East Timor. Country Profile 2004

Transcription

1 Country Profile 2004 East Timor This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2004 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author s and the publisher s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

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4 Country Profile The Economist Intelligence Unit Limited 2004

5 East Timor 1 Contents 2 Basic data 3 Politics 4 Political background 5 Recent political developments 8 Constitution, institutions and administration 9 Political forces 11 International relations and defence 12 Resources and infrastructure 12 Population 13 Education 13 Health 14 Natural resources and the environment 14 Transport, communications and the Internet 15 Energy provision 15 The economy 15 Economic structure 16 Economic policy 19 Economic performance 20 Regional trends 20 Economic sectors 20 Agriculture 21 Mining and semi-processing 22 Manufacturing 22 Construction 22 Financial services 23 Other services 23 The external sector 23 Trade in goods 23 Invisibles and the current account 24 Capital flows and foreign debt 24 Foreign reserves and the exchange rate 25 Appendices 25 Sources of information 26 Reference tables 26 Population 26 Gross domestic product 26 Gross domestic product by sector 27 Consumer prices 27 Foreign trade 27 Exchange rates The Economist Intelligence Unit Limited Country Profile 2004

6 2 East Timor Basic data Land area Population Climate Weather Languages Measures Currency Time Public holidays 14,609 sq km 763,000 (2002, Asian Development Bank) Tropical Heavy monsoon rains, followed by a pronounced dry season. The north coast has a brief rainy season from December to February; the south coast has a double rainy season from December to June, with a break in March Portuguese and Tetum (official languages); English and Bahasa Indonesian (working languages); numerous local languages are also in use Metric system Dollar (US$)=100 cents 8 hours ahead of GMT January 1st (New Year s Day); April 17th (Maundy Thursday); April 18th (Good Friday); May 20th (Independence Day); August 15th (Assumption Day); August 29th (Popular Consultation Day); November 3rd (All Saints Day); November 12th (Santa Cruz Day); December 25th (Christmas Day); December 31st (New Year s Eve) Country Profile The Economist Intelligence Unit Limited 2004

7 East Timor 3 Politics East Timor s political system is similar to that of the Portuguese model of semipresidentialism. The prime minister, Mari Alkatiri, is the leader of the Frente Revolucionária do Timor-Leste Independente (Fretilin, The Revolutionary Front for an Independent East Timor), which has a parliamentary majority and dominates the Council of Ministers (the cabinet). Widely seen as a national hero is the president, Jose Alexandre Xanana Gusmao, who rebuilt the resistance to Indonesia during the 1980s as a broad-based movement of national unity. The political system gravitates around two poles!the Fretilincontrolled parliament and cabinet, and the non-fretilin-controlled presidency. Political background East Timor suffers under Portuguese neglect An initial period of independence was short-lived The first Portuguese traders reached the island of Timor in the early 1500s. Before that little was known about the island, which was inhabited by ethnic groups broadly classified along the lines of Polynesian, Melanesian and aborigine. Timor was divided along its present lines under agreements reached between the Dutch and the Portuguese in 1859, with the Dutch controlling the west of the island and the Portuguese keeping the east and the north-coast enclave of Oecussi. Until the mid-20th century East Timor remained a strategically important but neglected outpost of the Portuguese empire. The strategic importance was not lost on Australian or Japanese forces during the second world war. The Timorese sided with Australian forces in an effort to resist the Japanese invasion in Around 50,000 Timorese lost their lives during the battle and the ensuing three-year period of Japanese occupation. During the post-war period the Portuguese made efforts to promote the recovery and development of East Timor. However, following the overthrow of Portugal s dictator, Marcello Caetano, in April 1974, Portugal began to take steps towards casting off its burdensome colonies, including East Timor. As expectations of independence reached a high level in East Timor in 1974, the domestic political scene quickly developed. The most popular political party was Fretilin, which was initially formed as the Timorese Social Democratic Association in May Its main political rival was the Uniao Democratica de Timor (Timorese Democratic Union, UDT), which was formed at the same time by businessmen and landowners. The two parties were united in their principle objective of securing independence, and so formed an alliance in early 1975 ahead of an election planned for However, the union was fragile, and was eventually undone in August 1975 when UDT members, believing that Fretilin was planning a coup to secure power for itself, launched its own coup supported by police units. Faced with fierce resistance from Fretilin groups, which were supported by Timorese soldiers, the UDT and other small political groups fled to the neighbouring Indonesian province of West Timor, from which they launched crossborder raids supported by Indonesian troops. After calling for the UN to force Indonesia to withdraw its troops, Fretilin declared East Timor an independent republic on November 28th This period of independence was short-lived. On December 7th 1975 Indonesia The Economist Intelligence Unit Limited Country Profile 2004

