Timor-Leste Bele: 2016

Tuesday 8 November 2016

ARGUING FOR REVIVING TIMOR-LESTE INVESTMENT CORPORATION

ARGUING FOR REVIVING TIMOR-LESTE INVESTMENT CORPORATION

*Cosme da Costa Araújo

Source: businesskorea.co.kr

Timor-Leste Investment Corporation (TLIC) is the embodiment of the old adage – “having your own cake and eat it too”. It will earn not only financial returns from its investments in the local economy but also help to finance the country’s economic development by providing long-term finance at affordable rates to the private sector.

Our private sector – where are we?

Our economic growth is being driven by public expenditures. With the blessings flowing in from oil and gas, we want to develop a vibrant private sector that will be the backbone for the transition to a sustainable non-oil economy. Government, at least in the earlier stage of development, is responsible for nurturing, supporting and creating favorable enabling environment for private sector to grow.

Our private sector, however, is still miles away from the Strategic Development Plans (SDP)’s targets. It is under-resourced and so under-developed. The non-oil business sector comprises of small locally owned sole proprietorship companies. These businesses are based primarily in Dili and are mainly involved in retail, wholesale and construction activities. Construction companies are setup mainly to tender for government’s projects and investments. Lack of financial support and poor management often lead them to incur costs overruns which erode their already tight profit margin and in many occasions result in projects delays, quality impairments and abandonments. Lately a few of them find a new role of acting as “project brokers” for their international counterparts. Money earned from doing public projects is not reinvested back into the business or in new business ventures. Ill-equipped locals will be outnumbered and outcompeted in an uneven level of playing field. As we will continue to rely on foreign imports in years to come, about 70 percent of every dollar spent in Timor-Leste will go overseas. We are left nothing but “HELENA” – as locals normally call it. A small but promising number of start-ups begin to venture into non-construction-retail related businesses.

The question is what could have we possibly not done enough to cause such a gloomy picture of our private sector? The answer is simple and we all know it too well. Our private sector has no money. A multi-language Timorese would call it “Modal Laiha”; literally means “No Capital”. Our infant private sector is constrained by limited or no access to credit and long-term finance at affordable rates.

A limited access to finance at affordable rates

Corporate financing or ways of raising money or capital for a business can be either or a combination of debt, and contributions from owners and shareholders. Without a well functioning of financial market, raising capital will be not easy. However, it can still be done. For a small economy as ours, the amount of money sitting with our banks is not insignificant. The recent report by the Central Bank shows that total deposits, as of 2015, amounts to $US725 million but only US$191 million are loaned out. The average of private sector credit to GDP ratio is significantly below the average for lower middle-income countries. The IMF argues that our banks are falling short in their role of financial intermediation. The absence of collateral is cited as the main reason for banks’ reluctance to lend out more. As a result of that, banks charge high interest rates, which to a large extent further prevent businesses from taking out loans.

Banks lending out is only to a few high net-worth businesses mostly foreign-owned and in sectors that rely on government’s contracts. Excess deposits are placed offshore, instead of making them available for loans in the local economy. When loans are made, most have very short maturity. This prevents businesses from taking up meaningful long-term investments. Even our own BCNTL is yet to fulfill its mission to support “commercial activities” in the country. Only a handful of micro-credit institutions are taking the risk to offer small short-term loans with reasonable rates to households and small businesses.

We can now see the challenge the private sector is facing here. Without access to finance, they cannot invest, expand, purchase goods and equipments and upgrade facilities, let alone achieve the SDP’s targets.

Limitations of the existing financing mechanisms

Many people have been calling for the Petroleum Fund to invest more in the local economy, instead of “helping other countries”. Well it does invest domestically indirectly. Transfers are made every year from the Petroleum Fund to finance the state budget. It is the government who is ultimately responsible for designing a good plan and having an efficient budget execution that ensures every dollar spent counts.

But facing with capacity constraints, government opts to take out concessional loans and engage in the Public Private Partnerships (PPPs). The former is to finance projects that generate social benefits, while the later is for projects that provide financial and economic returns. From the economic point of view, in both arrangements, mostly foreign private sector gain more benefits from the upsides and government has to bear more risk for the downsides and content with the little uptake from the upsides. It is understandable. For a country that Foreign Direct Investments (FDIs) are hard to come by, government would do whatever it takes to secure investors’ confidence and lure future potential FDIs.

Government is contemplating on introducing a credit guarantee scheme. It will serve as collateral for banks to lend out more and or for businesses to borrow more. It is an interesting idea, but doubtful that it will fulfill its intended objective. A similar scheme was introduced few years ago. But due to information asymmetry and adverse selection and coupled with moral hazards from the lenders side, businesses took excessive and reckless borrowings to such an extent it nearly bankrupted a commercial bank.

So what else do we have at our disposal? The answer is many. One of which I strongly support is to revive Timor-Leste Investment Corporation (TLIC).

TLIC and its many pros

TLIC was created in 2011 to follow the successful story of the Singaporean Temasek. However, it was prematurely killed in the 2011 budget when an initial capital injection of $200 million was proposed and discussed.

