Timor-Leste : The History and Development of Asia’s Newest Nation 9780739191217, 9780739191200

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Praise for Timor-Leste: The History and Development of Asia’s Newest Nation “Timor-Leste: The History and Development of Asia’s Newest Nation offers a fresh perspective on Timor-Leste’s extraordinary journey over the past decade.” —Ameerah Haq, United Nations Under-Secretary-General for Field Support and Head of the United Nations Integrated Mission in TimorLeste “The book of Abraham Joseph and Takako Hamaguchi is highly welcome. It gives an incomparable analysis of the challenge successfully faced by TimorLeste as a new and fragile state. . . . It is to be hoped that thanks to this book other fragile states will break the vicious circle of state fragility as done by Timor-Leste.” —Patrick Guillaumont, Université d’Auvergne, former member of the United Nations Committee for Development Policy “Joseph and Hamaguchi, expertly, professionally, and credibly, describe the history and the current realities of Timor-Leste. They go on to present the information from which potential collaborative blueprints for the near future of this new dynamic nation may be drawn upon as it progresses into in its second decade—a decade expected to match or even exceed the development of the first decade.” —John E. Steffens, University of Oklahoma

Timor-Leste The History and Development of Asia’s Newest Nation Abraham Joseph and Takako Hamaguchi

LEXINGTON BOOKS Lanham • Boulder • New York • Toronto • Plymouth, UK

Published by Lexington Books A wholly owned subsidiary of Rowman & Littlefield 4501 Forbes Boulevard, Suite 200, Lanham, Maryland 20706 www.rowman.com 10 Thornbury Road, Plymouth PL6 7PP, United Kingdom Copyright © 2014 by Lexington Books All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review. British Library Cataloguing in Publication Information Available Library of Congress Cataloging-in-Publication Data Hamaguchi, Takako, 1957- author. Timor-Leste : the history and development of Asia's newest nation / Takako Hamaguchi and Abraham Joseph. pages cm Includes index. Summary: “After enduring years of conflict and destruction, Timor-Leste has risen from the ashes and, within a short span of time, made remarkable strides toward recovery and reconstruction. It is today a nation well on its way to peace and prosperity, creating an example to be followed by other fragile and underdeveloped countries. Timor-Leste: The History and Development of Asia’s Newest Nation examines this journey through the social, political, and economic development of the young state”-- Provided by publisher. ISBN 978-0-7391-9120-0 (cloth : alk. paper) -- ISBN 978-0-7391-9121-7 (electronic) 1. TimorLeste--History. 2. Postwar reconstruction--Timor-Leste. 3. Nation-building--Timor-Leste. 4. Economic development--Timor-Leste. 5. Timor-Leste--Economic conditions. 6. Timor-Leste--Social conditions. I. Joseph, Abraham, 1949- author. II. Title. DS649.7.H36 2014 338.95987--dc23 2014009805 TM The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.

Printed in the United States of America

Dedicated to the People of Timor-Leste

Contents

List of Figures and Tables

ix

Chronology and Map of Timor-Leste

xi

Foreword

xv

Preface and Acknowledgments

xvii

Introduction: Emergence of Asia’s Newest Nation 1 2 3 4 5 6 7 8 9

Timor-Leste and Its Economic History in Brief Declaring Development as a Right Investing with Natural Resource Endowments Promoting Agriculture and Food Security Empowering the Vulnerable Mitigating and Adapting to Climate Change Implementing Millennium Development Goals Partnering with the World Community From Tragedy to Triumph—Building the Foundation of Modern Timor-Leste

1 11 27 41 63 81 99 117 135 157

Selected References on Timor-Leste

179

Index

185

About the Authors

189

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List of Figures and Tables

Chronology Map 1 of Timor-Leste Map 3.1: Timor Sea - Oil and gas fields Map 3.2: Timor Sea - Tectonic elements Table 1.1: Real economic growth in Asian economies 2007-2011 (%) Table 8.1: Humanitarian aid provided by the Government of Timor-Leste, as of December 2011 Figure 1.1: From conflict to development, 1999 to 2009 and beyond Figure 1.2: Real economic growth 2007-2011 Figure 3.1: Timor-Leste’s Petroleum Fund Photo 1: An aerial view of Chritu Rei in Dili, Timor-Leste Photo 2: A woman casting her ballot during the 2007 election in Ossu, central Timor-Leste Photo 3: A view of a ceremony to celebrate Timor-Leste’s Independence Day in Dili Photo 4: A Timorese judge preparing for a swearing-in ceremony Photo 5: Timorese children enjoying mid-morning school meals Photo 6: Workers at Cooperativa Café Timor sifting coffee beans Photo 7: Spectators cheering cyclists on in the final stage of the Tour de Timor Photo 8: Retail employees at Timor Plaza exchanging greetings

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Chronology and Map of Timor-Leste

40,000 – 20,000 B.C.