8 4 East Timor invaded East Timor, and in May 1976 ministers of the so-called Provisional Government!a group of East Timorese delegates chosen by the Indonesian military!voted for East Timor s integration into Indonesia. On July 17th 1976 Indonesia s parliament passed the integration bill and East Timor became Indonesia s 27th province. The UN Security Council never recognised Indonesia s sovereignty over East Timor. Indonesia s brutal occupation lasts 24 years The East Timorese choose independence, but at a cost The UN oversees the transition to independence In the immediate aftermath of Indonesia s invasion, around 60,000 East Timorese were killed. Such violence was to be a defining characteristic of the 24-year Indonesian occupation, during which perhaps as many as one-third of the pre-invasion population died. Although the Indonesian authorities invested heavily in the development of East Timor in terms of building healthcare clinics, schools and transport infrastructure, much of this served the needs of the increasing number of immigrants from Indonesian provinces. The majority of East Timorese refused to accept the rule of the occupying forces. Although the resistance movement, Falintil!originally the military wing of Fretilin! suffered massive losses in the late 1970s, the movement regrouped in the early 1980s under Mr Gusmao s leadership. Mr Gusmao left the party in 1988 and created a broad resistance coalition!conselho Nacional da Resistencia Timorense (CNRT, the Timorese Council of National Resistance)!that emphasised a strategy of civil disobedience rather than armed conflict, in an effort to attract international attention and sympathy. The cost of running military operations and maintaining an administrative presence in East Timor proved to be a heavy burden for the Indonesian government in the aftermath of its 1997 economic crisis. Owing partly to this, and partly to intensifying international concern, the Indonesian government finally decided in January 1999 to offer the people of East Timor the chance to vote on whether or not to accept wide-ranging autonomy or independence. The UN Assistance Mission for East Timor (UNAMET) was set up in June 1999 to prepare for the independence referendum, or popular consultation, which was set for August 30th The UN and local political groups pressed the Indonesian government to delay the referendum in order to give them more time to prepare. However, the government remained defiant, partly in response to the demands of the military, which appeared intent on embarking on a short campaign of destabilisation and intimidation. Despite the best efforts of the military and pro-independence militia groups to deter voters, 98.6% of registered voters took part in the referendum and 78.5% voted for independence. The military and the pro-independence militia groups sought brutal and violent retribution immediately after the referendum. At least 1,000 people were killed, more than 250,000 East Timorese were forced into Indonesian West Timor, and another 500,000 fled to the hills. International outrage at these developments led to the intervention of an Australian-led, UN-sponsored force, known as Interfet (International Force East Timor), to restore peace and order. Indonesian troops withdrew soon after. In October 1999 the UN Security Council passed a resolution establishing a UN Transitional Administration in East Timor (UNTAET), which was led by the special representative of the secretary-general, Sergio Vieira de Mello. UNTAET s Country Profile The Economist Intelligence Unit Limited 2004

9 East Timor 5 mandate was the broadest ever for a UN mission, and gave it full and exclusive governmental powers over East Timor. Among the main tasks facing UNTAET were those of providing security and maintaining law and order; establishing an effective administration; supporting capacity-building for self-government; and assisting in the establishment of conditions for sustainable development. In moves towards self-government, a 15-member legislature, the National Consultative Council, was established in 1999 and incorporated CNRT members and UNTAET officials. This was later replaced by the 36-member East Timor National Council, a precursor to a national parliament, in late Mr Gusmao was elected as the council s speaker. Recent political developments A Constituent Assembly is established East Timor becomes an independent nation The government struggles to maintain public confidence An election to an 88-member Constituent Assembly was held on August 30th Belying fears generated by the violence that had marked East Timor s previous experience of elections, the poll was peaceful. Despite predictions that the East Timorese would be baffled by the complexity of the issues and the electoral system and would not vote, 91% of registered voters turned out. Fretilin emerged as the largest party, winning 57% of the national vote and 62% of the vote for district seats, giving it a total of 55 seats, just short of the twothirds supermajority required to give it absolute control of the new assembly. On September 15th 2001 the assembly was sworn in and an all-east Timorese Second Transitional Government was appointed by Mr Vieira de Mello. Although Mr Gusmao initially refused to run for the presidency, on April 14th 2002 he won the presidential election by a landslide. Gaining 82.7% of the vote, he easily defeated his token opponent, the deputy assembly speaker, Francisco Xavier do Amaral. This was the final stage in East Timor s transition to independence, which was officially granted on May 20th 2002 when UNTAET transferred authority to Mr Gusmao, although the UN has maintained a presence in East Timor under the UN Mission of Support in East Timor (UNMISET). However, the euphoria associated with the independence celebrations was short-lived, and the harsh realities facing the country during the early stages of independence soon became apparent. The fledgling East Timor government has struggled to live up to the expectations of the populace. Following the euphoria surrounding the granting of independence, people have become increasingly despondent and critical of the government s failure to tackle rising unemployment and crack down on alleged incidences of corruption, collusion and nepotism. The lowest point was reached in December 2002, when the capital, Dili, was under a state of alert after a peaceful student-led protest swiftly turned violent. In the ensuing clashes with the police, two students were shot dead and more than 25 were injured. The violent arrest of a student accused of murder brought the students out into the streets in protest, but a number of forces have been blamed for manipulating the protest and inciting the torching and looting of property, including the house of the prime minister, Mari Alkatiri. The Economist Intelligence Unit Limited Country Profile 2004

