finance war veterans’ pensions, old age pensions and the PDID program which provide a peace dividend to the population and reduce the chances of conflict.

 

Macroeconomic Instability
Many countries have spent natural resource revenues soon after they have been collected. This has meant that volatility in commodity prices has fed through to government revenues and expenditures. Volatile government expenditures have in turn led to macroeconomic economic instability as demand, exchange rates and inflation have fluctuated.

 

Timor-Leste has completely avoided this type of macroeconomic instability. Oil revenues are saved in the petroleum fund and do not flow directly into the state budget. Withdraws from the petroleum fund are based on what is considered sustainable in the long term and not short term changes to oil revenues (see graph 1).

 

Dutch disease is another kind of macroeconomic instability. This occurs when the expenditure from natural resources increases demand in the economy and causes inflation. Higher inflation increases costs and reduces the competiveness of businesses that export goods or compete with imports (e.g. manufactured goods). Higher prices raise profits and wages in the non-traded sector that does not have to compete with imports (e.g. construction, restaurants). Domestic labor and capital, therefore, move away from the traded sector to the non-traded sector. The end result is that the domestic economy is dominated by the non-traded sector (e.g. construction, restaurants) and most traded goods are imported. This can reduce long term economic growth if labor productivity growth and technological innovation occur more quickly in the traded sector (e.g. manufacturing) than the non-traded sector (e.g. construction).

 

There is limited evidence that Dutch Disease is currently occurring in Timor-Leste. Inflation in Timor-Leste is currently lower than most other countries (see graph 2). So there is no reason to think the traded sector is currently losing competiveness due to money from natural resources flowing into the economy. Inflation has been high in the past, but this was partly driven by increases in international food prices and depreciation of the USD and not just increased expenditure from natural resource wealth. Domestic production in the traded sector in Timor-Leste is small and there are significant imports. But there is little evidence that this has occurred due to capital and labor moving from the traded to the non-traded sectors. Most businesses argue that a lack of skilled labor, poor access to finance and the investment climate are the main factors constraining growth in the traded sector and not scarce labor and capital being concentrated in the non-traded sector.

 

Poor Quality Public Spending

In resource curse countries governments waste money on ambitious white elephant projects that do not benefit the people.

 

From 2008 to 2013 the largest amount of infrastructure spending was on electricity ($896.2 million). This project sharply increased electricity generation, distribution and transmission. A reliable electricity supply is essential for economic growth and industrial development. Better access to electricity has benefited many people. This project cannot be regarded as a white elephant project that hasn’t benefited the population.

 

Roads and bridges and transport are the two largest sectors for infrastructure spending going forward ($516.3 and $537.5 million for 2014 to 2018 in the 2014 state budget). Roads are in a poor condition in Timor-Leste and need to be improved. Better roads are essential for bringing agricultural produce to market and economic growth. This spending is clearly not on unnecessary white elephant projects.

 

Government spending on education and health is also high and has been increasing since 2008 (see graph 3).Together these two sectors accounted for almost 18% of total Government spending in 2013. As discussed in the next section, health and education outcomes have significantly improved since oil production started in Timor-Leste. So overall Government spending has been in important areas and has had an impact.

 

Living Standards and Economic Growth

Resource curse countries suffer slower economic development and stagnant or falling living standards. This has not been the case in Timor-Leste. Indeed Timor-Leste has seen very substantial increases in economic growth and living standards. More specifically:

1. Timor-Leste’s non-oil economy grew at an average rate of 11.8% per annum from 2008 to 2012. (see graph 4). This rate of growth is much faster than that of most other countries.
2. Household consumption (which is more strongly related to living standards than non-oil GDP) sharply increased by 6.7% on average per annum from 2008 to 2012. This rate of growth is much higher than that of most other countries (see graph 5).
3. Infant mortality declined by 50% in Timor-Leste from 2001 to 2009. This is one of the sharpest declines in infant mortality in the world.
4. The primary school net enrollment rate significantly increased from 65.6% in 2007 to 91.9% in 2013 in Timor-Leste.
5. The prevalence of underweight children under 5 years of age decreased from 48.6% to 37.7% from 2007 to 2013.

In short, since oil was discovered in Timor-Leste households have consumed more, there is less chance of their children dying and more chance they will attend school. It is hard to regard this as a curse.

 

Conclusion

The resource curse occurs when natural resource wealth leads to conflict, macroeconomic instability, poor quality public spending and stagnant living standards. Resource wealth in Timor-Leste has helped cement peace and has not caused political instability. The petroleum fund means the most severe forms of macroeconomic instability have been avoided. And most public spending has been in important areas like electricity, roads, education, health and social assistance and not on white elephant projects. Economic growth has been strong and living standards have increased. Thus there is little evidence Timor-Leste is suffering from the resource curse.