Vedo-Australoide people arrive in Timor.

3,000 – 2,500 B.C.

Melanesians and proto-Malays arrive in Timor.

1300s

Residents of Timor pay taxes to an Indonesian kingdom in Java.

1600s

Portuguese set up trading post in Timor and export sandalwood.

1904

Timor is split following disputes between Portugal and Netherlands, with Portugal taking the eastern half.

1942

Japan invades during World War II and occupies Timor until 1945.

1974

Carnation Revolution in Portugal leads to a promise to free its overseas colonies.

1975

Frente Revolucionária de Timor-Leste Independente (FRETILIN) proclaims the independence of TimorLeste. Indonesia invades and annexes Timor-Leste as its twenty-seventh province.

1992

Resistance leader Xanana Gusmão is captured and later imprisoned in Jakarta to serve a life-term sentence.

1996

Roman Catholic Bishop of Dili Ximenes Belo and resistance leader José Ramos-Horta are awarded the Nobel Peace Prize. xi

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1998

Indonesian President Suharto resigns, and the Reformasi era begins in Indonesia.

1999

Popular Consultation is held under United Nations auspices, in which 78.5 percent of the Timorese electorate chooses independence from Indonesia. Violence erupts as pro-Indonesia militia launch a campaign of terror. United Nations takes over administration of Timor-Leste during its transition to independence.

2002

Upon the Restoration of Independence on May 20, Timor-Leste becomes Asia’s newest democracy and the first new nation of the third millennium.

2004

Commercial extraction commences at the Bayu-Undan oil and gas field in Timor Sea.

2005

Petroleum Fund is established.

2006

Dismissal of almost six hundred soldiers from the Timorese defense force triggers a major breakdown of order and security.

2007

Timor-Leste’s non-oil economy enters a phase of double-digit annual expansion.

2008

President Ramos-Horta is critically injured in an attempt on his life by renegade soldiers; he survives. Renegades also attack Prime Minister Gusmão, without success.

2009

Timorese government releases a new slogan, “Goodbye Conflict, Welcome Development,” marking the tenth anniversary of the Popular Consultation.

2010

Timor-Leste is ranked 120th in the UN Human Development Index and placed in the medium human development category.

2011

Strategic Development Plan 2011–2030 is launched.

2012

Timor-Leste celebrates the tenth anniversary of the Restoration of Independence.

Chronology and Map of Timor-Leste

xiii

Foreword

My country, Timor-Leste, achieved independence in 2002, after undergoing a turbulent history of decades-long colonization and foreign occupation. By the time it reached independence, the country was in a dire state, its infrastructure all but destroyed and its human and institutional capacities severely debilitated. Timor-Leste rose from these ashes to begin the process of consolidating peace and security and igniting socioeconomic growth. Despite initial setbacks, within a decade, this young nation was successful in navigating from crisis to development. By 2011, we had reached a new frontier, with near disaster behind us and a host of developmental challenges to be faced, including bridging the widening urban-rural gap; investing vigorously in human resources, institutions, and infrastructure; enhancing agriculture and food security; and further consolidating peace and security. In July 2011, my country unveiled the Timor-Leste Strategic Development Plan 2011–2030, with the objective of advancing by the end of the plan’s lifetime from a least developed country to an upper-middle income nation. A key national strategy is to invest natural resource endowments for inclusive, equitable, and sustainable development, which compels TimorLeste to manage and utilize its petroleum resources in a prudent and effective manner and avoid falling into a debt trap. The Petroleum Fund was created in 2005 to this end, and accolades that Timor-Leste has since received speak to its efficient management. The Peterson Institute of Washington, D.C., recognized the fund as one of the best managed of its kind in the world. TimorLeste was the third country worldwide to achieve a status of full compliance with the Extractive Industry Transparency Initiative, and in 2010 the Revenue Watch Institute and Transparency International ranked it among those countries with greater transparency in revenue.