10 6 East Timor Despite the fact that the presidential office is largely ceremonial, Mr Gusmao is immensely popular and has acted a powerful political force and counterweight to the government. On November 28th 2003!the anniversary of East Timor s declaration of independence in 1975!Mr Gusmao reminded government officials that they were not above the law, and urged them face up to their responsibilities. Mr Gusmao has been particularly critical of the government s failure to create a credible justice system, which has contributed to the public s growing concerns over the potential for corruption and abuse of power within the governing elite. The UN s mandate is extended Owing to security concerns and the apparent weaknesses of the local defence and police forces, the UN s mandate has been extended on two occasions, with a 12-month extension from May 2003 being followed by a further six-month extension from May 2004, with the possibility of an extra six-month extension to May According to the foreign affairs and co-operation minister, José Ramos Horta, the extended UN mandate from May 2004 was needed to give defence and police forces time to strengthen their capacity. UNMISET s presence, however, has been scaled down. In early 2003 the UN Peacekeeping Force (PKF) numbered 3,870 troops, but from May 2004 its size had dropped to only 310. In addition to the PKF, UN personnel remaining in East Timor include 157 civilian police advisers, 58 civilian advisers to support the public administration and the judiciary., 42 military liaison officers and a 125-member International Response Unit. Important recent events January 1999 Indonesia s president, B J Habibie, announces that East Timor will be given the opportunity to vote on whether to accept wide-ranging autonomy or independence. June 1999 The UN Security Council formally establishes the UN Assistance Mission for East Timor (UNAMET), which is given the task of preparing for the independence referendum, or popular consultation. August 1999 A total of 98.6% of registered voters take part in the popular consultation, despite intimidation tactics of pro-integration militia groups and the Indonesian military. September 1999 The results of the popular consultation are announced, with 78.5% voting for independence. At least 1,000 people are killed as pro-integration militia groups and the Indonesian military go on the rampage, destroying buildings and infrastructure. Almost the whole population is displaced. The UN Security Council authorises a multinational force, known as the International Force East Timor (Interfet), headed by Australia, to enter East Timor. October 1999 Indonesia s parliament formally accepts the results of the independence referendum. The UN Transitional Administration in East Timor (UNTAET) is established to oversee the transition to independence. Country Profile The Economist Intelligence Unit Limited 2004

11 East Timor 7 February 2000 Interfet transfers military command to UNTAET. August-September 2001 Voting for the 88-member Constituent Assembly takes place. Frente Revolucionária do Timor-Leste Independente (Fretilin, the Revolutionary Front for an Independent East Timor) wins 57.3% of the vote. January 2002 Indonesia sets up a human rights court to try those believed to be responsible for the atrocities committed in the aftermath of the independence vote. March 2002 The Constituent Assembly agrees on the country s first constitution. April 2002 The resistance hero, Xanana Gusmao, becomes president after capturing 82.7% of the votes in the presidential election. May 2002 East Timor officially becomes an independent nation. UNTAET is replaced by the UN Mission of Support in East Timor (UNMISET). December 2002 The capital, Dili, is under a state of alert after a peaceful student-led protest swiftly turns violent. March 2003 The UN secretary-general, Kofi Annan, calls for the planned scaling down of UN security forces in East Timor to be delayed, amid widespread concerns of a growing security risk. The UN Security Council later agrees to extend UNMISET s mandate until May May 2003 East Timor marks the first anniversary of its independence without a repeat of the euphoria that greeted the official ceremony in Mr Gusmao calls on the country s politicians, bureaucrats and legislators to face up to the challenges. August 2003 The Indonesian government s ad hoc human rights tribunal is completed, with the last of the 18 defendants, Major-General Adam Damiri, the highest-ranking officer among them, being found guilty!one of only six defendants to have been found guilty. November 2003 The UN s special representative in East Timor, Kamalesh Sharma, raises concerns about the consequences of the government s failure to create a more open and transparent administration. May 2004 The UN Security Council agrees to extend UNMISET s mandate for another six months, with a possible further extension of six months to May The Economist Intelligence Unit Limited Country Profile 2004