TLIC is intended to support the country’s transition to a non-oil economy by promoting investments in sectors of the national economy that are vital to our economic growth and development. It will help nurture, protect and support private sector. It will assist in the development of new industries, build domestic skill base, broaden the base of our economy and decrease our reliance on imports.

To achieve those desired goals, it could do what most investment funds in Pacific do. They invest in domestic financial securities and real assets such as hotels, ports, airports, telecommunications and real estates. They maximize financial returns for their shareholders and at the same time contribute to the economic development of their countries. By saying that, I am not suggesting that we should follow ”the Pacific Way”. They have limitations. Their investments lack diversification, have strong home bias by definition, concentration risk and high correlation of asset classes as they are exposed to the same systematic risk. We should instead do ”the Singaporean Way”. They have two distinctively investments arms with different objectives and asset allocations. GIC invests in a globally diversified portfolio spread across various asset classes, while Temasek invests initially in local companies in the domestic market. They both play a distinct role and have a different investment portfolio as part of the larger strategy for diversification. Contrary to theoretical concern, Temasek investments in local economy have not resulted in a crowding out of private investments; instead, it helps attract private investment from within and outside of the country. If we are to follow the “the Singaporean Way”, we already have the Petroleum Fund, an equivalent of the GIC, that invests in a diversified assets abroad and TLIC, our version of Temasek, will invest domestically in our selected local companies. Essentially, by following “the Singaporean Way”, we can avoid the problems inherited in “the Pacific Way”.

An important characteristic of TLIC is that it will involve only in investments and projects that have a commercial focus. In that sense, it could be a party to the PPPs arrangements in, for example, Tibar Port, TL Cement and Heineken projects. Its fundamental focus should be on long-term financing directly or indirectly either alone or co-investing with others in projects that foster development, generate positive externalities and under-financed by private creditors. It can either be a debt-holder or an equity-holder or preferably both. With the former, it will provide long-term loans with subsidized interest rates – interest below market rates. With the later, it will provide not only finance, but also technical assistance and direct involvement in the management of the business. This helps to bring discipline and necessary skills that our private sector is lacking. It can become a business partner by providing money in return for a share of project’s profits. It will help to pick “winners” that will be competitive domestically and internationally. The benefits accrued from TLIC as an equity-holder is what is missing from a development bank as a debt-holder.

In addition, by acting as catalyst, TLIC can help attract foreign investors, guarantors, regional and multilateral financing institutions. It can also help to enhance climate for business and attract and pool together private sources of capital from within and outside of the country. This in turn allows TLIC to initiate and nurture the development of an inclusive financial market in Timor-Leste.

TLIC will also support small businesses in gaining access to credit. This means that it will provide support to microfinance institutions that are currently overstretched to meet the continued increase in demand for loans from households and small businesses. It will foster entrepreneurship and commercialization of agriculture in rural areas. It is easy to set up with minimal regulatory requirements and can be funded initially with public capital and owned by the government. It requires different skill sets and resources to achieve its intended objective.

TLIC is certainly not without risks. Government will ultimately still be responsible for all sorts of risks that TLIC may face. The risks governments in advanced countries defy the market principles when they bail out failed banks and companies with taxpayers’ money. The risks that central banks in those countries are willing to take when they lower interest rates close to and below zero and engage in unconventional measures just to support the revival of their economies. The 1997 South-East Asia’s Armageddon gives us an important lesson, that is, the government must keep its financial institutions aligned with its development strategies until they are achieved. The close alignment of finance with agricultural and industrial policy objectives facilitates the unprecedentedly rapid economic development of North-East Asia. The key is to have finance pointed at the right targets or right development strategies. This is better achieved through TLIC than a development bank as banks anywhere have a different DNA.

TLIC – having your own cake and eat it too

It is worthwhile to look at the experience of others on how they can meet their return target and still contribute to the economic development of their countries. In reviving TLIC, “the Singaporean way” needs to be contextualized to our reality. As both debt and equity holders, TLIC will invest directly or indirectly either alone or with others in the local economy through local companies and in key strategic investments. In doing so, TLIC will earn not only financial returns from its investments in the local economy but also help to finance Timor-Leste’s economic development by providing long-term finance at affordable rates to the private sector. TLIC is all we ask for – an embodiment of the old adage – having your own cake and eat it too.

References

ADB, 2015, Growing the non-oil economy: a private sector assessment for Timor-Leste, Manila, the Philippines.

GIC, Frequently Asked Question, www.gic.com.sg.

Lao Hamutuk, 2011, The Unofficial Translation of Decree-Law No.41/2011, of 21 September, Timor-Leste Investment Company, www.laohamutuk.org.

RDTL, Timor-Leste Strategic Development Plan 2011-2030, Dili, Timor-Leste.

The United Nations, 2005, Rethinking the Role of National Development Banks, Financing for Development Office, Department of Economic and Social Affairs.