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Foreword

Timor-Leste: The History and Development of Asia’s Newest Nation is a pioneer publication, the first of its kind to give a post-independence socioeconomic history of Timor-Leste. The authors present the economic history of Timor-Leste before and after the restoration of independence as well as discuss the contributions of the United Nations and our other development partners, especially leading up to and immediately following independence, as they have played a vital role in laying the foundation for Timor-Leste’s future. In exploring the country’s socioeconomic history, the authors visit a range of issues critical to its stability in medium- and long-term development, including the right to development, empowering the vulnerable, mitigating and adapting to climate change, implementing the Millennium Development Goals, partnering with the world community, and the advance from tragedy to triumph. As the following account details, Timor-Leste was called to play a significant role in global affairs after it entered the development phase. It was elected to convene and lead the first summit of the g7+ countries in the national capital, Dili, in April 2010. Timor-Leste has also been elected to the UN Committee on the Elimination of Discrimination Against Women and the governing body of the World Health Organization. In 2011, Timor-Leste submitted its application for membership to the Association of Southeast Asian Nations (ASEAN), which is now under consideration by the association’s member states. Entry into ASEAN would see promising socioeconomic prospects for Timor-Leste, reinforced by closer interaction and cooperation with the surrounding region on a wide range of development fronts. Despite the gains that it has secured in its first decade of restored independence, in this next phase Timor-Leste must further consolidate and expand the policies and programs that will ensure its equitable, inclusive, and sustainable development. It is expected that the Strategic Development Plan 2011–2030 will realize the priorities and see met the aspirations of the Timorese people. Timor-Leste: The History and Development of Asia’s Newest Nation will prove a useful resource to policy-makers, development partners, academics, the private sector, and non-governmental organizations and civil society organizations working in Timor-Leste’s socioeconomic development. It is also intended to benefit those working in post-conflict countries, least developed countries, and small island developing states.

José Ramos-Horta Nobel Peace Prize Laureate President of the Democratic Republic of Timor-Leste

Preface and Acknowledgments

Timor-Leste: The History and Development of Asia’s Newest Nation is a study of how a small Asia-Pacific nation has emerged from protracted conflict and successfully navigated a path to durable peace and sustainable development. The co-authors of this volume have been working at the international and national levels for over two decades, particularly in countries with special needs that have not always been successful in sustaining gains in good governance and human development. Counted among them are fragile and underdeveloped countries, but Timor-Leste, though it belongs to this group of disadvantaged states, has a different story to tell the world. Despite early setbacks, Timor-Leste has made an amazing turnaround and today finds itself in a new era in which it will certainly continue its advance toward the goal of long-term stability and prosperity, leaving permanently behind the past that was once marked by a descending spiral of destruction. For three centuries until the turn of the third millennium, the people of Timor-Leste struggled under successive occupations by three foreign powers, Portugal, Japan, and Indonesia. Portugal upheld the longest rule, enduring for well over two and a half centuries until 1975, with a three-year interlude by the Japanese during World War II. Indonesia occupied TimorLeste most recently, from 1975 to 1999. After the Timorese elected independence from Indonesia overwhelmingly in the referendum for self-determination in 1999, the United Nations was entrusted with the task of establishing an effective administration over the territory and supporting its capacitybuilding effort for self-government. At the end of two years under the United Nations’ tutelage, on May 20, 2002, Timor-Leste regained independence. The role of public policy is certainly critical as this new nation makes strides forward in institution-building and development. Shortly before the Restoration of Independence in 2002, Timor-Leste prepared its first longxvii