12 8 East Timor Constitution, institutions and administration The powers of the president are defined narrowly Portuguese is the official language The judiciary is weak Commission for Truth, Reception and Reconciliation Indonesia ignores UN indictments On March 22nd 2002 the Constituent Assembly promulgated the constitution, which was drafted with the direct input of the East Timorese, although the outcome of the Constituent Assembly election gave Fretilin de facto command over the drafting of the constitution. The constitution defines the powers of the president quite narrowly, following the Portuguese rather than the French model of semi-presidentialism. In a statement issued at the start of the presidential campaign, Mr Gusmao indicated several times that he would not be content to operate strictly within the limits set on the presidency in the new constitution. The decision to adopt Portuguese as the official language met with widespread criticism. Portuguese is spoken by only around 5% of the population, according to an official household survey conducted in 2001 by the Planning Commission (which was given the task of producing a national development plan prior to independence). Bahasa Indonesia is spoken by around 43%, and the local language, Tetum, is spoken by around 82%. Tetum was also declared an official language, but it is an undeveloped language and inadequate for use in official documents. The president has confirmed that Portuguese will remain the official language, although the adjustment phase will be problematic, not just for the general public, but also for the government. A shortage of translators in parliament has at times prevented debate and the progress of legislation. East Timor s legal system is inadequate, and its legal institutions are fragile. Mr Ramos Horta has complained publicly that the judicial and prison systems were established hastily, with an inadequate number of qualified judges. During the Indonesian occupation the East Timorese did not hold positions of responsibility in the justice administration. The departure of judges, prosecutors and court clerks in 1999 therefore left a dearth of legal capabilities in East Timor. The judicial infrastructure, including courthouses and detention centres, also suffered extensive damage in the immediate aftermath of the popular consultation. East Timor s need to come to terms with past atrocities has been recognised in the creation of a Commission for Truth, Reception and Reconciliation. How this non-prosecutory body will dovetail with the justice system is clear enough in theory. In practice, however, there are differences of view among politicians and the general public over the scope for amnesties and the question of which crimes are to be treated as too serious to be forgivable. Mr Gusmao s more inclusive stance emphasises reconciliation. The apparent smoothness with which returning East Timorese have been reintegrated into the communities from which they fled in September 1999 suggests that the general public is not thirsty for revenge. The UN Special Crimes Unit (SCU) in East Timor has filed charges against around 400 people, many of whom are Indonesians, for crimes committed after the independence referendum. Among those charged, the most senior official is General Wiranto, who was the head of Indonesia s military during Country Profile The Economist Intelligence Unit Limited 2004

13 East Timor 9 the violence in (General Wiranto is one of five candidates contesting the 2004 Indonesian presidential election.) The SCU proceedings, especially its decision in May 2004 to issue an arrest warrant for General Wiranto, have not been wholly welcomed by East Timor s leaders, particularly Mr Gusmao, who are keen to promote a process of reconciliation with Indonesia. The Indonesian government has also repeatedly ignored the indictments, stating that it does not recognise the authority of the SCU and that it will not extradite the accused officials for prosecution. Indonesia s ad hoc human rights tribunal Verdicts are criticised The Indonesian government established an ad hoc human rights tribunal in March 2002 under intense international pressure. The court was set up to try 18 Indonesian officials suspected of human rights violations in East Timor. The tribunal has been widely dismissed by human rights organisations, as the country s former military chief, General Wiranto, was not indicted. Furthermore, a number of key witnesses ignored summons to appear in court owing to fears for their own safety. The East Timorese leaders, however, offered tacit support for the trials. Of the 18 suspects, only six were found guilty, initially remaining free pending an appeal. By mid-2004 Indonesia s Supreme Court had overturned the verdicts against three of the six, all three being Indonesian military officials. The court upheld one conviction, against Jose Osaorio Abilio Soares, who was the governor of East Timor in He now faces a three-year prison term for crimes committed against humanity. The appeals against the two remaining cases, involving a former police chief in the East Timorese capital, Dili, and a militia leader, have yet to be heard. A number of foreign governments, including the New Zealand government and the European Commission, have expressed disappointment in the overall outcome of the tribunal. However, as is the case with the Indonesian government s refusal to extradite suspects for trial, the East Timorese government is unlikely to risk upsetting Indonesia by criticising the tribunal or calling for a UN-backed international tribunal. Political forces Fretilin dominates parliament Fretilin dominates the parliament, controlling 55 out of a total of 88 seats. East Timor s 13 districts are represented by one seat each; the remaining 75 seats are allocated to political parties based on a nationwide proportional representation system. Fretilin s claim to power derives from its status as the party of the resistance. Founded in 1974, Fretilin spearheaded the drive for independence and, with its armed wing, Falintil, organised resistance in the aftermath of the Indonesian invasion, declaring East Timor independent on November 28th Fretilin successfully ran its campaign for the Constituent Assembly election almost entirely on the basis of these historical achievements. Some see disturbing authoritarian tendencies in Fretilin. During the Constituent Assembly election campaign there were signs of this unattractive streak, only partly tempered by the UNTAET electoral and law-enforcement machinery. Fretilin inserted a clause in the constitution to make the assembly East Timor s first post-independence parliament. Critics of this decision included The Economist Intelligence Unit Limited Country Profile 2004