Monday 8 August 2016

Investe agora ou nunca - haré fali desizaun defísil balun Timor-Leste tenki halo

Investe agora ou nunca

Haré fali desizaun defísil balun Timor-Leste tenki halo

*Cosme da Costa Araújo

Fonte: www.joc.com

Konkorda hodi la-konkorda

Parlamentu Nasional foin lalais ne’e aprova orsamentu rektifikativu ba tinan 2016. Governu propoin orsamentu adisional milaun 391. Ho nune’e, total orsamentu ba tinan 2016 sa’e ba bilaun 1,9. Orsamentu refere barak liu sei utiliza ba finansiamentu projetu infra-estrutura sira. Governu argumenta katak investimentu hirak ne’e, ho retornu ne’ebé a’as, sei sai hanesan baze fundamental ba dezenvolvimentu sustentável longu-prazu lidera husi seitor privadu. Ema barak la-konkorda, inkluindu ONG Lao Hamutuk. Ema sira ne’e argumenta katak investimentu ba projetu fíziku hirak ne’e sei la-fo benefísiu ba timor-oan sira - jerasaun agora no mos jerasaun futura.

Parte rua ne’e – pro no kontra –, sem dúvida, iha intensaun diak ba nasaun ida ne’e. Sira-rua hakarak Timor-Leste sai nasaun ida próspera ho populasaun matenek no saudável no ekonomia naun-petrolífera forte lidera husi seitor privadu. Maibé, oinsá atu atinji mehi ida ne’e, sira-rua mai ho hanoin la-hanesan. Diskordu entre sira-rua ne’e laos buat ida foun mai ita. Akadémiku no practioner sira tinan barak ona seidauk hetan konkordánsia konaba oinsá nasaun sira riku rekursu natural tenki utiliza sira nia riku-soin hodi dezenvolve sira nia nasaun no ekonomia.

HRP no nia limitasaun

Estabelesimentu Fundu Petroliferu (FP) sai nu’udár alkanse importante no históriku ida ba Timor-Leste iha nia esforsu tomak ba jestaun diak rekursu mina-rai. Estabelesimentu FP sai nu’udár desizaun polítika importante ida nasaun barak iha mundu seidauk konsege halo. FP kontribui ba polítika fiskal ida diak, ne’ebé fo konsiderasaun ba interese longu-prazu timor-oan sira nian.

Rendimentu Sustentável Estimativa (RSE) nu’udár regra fiskal ida iha aranju FP. RSE montante sustentável ida ita bele foti husi FP hodi finansia orsamentu estadu nian, ao mesmo tempo, mantein poder de compras Fundu ninian. Razaun hodi suporta regra RSE ne’e rasik, la-seluk la-leet, mai husi teoria klásika Hipóteze Rendimentu Permanente (HRP). Retoria refere dezenvolve husi ekonomista Milton Friedman iha tinan 1975. Teoria ne’e orijinalmente uza no aplika ba individual iha nivel uma-kain. Desde ne’ebá, nia dezenvolve no aplika ba nivel nasaun. Tuir regra ida ne’e, Timor-Leste so bele gasta deit 3 pursentu RSE, ida ne’ebé reprezenta retornu implísitu investimentu FP.

Embora ema no nasaun barak uza teoria HRP, maibé ninia aplikasaun hetan krítika maka’as, inkluindu Paul Collier, tamba konsidera nia la-apropriada ka ríjida liu ba nasaun sira ho rendimentu ki’ik hanesan Timor-Leste. Regra fiskal bazeia ba HRP la-kapta ho didiak karaterístika nasaun ida nian. Ho liafuan seluk, polítika fiskal ida ne’e tenki refleta objetivu nasional no sirkumtánsia nasaun ida nian.

Fundu Soberanu Noruega (FSN) sai nuda’ar modelu ba ita iha ita nia jestaun ba reseita mina-rai. Noruega nasaun ida únika no certamente diferente husi Timor-Leste iha aspetu barak. Embora sira nia FSN no reseita mina-rai sai nafatin rekursu bo’ot no importante ba sira, maibé sira nia atividade ekonómika naun-petrolífera sai hanesan fonte prinsipal ba produsaun, empregu no rendimentu. Seitor servisu faz parte mais ou menos pursentu 59 husi PIB iha tinan 2012. Noruega ho infraestrutura moderna no forsa trabaillu kualifikada kontribui ba sira nia produtividade a’as no nivel PIB por habitante a’as kompara ho nasaun riku sira seluk iha Organização para a Cooperação e o Desenvolvimento Económico (OCDE).

Pelo contrario, ekonomia Timor-Leste nian ne’ebé ki’ik sei kontinua domina husi seitor mina-rai. Timor-Leste sei falta forsa traballu kualifikada. Limitasaun infra-estrutura halo seitor potensial sira hanesan agrikultura no turizmu seidauk bele dezenvolve ho didiak no kontribui ba movimentu inefisiente ba sasán no ema, ne’ebé dala barak hamosu sasán folin a’as ba povu ki’ik no mukit sira.

Ita hotu konkorda katak atu diversifika ninia ekonomia, Timor-Leste presiza investe maka’as iha seitor produtivu hodi kria fonte rendimentu foun no servisu ba nia emar sira. Timor-Leste presiza mos hasa’e nivel kualifikasaun forsa traballu no hadiak ninia infra-estrutura hodi hasa’e ninia produtividade. Ho razaun sira ne’e hotu, ita presiza hasa’e despeza públika ba investimentu kapital. Lei FP hatene konaba situasaun únika Timor-Leste nian ida ne’e desde início, nune’e nia fo-dalan atu governu bele halo levantamentu esesu RSE, naran katak polítika ida ne’e halo ba interese longu-prazu sidadaun timor-oan sira nian.