 

 

Part 2: Specific Comments on the Resource Curse Article

This part of the briefing note directly comments on the resource curse article. The relevant sentence from the article is quoted and then comments are made.

 

Non-Oil GDP Growth

‘non-oil GDP’ has grown at ‘double-digit rates’, this obscures the fact that productive sectors agriculture and manufacturing comprise only 4% of GDP and have not increased significantly since 2002."

 

Although agriculture and manufacturing together do only account for a small part of GDP, this is because of large oil GDP. Whenever a poor country exploits natural resources then this will add to total GDP in the short term and any particular sector of the non-oil economy will therefore be a small part of total GDP. The only way to avoid this would be to deliberately not exploit oil resources, which would be a very unusual policy and few economists would recommend it.

 

It is true that agriculture and manufacturing have grown slowly. However, agriculture and manufacturing are not the only sectors that improve living standards or household consumption. Many households would rather have a new house or access to healthcare than they would a new manufactured good. So growth in other sectors and not just agriculture and manufacturing also matters.

 

"All the growth in ‘non-oil GDP’ comes from the state spending oil money: public administration, infrastructure construction, and supplying goods and services to the government."

 

This is incorrect. Government administration does not account for all the growth in non-oil GDP. It is obvious to anyone living in Timor-Leste that the retail (e.g. Timor-Plaza) and private sector construction (e.g. people’s houses) sectors have also grown.

 

In addition, when oil production is offshore Government spending is the only mechanism for this wealth to flow into the domestic economy and benefit the Timorese people. Therefore, it will always be the case that in the initial years of natural resource wealth extraction a significant amount of demand and non-oil GDP growth will be due to Government spending. The only way to avoid this would be to deliberately not use oil wealth to benefit the Timorese people.

 

Timor-Leste’s oil wealth is leaking out rapidly. In 2013, Timor-Leste spent US$535 million on imported goods, while non-oil exports totaled only US$16 million, nearly all coffee.

 

This point is based on the simplistic argument that imports are bad and exports are good. In economic terms this is incorrect as imports increase consumption and welfare.

 

Timor-Leste is a small country and it is very unlikely that it will be able to manufacture its own motorbikes or anti-malaria drugs. So reducing imports would clearly reduce living standards. Even large rich countries import significant amounts of goods for consumption (e.g. Australia imports cars, the UK imports wine).

 

In addition, imports are needed to produce exports. Increased agriculture production in Timor-Leste will require fertilizer to be imported. Brewing beer would require importing bottling machinery. So increasing exports in the future will require imports.

 

There are few countries that make all the components of a manufactured good themselves. Rather in the modern world countries specialize in a particular part of production. Rolls Royce may export cars from the UK, but it imports motors from Germany to make those cars.

 

The key question is can Timor-Leste afford the current level of imports in the long term? With total exports (including oil) current exceeding imports and even the current yield on petroleum fund assets exceeding imports the evidence is that it can (see graph 6).

 

State Spending

During 2014, the Ministry of Finance projects that 61% of state revenues will come from oil and gas exports. Another 32% will be from investing past petroleum income, with only 7% from non-oil sources.

 

In any poor country that starts exploiting significant natural resources it is obviously the case that oil revenues will initially be large compared to domestic revenues. There is nothing wrong with this and the only way to avoid this would be to not tax the international oil companies extracting Timor-Leste’s oil.

 

The important point is whether domestic revenue is increasing and whether overall fiscal policy is sustainable. Domestic revenue has grown strongly in Timor-Leste and detailed fiscal modeling shows that a budget of $1.3 billion or less would be sustainable for 2015 and the Government is committed to not exceeding this amount.

 

Although health and education are gradually getting more, Timor-Leste still invests 40% less on them than well-managed developing countries.

 

This point is impossible to verify as there is no broadly accepted definition of what constitutes "a well managed developing country". The author of the article probably only regards developing countries that spend a lot on education and health as being well managed. So most likely the sample Timor-Leste is being compared to is biased.

 

Timor-Leste’s post-1999 ‘baby boom’ are not getting adequate nutrition or education, which will have long-lasting consequences.

 

Access to education has sharply increased since oil production started and child mortality and malnutrition have sharply declined. This isn’t evidence of the resource curse.

 

"Despite this, inflation continues because there are more dollars than goods"

The rate of inflation for December 2013 to December 2014 was 4%. This is a low rate of inflation and is lower than many other countries (see graph 2).