14 10 East Timor Mr Gusmao, the Nobel Peace Prize-winner, Bishop Carlos Ximenes Belo, most of the non-fretilin political parties and many civil society groups. Fretilin and the president have strained relations Mr Gusmao was the chairman of Fretilin until 1988, when he left the party with a stinging condemnation of its dogmatism. He created a broad resistance coalition that embraced not only the guerrilla movement but also such important forces as the Catholic Church and the growing body of disillusioned collaborators, urban youth and Indonesian-educated students. This alliance was formalised in 1998 in the Conselho Nacional da Resistencia Timorense (CNRT, Timorese Council of National Resistance). Fretilin was a founding member of the CNRT, but withdrew from it in August Shortly before the August 2001 Constituent Assembly election, the CNRT dissolved itself. During the election, Mr Gusmao s estrangement from Fretilin was evident, as was his sympathy for two new CNRT-based parties, the Partido Democratico (PD) and the Partido Socialista Democratico (PSD). He agreed to a truce with Mr Alkatiri before independence was granted, but Mr Gusmao s public shows of discontent with the government s performance since independence have been a constant thorn in the prime minister s side. The parliamentary opposition is made up of a coalition of eight parties, which espouse a diverse range of political ideologies. Fernando de Araujo, the leader of the PD, the second-largest party in parliament, leads the opposition. Constituent Assembly election results, 2002 No. of national seats No. of district seats % of vote Fretilin Democratic Party (PD) Social Democratic Party (PSD) Social-Democratic Association of Timor (ASDT) Timor Democratic Union (UDT) Others Independent (Oecusi) Total Source: International Foundation for Election Systems. Leading political figures Xanana Gusmao The president, Xanana Gusmao, is widely regarded as East Timor s independence hero. Although initially reluctant to take on the presidency, Mr Gusmao s universal appeal was reflected in his landslide victory in the presidential election. Mr Gusmao led the resistance movement in East Timor for two decades. He was arrested by the Indonesian authorities in November 1992 and, after spending more than six years in prison and under house arrest, was released soon after the announcement of the independence referendum result. Although his presidential powers are limited, Mr Gusmao has wasted no time in acting in his self-defined role as government watchdog. In early 2004 Mr Gusmao announced that he would not run for re-election. Country Profile The Economist Intelligence Unit Limited 2004

15 East Timor 11 Mari Alkatiri The prime minister and Fretilin s secretary-general, Mr Alkatiri was a founding member of Fretilin. He left East Timor on the eve of the Indonesian invasion in 1975 as part of an international mission to drum up support for the newly proclaimed Democratic Republic of East Timor. He spent the following 24 years in exile, mainly in Mozambique. José Ramos Horta The foreign minister, Mr Ramos Horta, was awarded the Nobel Peace Prize in 1996 (together with Bishop Carlos Ximenes Belo) for working towards a just and peaceful solution to the conflict in East Timor. He fled East Timor three days before Indonesian troops invaded in 1975 and spent the following two decades in exile, lobbying foreign governments and the UN. International relations and defence East Timor s attitude towards Indonesia is conciliatory Maritime border dispute strains relations with Australia East Timor s government has adopted a conciliatory stance towards Indonesia. In June 2003, during his first official visit to Indonesia, Mr Alkatari met the Indonesian president, Megawati Soekarnoputri, to discuss pressing bilateral issues, such as border tensions and refugees. Prior to his visit there were indications that Mr Alkatari would raise the sensitive issue of establishing an international tribunal to try Indonesian officials accused of human rights abuses. However, Mr Horta later stated that East Timor would not seek such a tribunal. East Timor s leaders have not wholeheartedly welcomed the indictment of senior Indonesian officials!including General Wiranto, a candidate in the 2004 Indonesian presidential election!by the UN Special Crimes Unit in East Timor. Mr Gusmao has expressed disappointment over the indictments, and has said that it is not in the national interest to pursue such matters at the risk of damaging relations with Indonesia. Mr Gusmao visited Indonesia in July 2002, and was treated to an official state ceremony and a 21-gun salute. He also met General Wiranto in late May 2004, in a move that was heavily criticised by Mr Horta. Although Australia s overall support for East Timor s economic and security development has been welcomed, there are concerns that the lack of cooperation in other areas, particularly in resolving the disputed maritime border, threatens to damage bilateral ties. The Australian government has been criticised for its apparent unwillingness to renegotiate the joint maritime boundary. The current definition of the boundary, which was agreed between Indonesia and Australia, relates to the deepest point between the two countries. Under this definition, Australia is entitled to claim ownership of large oil and gas reserves in the Timor Sea. The East Timor government, however, is calling for the boundary to be set at the mid-point between the two countries, according to the modern Law of the Sea convention. Under such a definition, East Timor would be entitled to claim ownership of all the large oil and gas developments in the Timor Sea. Owing to the fact that Australia withdrew from the International Court of Justice and International Treaty of the Law of the Sea prior to East Timor s independence in 2002, there is no possibility of recourse to a third-party arbitrator. According to East Timor, by redrawing the boundary The Economist Intelligence Unit Limited Country Profile 2004