Aleim de ida ne’e, polítika fiskal bazeia ba HRP mai ho pre-supostu ida katak buat hotu-hotu sei la-muda (konstanta) inkluindu kresimentu populasaun, dezenvolvimentu ekonómiku no despeza públika. Infelizmente, pre-supostu hirak la-akontese iha realidade. Ho kresimentu anual populasaun Timor-Leste nian 3 pursentu, demanda ba servisu públiku mos sei aumenta, no ida sei fo impaktu ba despeza públika, ita la konta ho impaktu mai husi introdusaun pensaun ba funsiunáriu públiku. RSE agora daun-daun susar teb-tebes atu kobre deit despeza públika rekorente. Sé ita hakarak gasta tuir deit RSE, ita tenki halo rasionalizasaun ba despeza públika ka hasa’e baze kapital Fundu nian liu husi reseita mina-rai foun. Gasta deit RSE mos bele rezulta estagnasaun ekonomia naun-petrolífera, dependénsia eternal ba FP no risku despeza públika ba fluktuasaun kurtu-prazu retornu investimentu FP. Nune’e, sé ita la investe iha infra-estrutura no rekursu humanu mos riksu ida. Nune’e mos, atu asegura katak ita gasta deit rendimentu permanente eternalmente, ita presiza hasa’e baze kapital FP nian hodi konsidera inflasaun, ho nune’e deit maka ita bele mantein poder de compras Fundu nian. Sé lae, valór Fundu sei kontinua tu’un iha termu real.

Polítika “front-loading” no ninia benefísiu

Planu Estratéjiku Dezenvolvimentu (PED) hatudu dalan ba Timor-Leste iha nia dalan naruk hodi atinji ninia mehi hodi sai nasaun ho rendimentu médiu-altu iha tinan 2030 ho populasaun matenek, saudável no próspera. PED oferese solusaun ida ba dezenvolvimentu ekonomia naun-petrolífera ho tarjetu espesífiku ba iha dezenvolvimentu agrikultura, turizmu no industria petrolífera.

Timor-Leste hetan bensaun ho rekursu natural oin-oin, inkuindu mina no gas. Enkuantu mina no gas finansia tiha kresimentu nasaun ida ne’e nian desde independénsia, tempu to’o ona atu Timor-Leste realiza mos ninia potensia iha área sira seluk liu husi diversifika ninia ekonomia no hamenus dependénsia ba mina no gas. Ida ne’e signifika ita tenki kria ambiente suportável importante rua – infraestrutura diak ho rekursu humanu kualifikadu – hodi suporta no dudu kresimentu ekonomia naun-petrolífera no fasilita investimentu seitor privadu.

Nasaun sira seluk depende ba impréstimu, ajudu doadór, remitánsia no fonte finansiamentu seluk hodi finansia sira nia nasaun no ekonomia. Timor-Leste hetan bensaun iha FP. Polítika “front-loading” fo-bibán ba governu hodi halais dezenvolvimentu infra-estrutura no rekursu humanu. FMI mos konkorda katak polítika fiskal ida ríjida bazeia ba HRP la-apropridada ba nasaun sub-dezenvolvidu riku rekursu natural hanesan Timor-Leste.Tuir FMI, ba nasaun hirak ne’e, wainhira kapital inisial iha sira nia ekonomia sei ki’ik, inkluindu infra-estrutura no rekursu humanu, retornu no produtividade ne’ebé sei hetan husi despeza sosial no kapital governu halo sei boot liu retornu finanseiru husi investimentu de poupansa. FMI mos aumenta katak hodi halo investimentu barak liu ba jerasaun agora ne’ebé kiak sei fo benefísiu bo’ot liu. Ita la-bele julga benefísiu husi investimentu hirak ne’e tuir perspektiva fiskal ida klo’ot. Benefísiu husi investimentu hirak ne’e presiza tempu hodi realiza no kolekta liu husi kanal formal sira hanesan impostu no taxa.

Investimentu iha portu, estrada, eletrisidade, drainajen no rekursu humanu sei fo benefísiu ba timor oan sira. Portu Tibar sei hamenus atrazu no tráfiku, hadiak komérsiu entre Timor-Leste ho ninia parseiru komersial sira no potensialmente bele sai hanesan sentru lojístiku ba rejiaun ida ne’e. Timor-Leste ida iha koneksaun diak liu husi estrada, portu no aero-portu sei fasilita movimentu efisiente sasán no ema iha rai-laran no mos ba no husi rai-liur.