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range development plan, the National Development Plan 2002–2020, with the limited financial, human, and institutional resources that were at its disposal. In 2007, the country set out to implement the first in a series of annual development plans while at the same time initiating the drafting of the Strategic Development Plan 2011–2030. A broad section of the Timorese population participated in the public consultations that were held in all thirteen districts and sixty-five sub-districts across the country and provided feedback on the draft plan, which was incorporated before it was finalized. The Strategic Development Plan was launched at long last in July 2011. A number of development challenges lie ahead for Timor-Leste, particularly in strengthening human, institutional, and infrastructural capacities in the short to medium term, and in transforming the national economy from oil based to more diversified and better balanced in the longer run. The Strategic Development Plan not only aims to meet those major structural constraints, but it also goes so far as to make an earnest attempt to lift the nation up from the current bottom-rung status in the world economy to the upper-middle income category by 2030. In 2006, when a breakdown in security and stability escalated into a national crisis, Timor-Leste was shaken off the track to recovery on which it had made steady progress since the Restoration of Independence four years earlier. About 10 percent of the population was displaced, while economic growth plummeted precipitously. Nonetheless, with the support of the United Nations, the resilient government worked assiduously, with success in most cases, to tackle urgent problems such as maintenance of law and order, relief to displaced Timorese, and rehabilitation of institutions and infrastructure that had been damaged during the crisis. The task of resettling those who had been displaced, for instance, proved challenging but was effectively resolved by the end of 2009. Since then, Timor-Leste has gradually emerged with new dynamism to once again reclaim the high ground on matters of peace and development that it almost lost to the recurring disturbances. It was also during this period that petroleum revenues from offshore exploration in the Timor Sea started to flow into Timor-Leste’s state coffers. Petroleum revenues provided solid financial backing to successive increases in government spending, which has been often cited as a primary reason behind the country’s double-digit annual expansion in its non-oil Gross Domestic Product in real terms since 2007; only a handful of nations have been able to achieve economic growth as remarkable as Timor-Leste’s in the face of the ongoing global financial crisis and worldwide economic downturn. The Timorese economy’s robust performance has impacted other aspects of the nation’s well-being quite favorably. The national poverty level dropped from 50 percent in 2007 to 41 percent in 2010 and is expected to continue to decline. Other socioeconomic indicators such as infant and child mortality rates and the net enrolment ratio in primary

Preface and Acknowledgments

xix

education have registered positive movements as well and are projected to make further progress into the future. In May 2012, the people of Timor-Leste celebrated the tenth anniversary of their country’s restoration of independence. The international community hailed the “impressive advances” over the past decade and noted that national institutions are now able to safeguard stability and democracy. The independence celebrations coincided with the inauguration of Timor-Leste’s new President Taur Matan Ruak, who won presidential elections that were held in the preceding months in a peaceful, smooth, and orderly manner. During its first decade as a sovereign nation, Timor-Leste has raised its global and regional profiles by advocating tirelessly greater international solidarity and cooperation. It has been an active member state of the United Nations (UN) since 2002, including being recently elected to the executive boards of the World Health Organization and UN Women. Timor-Leste has, in addition, contributed a dozen members of its uniformed forces to United Nations peace operations in Kosovo and Guinea-Bissau. Beyond its activities in the United Nations, Timor-Leste has assumed the co-chair of the “g7+” forum, a major international dialogue between fragile and conflict-affected states and their development partners. It has also reached a milestone in its regional diplomacy when it proceeded to submit in 2011 a formal application to become the eleventh member of the Association of Southeast Asian Nations (ASEAN). Despite its small size and disadvantaged socioeconomic status, TimorLeste is increasingly recognized for its generous expression of good will and friendship toward other nations. Since its inception as a sovereign state, Timor-Leste has provided humanitarian aid to fourteen nations, including Japan after the disastrous earthquakes and tsunamis hit the country in 2011. These acts amply demonstrate how a post-conflict country with limited institutional capacity can make an impact through exemplary deeds and illuminate the world with its collective conscience. Other countries may draw valuable lessons from Timor-Leste’s experience, especially those that are emerging from as well as are currently affected by conflict and instability. Such lessons would center on the questions such as management of natural resources, empowerment of the vulnerable, implementation of transparent and accountable governance, advancement of women, and mobilization of civil society and the public in general for democratization and the national development process. Timor-Leste: The History and Development of Asia’s Newest Nation will be of interest to policymakers, experts, scholars, and students, as well as members of international and national organizations, who are working on the subject of stabilization and development in conflict-affected and fragile situations. It provides insights into the reconstruction of a nation rising from the ashes of destruction and its rapid transformation into a peaceful and demo-