16 12 East Timor the country could earn US$12bn in royalties from future oil and gas developments, compared with its current estimate under the existing boundary of US$4.4bn. By mid-2004 the dispute had resulted in a number of heated exchanges between leaders on both sides, with no resolution appearing likely in the near future. The Australian government s initial attempt in early 2003 to force 1,600 East Timorese asylum seekers to return home after residing in Australia for more than a decade also threatened to damage relations. Mr Gusmao called on the Australian government to allow the refugees to remain in Australia, arguing that East Timor was already poverty-stricken and that the returnees would place a huge burden on the economy. In June 2003 the Australian government announced that it would grant permanent residency to about 400 East Timorese asylum seekers, and that the cases of 200 others would be considered. Many of the refugees have integrated into local communities in Australia since fleeing East Timor in the early 1990s. Strong links have been formed with ASEAN A fledgling defence force is created East Timor became the 191st member of the UN in September 2002, and its leaders have worked on building the nation s standing by strengthening international relations, particularly with its neighbours in Asia and Australasia. East Timor, which once fancied itself a South Pacific nation and still has strong emotional links with Portugal, has grasped that its interests lie in cultivating a close relationship with the members of the Association of South-East Asian Nations (ASEAN). Membership of ASEAN may still lie a long way off, but observer status would give it access to the ASEAN umbrella. Since independence, leading government officials have met their counterparts in many countries in the region including Singapore, New Zealand, Malaysia, and Thailand. The fledgling East Timor Defence Force (ETDF) has been partially recruited and trained. It will eventually consist of 1,500 regular light infantry and 1,500 reservists. However, the founding of the ETDF and the disbanding of the guerrilla force, Falintil, in early 2000 created resentments. Demobilised former members of Falintil complained that the selection process was biased, both geographically and in the favour of Mr Gusmao s former Falintil protégés. Fretilin is committed to recruiting a wider range of former members of Falintil, some of whom may well not be acceptable to the present high command. Resources and infrastructure Population Age structure of population, 2001 (% of total unless otherwise indicated) 0-14 years years years 2 Total population (no.) 830,000 Source: World Bank. Country Profile The Economist Intelligence Unit Limited 2004

17 East Timor 13 Population data are complicated by refugee flows Attempts to gather accurate population data in recent years have been complicated by the flow of refugees. According to the 1990 census, the population stood at around 748,000. In mid-2001 the UN attempted to record the population through a registration process; the results indicated that the population had dropped slightly, to around 738,000. World Bank data for 2001, based on the 2001 Timorese Living Standard Measurement Survey, put the population at around 830,000. Of the total, 49% were under the age of 15 and 49% were aged between 15 and 65. Around 50% of the population live in four of the 13 districts: Dili (the capital), Baucau, Ermera, and Bobonaro. The population density is around 42 persons/sq km. According to the World Bank, 20% of the population live on less than US$1 per day. Repatriation of refugees The repatriation programme of the UN Refugee Agency (UNHCR) came to an end on December 31st 2002, together with the refugee status of the estimated 30,000 East Timorese that had yet to return. (More than 250,000 people fled across the border into West Timor in 1999.) The UNHCR believes that there is no longer a valid threat of persecution for returnees. Returning refugees no longer receive assistance, such as rice allowances and other necessities, from the UNHCR. The Indonesian government plans to implement a transmigration and relocation programme for the remaining East Timorese families, mainly those with connections to the Indonesian military, police, civil service, or pro-indonesian militia groups. The UNHCR has said that it will not force those families remaining in Indonesia to return to East Timor. Education Literacy rates are low The educational infrastructure was seriously damaged during the postreferendum violence, and around 95% of schools and other educational institutions were destroyed. During the years of Indonesian rule, teachers were drafted in from other provinces in an attempt to use education to Indonesianise students. In late 1999 around 80% of secondary school teachers and administrative staff returned to Indonesia. The standard of education was low during Indonesia s rule and has not improved in the post-independence period, owing to the lack of highly skilled and experienced teachers; the student to teacher ratio stands at around 60:1 in primary schools. In 2001 the net primary enrolment rate was 75% for those aged between seven and 12. However, at secondary level the rate was only 30%. The poor standard of education in East Timor is reflected in the literacy rates of its population: only 48% of the adult population (15 years and older) are literate. By comparison, the literacy rate in Papua New Guinea is 65%, and in Indonesia it is 87%. The decision to make Portuguese the official language has also created a range of problems for the education system, primarily because few teachers speak Portuguese. Health Health standards are poor Standards of health in East Timor were below the average for Indonesia during the Indonesian occupation. In the aftermath of the popular consultation the The Economist Intelligence Unit Limited Country Profile 2004