Aleim de suporta empregu iha prosesu konstrusaun no produsaun material, projetu sira ne’e sei dezenvolve mos kapasidade produtiva ekonomia rai-laran liu husi positivamente influensia produtividade seitor privadu no hasa’e retornu kapital privadu hodi rezulta iha impaktu benefisial longu-prazu. Liu husi aumentu iha despeza husi traibalador sira ne’ebé servisu iha seitor hirak ne’e, sei fo impaktu positivu ba ekonomia nasaun ida nian. Benefísiu husi investimentu iha infra-estrutura sei bo’ot, wainhira rekursu sira iha ekonomia ida nia laran seidauk uza ho másimu. Projetu hirak ne’e la’os deit fo benefísiu ba jerasaun agora, maibé mos jerasaun futura liu husi kapital sira dezenvolvidu ona, em forma servisu públiku no kondisaun moris diak no rekursu humanu kualifikadu. Wainhira projetu báziku hirak ne’e remata ona, sira sei kontribui ba estimulasaun kresimentu ekonómiku, ne’ebé ikus mai tradús ba iha reseita doméstika ne’ebé bo’ot. Desde ne’ebá, despeza governu nian sei fila fali ba nivel ida konsistente ho RSE.

Tempu investe – agora ou nunca

Eim jeral, ita hotu konkorda katak Timor-Leste presiza diversifika ninia ekonomia. Atu halo ida ne’e, ita presiza atrai seitor privadu hodi investe barak liu iha seitor produtivu sira. Esperiensia durante tinan hirak liu ba hatudu mai ita katak maske Timor-Leste oferese taxa de imposto ki’ik ho insentivu oin-oin, maibé investimentu seitor privadu, tantu lokal no internasional, sei limitadu. Impendimentu ba ida ne’e la-seluk la le’et tamba deit falta de infra-etrutura no rekursu humanu. Enkuantu seitor privadu sei dúvida hela hodi investimentu, governu tenki foti responsabilidade hodi hahú investe no dezenvolve nasaun ida ne’e. Laiha tempu diak hodi investe sé laos agora. Gasta deit RSE mos risku ida. La investe agora simplemeste signifika ita adia fali problema agora ba tempu seluk ne’ebé sei kria tutan fali problema foun seluk iha tempu tuir mai no ida ne’e sei hasusar ita hodi halo desizaun sira iha futuru ho kustu boot liu tan. Timor-Leste la-bele lakon tan oportunidade sira ne’ebé nia lakon tiha ona iha tinan sanulu liu ba. Enkuantu nasaun seluk iha mundu preokupa hela ho esesu de kapasidade, investe agora sei baratu liu duké tinan hirak oin mai. Ho ekonomia Timor-Leste nian ne’ebé seidauk atinji nia kapasidade másima, investe agora sei lori benefísiu barak duké kustu. Buat sira maka ijemplu husi desizaun defisil sira Timor-Leste tenki halo. No desizaun hirak ne’e ita tenki halo agora ou nunca.

Sé hakarak buat hotu, sei lakon buat hotu

Buat hotu iha ita nia moris ne’e la-se’es husi foti desizaun ka halo escoilha. Ita husik buat ida hodi hetan buat seluk. Ida ne’e maka ita hanaran trade-off. Prinsípiu hanesan mos ita uza hodi halo desizaun polítika ba no iha nasaun ida. Ita la-bele iha parte ida ejiji diversifikasaun ekonómika hodi redús dependénsia ba mina-rai, maibé iha tempu hanesan mos ita rezisti nesesidade hodi halo levantamentu esesu RSE hodi investe iha infra-estrutura no rekursu humanu – kondisaun bázika rua ba diversifikasaun ekonómika. Ita so bele halo ida deit, maibé la’os rua ne’e hotu. Sé lae, sé maka hakarak buat hotu, sei lakon buat hotu (quem todo quer todo perde). Ida ne’e maka desizaun (escolha) defísil sira Timor-Leste tenki halo. No hanesan ho kualker investimentu, kualker desizaun nasaun ne’e foti involve mos risku. Maibé, riksu ida ne’ebé fo benefísiu, ne’e risku ida ne’e merese atu ita foti. Benefísiu sira ita hetan husi halo investimentu agora bo’ot liu kompara ho kustu de oportunidade sira ita lakon hodi la-halo investimentu.

Maibé ita tenki kuidadu ho buat balun

Reseita mina-rai nuda’ar transformasaun husi rekursu mina-rai iha tasi okos ba rekursu finanseiru. Rekursu sira ne’e sei la-permanente. Idealmente, ita hakarak reseita naun-petrolífera finansia orsamentu estadu nian. FP sai nudaar bensaun ida mai ita hodi atinji situasaun óptima ida ne’e.

Atu halo ida ne’e, ita tenki kuidadu no fo konsiderasaun konaba investimentu públiku hirak maka ita tenki halo no ita investe lalais oinsá. Ho liafuan seluk, wainhira ita halo avaliasaun ba polítika fiskal ida apropridada, ita tenkiser fo konsiderasaun ba ekuidade entre jerasaun, kapasidade absortiva ekonomia nian no objetivu estabilizasaun makro-ekonómika, Wainhira ita failla hodi halo ida ne’e, bele hamosu fali konsekuensia a’at seluk hanesan kustu boot, atrazu, inflasun, korupsaun no inefisiensia sira seluk.