 

The Resource Curse Has Many Faces

In addition, special interest groups veterans, contractors, people displaced by the 2006 unrest, former office holders, soldiers who deserted, political party leaders claim privileged entitlement to public funds.

 

It is not clear what the phrase "entitlement to public funds" means. There are certainly programs to assist veterans and the displaced. Contractors are certainly paid if they have fulfilled a contract with the Government and undertaken the specified construction. But these are all entirely legitimate (even desirable) areas of Government spending.

 

"Oil attracts the most persuasive, creative and ambitious people, leading to a brain drain from more productive or service-oriented professions"

The oil industry employs relatively few people. There has not been a significant movement of professionals (doctors, nurses etc) to the oil industry.

 

"The Future is Predictable Development of Greater Sunrise oil and gas is stalled due to disputes with Australia over maritime boundaries and with the oil companies, who want to liquefy the natural gas at sea, rather than pipe it to Timor-Leste. Even if this project proceeds with an LNG plant in Timor-Leste, total oil and gas revenues will average US$1 per person per day for four decades, about one-third of the 2014 budget" The article was originally arguing that oil has cursed Timor-Leste and made it worse off. Now the article is arguing that running out of money from natural resources will also make Timor-Leste worse off and that it is a problem that Timor-Leste’s oil resources are limited. These two arguments are inconsistent.

 

"Timor-Leste must fortify its strongest resource its people by investing in education, nutrition and health care"

There has been huge investment in these areas (see graph 3). Education, nutrition and health outcomes have all sharply increased since oil production started.

Conclusion

The article is a long list of criticisms. Some of which are valid but many of which are based on a simplistic understanding of economics. The article doesn’t show that Timor-Leste is suffering from the resource curse. There is very strong evidence that living standards have increased since oil production started.

 

 

Kuitansi Manual

Hau ho hau nia kolega ida husi servisu fatin ohin dia 7 Outubru 2014 ba sosa sasan kantor nia. Ami nain rua desidi hodi ba hola iha loja ida china timor oan nian ida iha parte audian nian neba. Hodi osan petty cash, ami nain rua sosa aqua danone no sasan ki'ik sira seluk.

 

Ami nain rua hakbesik ba rejistru hodi selu. Alin feto nebee hein rejistu, hafoin nia hatama hotu sasan folin no fo fila fali osan restu, nia fo mos resivu elektroniku nebee automatikamente print sai husi rejistu. Hafoin nia dehan mai ami nain rua - "maun sira bele lori kuitansi nee hodi ba troka kuitansi manual iha sorin neba".

 

Hau mos "bingung" tamba sa maka tenki troka fali ba kuitansi manual? Hau hanoin nunee - "keta halo ba bisanya ema sira husi governu mai sosa sasan nee sira presiza kuitansi manual para anexa hanesan provas ba kompras".

 

Hau nia kolega mos tama no husu "tamba sa tenki troka ba kuitansi manual?". Alin feto oan nee la hatan. Hafoin kolega nee rasik hatan ba nia dehan "ida nee diak hela".

 

Wainhira ami nain rua sai ba liur hodi hein ema lori sasan mai, no hau nia kolega nee dehan "shit....ema kala toman halo tiha ona buat hanesan".

Pois hau husu "buat saida"?.

Nia dehan "kuitansi manual nee".

Pois nia hatutan "alin ohin nee husu ita para ba troka ba kuitansi manual, tamba nia hanoin katak ita hakarak inventa sasan folin".

Too iha ne maka hau mos foin kompriende katak alin feto nee husu ami troka kuitansi elektroniku ba kuitansi manual tamba nia keta hanoin ami nain rua hanesan sira seluk nebee mai sosa sasan iha neba hakarak mos troka ka inventa sasan folin.

 

Insidente kiik oan ida nee hakarak hatudu mai ita katak durante nee ema barak, liu-liu sira husi governu nee, kala halao hela pratika hanesan nee - inventa sasan nia folin liu husi kuitansi manual. Tamba nee alin nebee hein rejistu hatene ami rua husi governu hateten atu ami rua ba troka ba kuitansi manual.

Se pratika hanesan nee maka halo ba kompras sira ho folin boot miliaun ba leten, la hatene estadu nee lakon osan hira husi hahalok hanesan nee.

 

Hahalok hanesan nee, inventa folin, maske kiik, tama ona iha pratika korupsaun no tenki hetan pena ka kastigu ida boot.

Update husi Audian, 7 Outubru 2014