18 14 East Timor Health statistics, 2001 situation worsened dramatically, owing to the total breakdown of the health system through the destruction of buildings, the loss of equipment and drugs and the departure of senior medical staff. The health infrastructure has since been rebuilt steadily, but the overall situation remains poor, and many die from preventable diseases. Overall life expectancy at birth is only 57 years, compared with an average of 69 years in the East Asia and Pacific region, according to World Bank data. Other health indicators, such as infant mortality and access to improved water sources, are worse than the regional averages. Life expectancy at birth (years) Infant mortality (per 1,000 births) Access to improved water sourcesa Immunisation rateb East Timor Papua New Guinea n/a Indonesia East Asia & Pacific a Percentage of population. b Percentage of children under 12 months receiving DPT (diphtheria,pertussis & tetanus) vaccination. Source: World Bank. Natural resources and the environment Rugged terrain makes transportation difficult East Timor s total land area is 14,609 sq km, which includes the small enclave of Oecussi in West Timor (78 sq km), Atauro Island (141 sq km) and Jaco Island (11 sq km). Located near the equator, East Timor has a hot and humid climate with only slight seasonal temperature variations. The north coast has a brief rainy season from December to February; the south coast has a double rainy season from December to June, with a break in March. The terrain is rugged and mountainous, making transportation difficult. The land is made up of limestone, coral, thick clayey soil, sand and a small amount of volcanic material. Only around 7% of the land is irrigated. Widespread use of slash-andburn agricultural techniques has contributed to deforestation and soil erosion, so that landslides and floods are common. Aside from vast reserves of natural gas and oil in the Timor Sea, East Timor s natural resources include reserves of gold, manganese and marble. However, only the reserves of marble are thought to be sufficient for commercial exploitation. Transport, communications and the Internet Roads and airports are poorly developed East Timor s transport infrastructure is poorly developed and has been badly maintained. The results of a survey detailed in a report by a World Bank-led Joint Assessment Mission in 1999 show that East Timor had 1,414 km of paved roads but that 57% of the network was in poor or damaged condition. In addition, less than 50% of villages had access to paved roads. Owing to the prevalence of potholes and gravel roads, four-wheel drive vehicles are essential for land travel in most areas. There are eight airports in total, but only three have paved runways. There are limited international air services into Dili s airport, Komoro, from Darwin, Australia and Denpasar, Indonesia. The port infrastructure has remained fairly undamaged, and includes services at the capital, Dili, and Laleia (Carabela Port). Country Profile The Economist Intelligence Unit Limited 2004

19 East Timor 15 Telecoms services are rebuilt Much of the telecommunications infrastructure was severely damaged in Before the popular consultation there were 12,000 fixed lines in operation, but this had dropped to around 2,000 in 2000 (according to the most recent available data). An Australian telecoms company, Telstra, began rebuilding the telecommunications infrastructure in 1999 under a UN contract. Telstra managed to resurrect the fixed-line network, in addition to creating a Global Systems for Mobile Communications (GSM)-based mobile phone network. There were around 12,000 mobile subscribers in 2000, but most were UN personnel. In July 2002 a consortium led by Portugal Telecom was selected to run the nation s telecoms services as Timor Telecom. Internet usage is very limited. Energy provision The electricity supply is unreliable The electricity supply is uneven and unreliable. Prior to the 1999 popular consultation and the ensuing destruction of infrastructure, total power generating capacity was around 40 mw, with 20 mw coming from two power stations in Dili, according to the Joint Assessment Mission. The low-voltage distribution systems suffered owing to the burning of buildings following the popular consultation, and a number of power stations were damaged. However, the physical damage to generation and distribution plant in Dili and the larger district centres was fairly light, making possible the rapid restoration of the facilities with international assistance. A total of 21 of the 57 power stations had been returned to an operational condition by early Fossil fuels provide the source for all electricity production, but there may be potential for hydropower. In late 2002 the government decided to implement a programme of reforms in the power sector. In addition to an agreement to install prepaid meters, the state power authority, Electricidade de Timor-Leste (EDTL), was to be placed under a three-year external management contract, and agreement was reached with the Macau Electricity Corporation (MEC) in mid Under the conditions of the contract, MEC will take over the management of assets and staff at EDTL, but the government will continue to be responsible for policy, regulations and the tariff structure. The economy Economic structure Main economic indicators, 2002 Real GDP growth (%) 2.8 Consumer price inflation (av; %) 5.0 Current-account balance (US$ m) 37.0a a Includes official transfers. Source: IMF, Democratic Republic of Timor Leste: Selected Issues and Statistical Appendix, Jul Low-productivity agriculture dominates the economy East Timor is primarily a low-productivity agricultural economy. No national accounts have been compiled since 1999, but according to estimates from the The Economist Intelligence Unit Limited Country Profile 2004