Komentáriu ikus

Atu diversifika ninia ekonomia, Timor-Leste uluk kna-nain presiza estabelese baze fundamental rua – infra-estrutura xave ho kualidade no rekursu humanu matenek no kualifikadu. Flexibilidade iha Lei FP fo-bibán ba governu hodi halo polítika “front-loading”, levantamentu esesu RSE, hodi halais dezenvolvimentu nasaun nian. La-halo investimentu ka gasta deit RSE mos risku ida. Benefísiu sira ne’ebe ita sei hetan husi investimentu ba projetu hirak ne’e sei bo’ot liu fali kustu de oportunidade sira husi la-halo investimentu. No la-iha tempu ida diak liu hodi investe duke agora. Agora ou nunca.

Maibé iha buat balun ita presiza konsidera no kuidadu. Primeiru - investimentu públiku presiza konsidera ekuidade entre jerasaun, kapasidade absortiva ekonomia no objetivu estabelizasaun makro-ekonómika. Sigundu - hametin no hadiak liu tan jestaun finansa públika, ekzekusaun orsamental no kapasidade implemetnasaun projetu, nune’e mos dezenvolve prosesu ida rigorozu, independente no transparante ba avaliasaun proposta investimentu.Terseiru - presiza halo revizaun ba PED hodi avalia ninia progresu no aktualiza ninia pre-supostu balun. Kuartu - impréstimu bele sai hanesan opsaun ida hodi rezolve limitasaun kapasidade absortiva ekonomia nasaun nian, maibé tenkiser halo dentro de limitasaun esplísita ida. Kintu - nesesidade ba dezenvolvimentu ekonómiku tenki hetan balansu entre nesesidade ba fornesimentu produtu kualidade husi kompañia internasional versus involvimentu kompañia lokal. Sestu - presiza konsidera aprosimasaun rua ba jestaun FP. Asegura montante nato’on ida ba finansiamentu nesesidade urjente no aktual ba dezenvolvimentu nasaun nian, ao mesmo tempo, poupa no investe kuantidade nato’on seluk ba jerasaun futura no tempu defísil.

Estabelesimentu FP buat ida timor-oan sira hotu tenkiser orgulhu ho. Ida ne’e sai nuda’ar alkanse importante no históriku ida ba nasaun ida ne’e. Maibé, ida ne’e deit sei la-nato’on. Buat importante seluk ita tenki halo maka iha planu no ekzekusaun orsamentu ida diak hodi evita maldisaun rekursu ne’ebé nasaun riku mina-rai sira barak hasoru. FP ne’e bensaun ida. Ita tenki asegura katak kada investimentu ne’ebe ita halo sei nakfilak bensaun ida ne’e ba bensaun seluk barak liu tan.

*Opinaun sira espresa iha artigu ida ne’e autór nian rasik no la-refleta opiniaun/hanoin husi kualker entidade ka ema ne’ebé autór servisu ba ka asosiadu ho.

Referénsia

ADB, (2015), A Private Sector Assessment for Timor-Leste.

Baungsgaard, T., Villafuerte, M., Poplawski-Ribeiro, M., & Richmon, C., (2012),

Fiscal Framework for Resource Rich Developing Countries, the IMF.

Lao Hamutuk, (2016), Submission to Timor-Leste National Parliament on the Proposed Rectification of the 2016 State Budget, www.laohamutuk.org.

Ministry of Finance, (2016), Budget Book1, Rectification Budget 2016, www.mof.gov.tl

Ministry of Planning and Finance, (2005), Establishing a Petroleum Fund for Timor-Leste, Timor-Leste.

Norwegian Government, (2013), Norwegian Economy – Key Facts (access at https://www.regjeringen.no/contentassets/455b1741a3814eb8823ce404fc0de3a0/norwegian_economy_2013.pdf, access date 26 July 2016).

Segura, A., (2006), Managing of Oil Wealth under the Permanent Income Hypothesis – The Case of São Tomé and Príncipe, the IMF.

The IMF, (2012), Macroeconomic Policy Framework for Resource-Rich Developing Countries.

The White House, (2011), The Recent Examples of the Economic Benefits from Investing in Infrastructure, (access at https://www.whitehouse.gov/sites/default/files/infrastructure_report_final_pdf_110211.pdf, and access date 26 July 2016).

Van der Ploeg, R., & Venables, T., (2011), Harnessing Windfall Revenues: Optimal Policies for Resource-Rich Developing Economies, Economic Jornal.

Friday 5 August 2016

Now or never - revisiting some difficult choices Timor-Leste has to make

Now or never - revisiting some difficult choices Timor-Leste has to make

[1]Cosme da Costa Araujo

www.joc.com

Agree to disagree

Timor-Leste’s Parliament recently approved a rectification budget for 2016. An additional $391 million was added to the original budget, bringing the total expenditure for 2016 to $1.9 billion. Most of the rectification budget is destined to finance key infrastructure projects. The Government argues that making such high return investments will provide the necessary foundations for long-term sustainable private-sector-led development. Critics, including Dili-based non-governmental organization Lao Hamutuk, disagree and counter that increase spending on dubious physical infrastructure projects will not provide sufficient benefits to current and future generations of Timorese people.