20 16 East Timor World Bank and the IMF, agriculture accounts for 25-30% of non-oil GDP. However, more than 90% of the population rely on agriculture and the subsistence economy for their livelihoods. In the services sector accounted for over 55% of GDP, but this data is skewed by the presence of UN personnel during these years. There are huge reserves of oil and natural gas riches in the Timor Sea, but they will have little impact on the economy until fiscal year 2005/06 (July-June). The non-oil export sector is small: export revenue reached only around US$5m a year in , and coffee is the only significant export earner. Comparative economic indicators, 2002 East Timor Australia Indonesia New Zealand Papua New Guinea Fiji GDP (US$ bn) GDP per head (US$) , , ,908 Consumer price inflation (%;av) Current-account balance (US$ bn) Exports of goods (US$ bn) Imports of goods (US$ bn) Foreign trade (% of GDP) Sources: Economist Intelligence Unit; Asian Development Bank; IMF. Economic policy The government s policy performance is praised The budget prioritises education and health The government has made substantial progress in implementing its National Development Plan (NDP) in its first two years in office, according to East Timor s development partners, which include the World Bank and the IMF. The NDP, which is entitled Our Nation, Our Future, focuses on economic growth and poverty reduction, and was endorsed at a meeting of development partners in May 2002, shortly before independence. The government s performance has been evaluated at biannual meetings with its development partners. The latest meeting was in May East Timor s donors pledged their continuing commitment to supporting the country. In May 2002 the development partners pledged a total of US$360m in aid, to be disbursed over the following three years, in addition to US$80m in previously pledged funds. In its budget for fiscal year 2003/04 (June-July) the government has placed a high priority on education and health. Around 21.3% of total expenditure has been allocated to education, and around 12% to health. Similar levels of spending are planned for 2004/05. The 2003/04 budget comprised total planned expenditure of US$74.6m, up from actual expenditure of US$70.6m in 2002/03 (according to data published by the IMF), compared with a budgeted US$74.4m. Recurrent expenditure accounted for 80% of the total in 2002/03, with major capital and development works accounting for the remainder. According to official government data, the government received revenue of US$44.1m in 2002/03, up from US$31.3m in 2001/02 and US$27.1m in 2000/01. Domestic revenue fell slightly to US$17.4m, from US$20.5m in the year-earlier period, but revenue from oil and gas projects in the Timor Sea rose to US$26.7m, including First Tranche Petroleum (FTP) revenue (royalty receipts and Country Profile The Economist Intelligence Unit Limited 2004

21 East Timor 17 interest). The overall budget deficit rose from US$21.3m in 2001/02 to US$26.5m in 2002/03, equivalent to around 7.4% of GDP. Central government finances, 2002/03 (US$ m) Total revenue & grants 44.1 Tax revenue 15.5 Non-tax revenue 1.9 Timor Sea revenue (including royalties and interest) 26.7 Total expenditure 70.6 Recurrent expenditure 58.2 Capital expenditure 12.4 Budget balance Source: IMF, Democratic Republic of Timor Leste: Selected Issues and Statistical Appendix, July A Timor Sea revenue fund is set up The US dollar is adopted as the official unit of exchange The government has created a Timor Sea oil fund, which will be used to save much-needed FTP revenue for future generations, to smooth government expenditure and to insulate the non-oil economy from future oil and gas windfalls. The entire FTP revenue will be placed in the fund. In 2002/03 the government saved US$2.1m in FTP revenue, with interest receipts accounting for around US$400,000 of the total. By the end of 2002/03 accumulated FTP savings had reached around US$10m. FTP revenue is expected to amount to US$14m in 2003/04 and US$39.8m in 2004/05, and as much as US$126.1m in 2007/08. The oil fund will be integrated into the budget, with inflows and outflows subject to parliamentary approval. Restrictions are in place to ensure transparency and to prevent political interference in the use of the funds. As the new constitution does not explicitly define East Timor s currency, the authorities decided to adopt the US dollar, rather than the Indonesian rupiah or the Portuguese escudo, as its official monetary unit of exchange. A new national currency is unlikely to be introduced until East Timor has a fully operational central bank and monetary system. The adoption of the US dollar has helped East Timor to avoid currency convertibility and supply issues during the early stages of development. Furthermore, it will enable East Timor to avoid the symptoms of Dutch Disease!the economic distortions, particularly an overvalued exchange rate, produced by windfalls of foreign exchange from sudden increases in oil and gas revenue. However, as a result of adopting the US dollar the government has minimal control over domestic monetary policy, thus limiting its ability to manage the economy. (The Banking and Payments Authority, formerly the Central Payments Office, plays a limited central banking role, overseeing a small financial sector.) Use of the US dollar is also proving problematic in agricultural communities, particularly in terms of the differentiation of coins, owing to the long-standing familiarity with the former currency, the Indonesian rupiah. Heavy fines have been imposed to deter the activities of unlicensed money-changers and the unlicensed import of all other currencies, including the Australian dollar. The Economist Intelligence Unit Limited Country Profile 2004