Both sides, without a doubt, have the best intention for this country. Both want Timor-Leste to become a prosperous country with a healthy and educated population and a strong and sustainable non-oil-based economy led by the private sector. The question of how to achieve it is where both sides disagree. And that should come as no surprise as academics and practitioners have been for years disagreeing on how resource rich countries should use the windfall to bring forward economic development. The disagreement centers on the balance between ensuring long-term fiscal sustainability so as to have adequate savings for future generations, while allocating sufficient resources to meet the current and urgent needs for development. Unfortunately there is no perfect answer and the disagreement indicates that there is no such thing as a one size fits all solution. Every country is unique and therefore requires a unique solution.

The PIH and its limitations

Setting up Petroleum Fund (PF) is a milestone achievement for Timor-Leste in its quest for the wise management of petroleum resources. It is an important political decision that many countries before Timor-Leste are still struggling with. The PF contributes to sound fiscal policy, where appropriate consideration and weight is given to the long-term interest of Timor-Leste’s citizens.

The Estimated Sustainable Income (ESI), calculated at 3% of the Petroleum Wealth, is a fiscal rule embedded in the PF setup. It is a sustainable amount that can be withdrawn from the PF to finance the state budget while leaving the Fund’s purchasing power intact. The rationale behind the ESI rule is a derivation of the classic permanent-income hypothesis (PIH). The theory, put forward by Milton Friedman in 1975, was originally developed for individual households. Since then it evolved and is applied to the country level. Under this rule Timor-Leste spends only the 3 per cent of the ESI, which represents the implicit investment return of the Fund.

Despite its widespread application, the PIH has been criticized by many including Paul Collier as inappropriate or too rigid for a low-income country. A PIH-based rule does not capture country characteristics well. In other words, the policy should reflect national objectives and country circumstances.

Norway’s Sovereign Wealth Fund provided the model for the management of Timor-Leste’s petroleum revenues. Norway is a unique country and is certainly different from Timor-Leste in many things. Despite its Government Pension Fund and the remaining petroleum revenues are considerable assets, the activity in the mainland economy is the primary basis for production, employment and income. Its service sector as a whole accounted for approximately 59 per cent of GDP in 2012. Its modern infrastructures and skilled labor force and consequent high productivity contribute to its high level of GDP per capita relative to the upper half of the OECD countries.

In contrast Timor-Leste’s small, developing economy is still dominated by the oil sector. The country has an acute shortage of skilled labor. Its limited infrastructure mean that potential sectors such as agriculture and tourism remain largely untapped and the efficient movement of goods and people, which often results in high prices for ordinary people.

It is clear now that in order to diversify its economy, Timor-Leste needs to invest in productive sectors in order to generate new sources of income and create jobs for its underemployed and its expanding population. It also needs to increase the workforce’s skills level and improve its infrastructures to increase its productivity. For all of these reasons, rather than the PIH, capital expenditure needs to be scaled-up in countries like Timor-Leste. Fortunately drafters of the PF Law knew the country’s circumstances and accordingly allowed for excess withdrawal above the ESI, provided that it is for the long-term interests of Timorese people.

Furthermore fiscal policy based on a PIH rule would have assumed that everything remains constant including population, economic development and public expenditure growth. Unfortunately these assumptions do not hold in reality. With an annual population growth rate of about 3 per cent, the demand for services increases, this in turn affects public expenditure, not to mention the impact from introducing pensions for public servants. The ESI now barely covers the recurrent expenditure. Spending only the ESI would require either rationalization of expenditures or increasing the Fund’s base capital through new oil and gas revenues. Spending only the ESI would entail stagnation of the non-oil economy, eternal dependence on the PF and susceptibility of public expenditure to short-term fluctuation of the PF investment return. Not investing in core infrastructure and human resources is in itself a risk. In addition, in order to ensure spending only the permanent income – an equal amount that can be withdrawn forever – the base of the PF needs to increase to account for inflation, thus, maintaining the Fund’s purchasing power. Otherwise the PF’s value will shrink in real terms.

“Front loading policy” and its benefits

The Strategic Development Plan (SDP) lays out a pathway for Timor-Leste in its journey towards achieving its dream of becoming an upper-middle income country by 2030 with an educated, healthy and prosperous people. It provides a solution to the development of the non-oil economy with specific targets on developing agriculture, tourism and petroleum industry.

Timor-Leste is blessed with many natural resources, including oil and gas. While oil and gas has funded much of the country’s growth since independence, it is time for Timor-Leste to realize its potential in other areas by diversifying its economy and reducing dependence on oil. This entails creating two important enabling environments – good infrastructure and qualified human resources – to support and grow the development of non-oil economy and facilitate private sector investments.

While other countries rely on loans, foreign aid, remittances and so forth to develop their country and economy, Timor-Leste is blessed with the PF. The front-loading policy allows the government to fast-track the development of the country’s infrastructure and human resources. The IMF, after relaxing its stance on implementing a rigid fiscal rule for resource rich developing countries, now concurs that when the initial capital of the economy, both physical and human is low, the productivity gains of government social and capital spending of oil revenues could exceed the financial returns from oil savings. The Fund further adds that tilting investments towards relatively current poor generations may be welfare-improving. The benefits accrued from these investments should not be judged from a narrow fiscal perspective but instead account for the time-lag. It takes time for these benefits to materialize and be captured through formals channels such as taxes or fees and charges.

It is wrong to argue that investing in ports, roads, electricity, drainages, and human resources will not provide sufficient benefits to current and future generations of Timorese people. Tibar Bay Port will ease delays, which will certainly flow through to more affordable prices for ordinary people. It will remove congestion; enhance trading with Timor-Leste’s trading partners and could potentially serve as a logistic hub for the region. A connected Timor-Leste, through roads, ports and airports, will facilitate the efficient movement of goods and people within the country and with other countries.

Apart from supporting employment in construction and in the production of materials, these projects can build the productive capacity of the economy through positively influencing the productivity of the private sector and raising the return on private capital, resulting in beneficial long-term effects. Moreover, increased spending by the workers hired in these sectors can have positive ripple effects throughout the economy. The benefits of investing in infrastructure are especially high when there are underutilized resources in the economy. These projects benefit not only the current generation, but also the future generation from the build-up of capital in the form of better public services, improved living conditions and enhanced human capital. Once all these basic foundations are in place that will help stimulate economic growth, which in turn translates into higher domestic revenues. Government spending can then revert back to the level consistent with the ESI.

“Timing the investment” – now or never

It is generally agreed that Timor-Leste needs to diversify its economy. To do so it has to attract private sectors to invest more in productive sectors. Our experience in the last few years has shown that despite attractive tax rates and other incentives, private investment, both local and international, has been very limited. The missing link comes down to none other than the limited infrastructure and human resources. When the private sector is reluctant to invest, it falls back onto the government to shoulder the responsibility to kick start the development of the country. And there is no better time to invest than now. Spending only the ESI is in itself is a risk. By not investing now simply means delaying or diverting the problems and would only create new problems down the line. It makes future decisions more difficult and more costly. Timor-Leste cannot afford to lose more opportunities than it has forgone for last ten years. With countries around the world busy dealing with excess capacity, investing now would be cheaper than in later years. With Timor-Leste’s economy operating below its full capacity, investing now would bring more benefits than costs. These are some difficult choices the government has to make. They have to be made now or never.

Who wants everything, loses everything

Everything in life involves making choices. Giving up something now to get something more is what we call a trade-off. The same principle applies in making political decisions for the country. One cannot demand economic diversification to reduce the reliance on oil and gas and at the same time resist the need to withdraw above the ESI to invest in infrastructures and human resources, the two basic foundations for economic diversification. One can have either but not both. Otherwise, those who want everything lose everything (quem todo quer todo perde). It is the difficult choice that Timor-Leste has to make. As with any investment we make in life, whatever choice the country makes involves risk. But a well-rewarded risk is a risk worth taking. The benefits from choosing to invest now are far greater than the opportunity cost forgone for not investing at all.

But be mindful of certain things

Petroleum revenues are a transformation of oil and gas resources under the sea into financial assets. These resources are finite. An optimal situation would be for non-oil revenues to finance the state budget. The PF is a blessing to achieve this desired situation.

The considerations on how much and how fast public investment should be made is something we need to be mindful of. In other words, when assessing the appropriate fiscal policy consideration should be given to inter-generational equity, the economy’s absorptive capacity and macroeconomic stabilization objectives. Failing to factor-in these factors would lead to cost overruns, delays, inflation, corruption and other inefficiencies.

Final comments

In order to diversify its economy, Timor-Leste needs to first have in place the basic foundations – good quality, core infrastructure and qualified and skilled human resources. The flexibility of the PF Law enables the government to front-load, withdrawing above the ESI, to fast-track the development of the country. Not investing at all or spending only the ESI is in itself is a risk. The benefits from investing in these projects outweigh the opportunity costs of not investing at all. And there is no better time to invest. It’s now or never.

But there are certain things that we need to be mindful of.

· Public investments need to consider the inter-generational equity, the economy’s absorptive capacity and macroeconomic stabilization objectives.

· Public financial management, budget execution and project implementation capacity need to be strengthened and improved as well as developing a rigorous, independent and transparent process for evaluating investment proposals.

· After the first five years of its existence, the SDP might need a review to evaluate the progress made to date and update some of its assumptions.

· A full and complete costing of a revised SDP might be needed to understand its impact on the PF.

· Borrowing is one of the options to bypass the existing absorptive capacity of the economy, but it should be done within an explicit limit and should be carefully and comprehensively assessed.

· Economic development needs to reach a balance between the need for quality products provided by international companies versus the involvement of local players.

· A two-tiered approach to the PF management might need to be considered. A certain amount could be earmarked for financing the current and urgent development needs of the country, while a sizeable amount is saved for future generations and unexpected rainy days in a saving fund.

Having the PF is one thing for Timorese to be proud of. It is a very important achievement for the country. But it is not enough. The next important thing we need to do is to have good planning and execution of the public sector budget so as to avoid the resource curse found in so many petroleum producing countries. The PF is a blessing. We need to make sure that every investment that we make will turn this blessing into more blessings.