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cratic state with great economic promise. In this volume, we present an overview of the economic history of modern Timor-Leste, then explore various issues that the country has encountered in its quest for peace and prosperity, including management of oil and gas resources, promotion of agriculture and food security, its response to climate change, its work on the UN Millennium Development Goals and programs for the vulnerable, and its partnership with other nations, before concluding with a brief analysis of the Strategic Development Plan 2011–2030, which is designed to guide the new nation toward the goal of building an environmentally sustainable and democratic society at the upper middle of the income ladder with extreme poverty and deprivation fully eradicated. We are grateful to many extraordinary individuals and institutions that have contributed in a variety of capacities to our undertaking. Co-author Abraham Joseph, as the head of the Office for Socioeconomic Affairs of the UN Integrated Mission in Timor-Leste, Dili, Timor-Leste, benefited from a number of exchanges and discussions that he had throughout his tenure with the country’s leaders, lawmakers, and policymakers, as well as with colleagues from the United Nations and members of international, regional, and national organizations. He was immensely inspired by the wisdom and knowledge of Timor-Leste President Dr. José Ramos-Horta, Prime Minister Dr. Kay Rala Xanana Gusmão, and Minister of Finance Dr. Emilia Pires. In fact, the co-author’s understanding and appreciation of Timor-Leste’s development trajectory took root even before his arrival in Dili, through conversations with Vice Prime Minister José Luis Guterres during his own tenure as Timor-Leste’s UN ambassador in New York. Co-author Joseph additionally had the privilege of working as an adviser to Dr. Zacarias Albano da Costa, Minister of Foreign Affairs and Cooperation of Timor-Leste, during the Fourth UN Conference on the Least Developed Countries in Istanbul, May 2011, through which position he had the amazing firsthand experience in supporting the country’s growing role in world affairs. Interactions with Gil Alves, Minister for Tourism, Commerce and Industry, who participated in the conference as well, granted the coauthor another excellent opportunity for promoting Timor-Leste’s international economic cooperation. Preparation of the State of the Nation report, under the leadership of Minister for Economy and Development João Gonçalves, provided Joseph with an exceptional overview of various sectors of Timor-Leste’s economy. He also benefited immeasurably from discussions with Alfredo Pires, Secretary of State of Natural Resources, and Bendito Freitas, Secretary of State for Professional Training and Employment. Furthermore, Manuel Tilman, Member of Parliament and Chair of the Parliamentary Commission on Finance, Budget and Anti-Corruption, kindly invited the co-author to the commission’s deliberations over successive state budget proposals, at which occa-

Preface and Acknowledgments

xxi

sions he was honored to exchange his views with the Members of Parliament on a number of critical budgetary issues. We, the co-authors, are grateful to Atul Khare, Special Representative of the UN Secretary-General for Timor-Leste during his tenure from 2007 to 2009, and Ameerah Haq, who subsequently took over as Special Representative, for providing food for thought on the theme of stabilization and reconstruction in fragile and conflict-affected countries. Finn Reske-Nielsen and Shigeru Mochida, Deputy Special Representatives for Timor-Leste, also stimulated our thought processes. In addition, Charles Scheiner and his team at the Dili-based think tank La’o Hamutuk had much to offer from the perspective of Timor-Leste’s own civil society on the subject of its national development. We are indebted to two special friends in particular for their support at critical junctures. We appreciate the insight and expertise of Gloria Starr Kins, editor-in-chief and publisher, Society & Diplomatic Review, and Society and Diplomatic Editor, MaximsNews Network, both based in New York; as well as Babu Lal Jain, Senior Advisor of the UN Office for Partnerships, New York, and co-founder of the World Business Process and Information Technology Outsourcing (BPO/ITO) Forum, based in New Delhi, India. Our deepest appreciation and gratitude go to Mollie Laffin-Rose of New York for her superb and scrupulous editing of the manuscript, for which she has won praise not only from us but also from a number of reviewers of this manuscript. Anthony D’Silva and Jonathan Rose, both of New York, brought valuable contributions at various stages of its preparation and publication, without which our work would never have seen the light of day. Finally, as we mention the manuscript, we cannot go without expressing our heartfelt gratitude to Martine Perret, the staff photographer of the UN Integrated Mission in Timor-Leste, Dili, who contributed captivating photos of life in Timor-Leste, including the one on the cover. Our thanks go as well to our son, Jun Abraham, who helped design the cover of this volume. A number of documents and data underpin this study. In particular, we availed ourselves of a wealth of materials from the Timorese government and its line of ministries as made available through their official documents and websites. Ramona Kohrs, Luz Maria Saavedra, and José Tatad, the staff librarians of the UN Dag Hammarskjöld Library, New York, kindly arranged for our use of various documents and reports published by the United Nations as well as various governments and international organizations and institutions. In closing, although it is impossible to acknowledge in this brief note all who sustained our efforts, it would be remiss of us to leave out mention of the inspiration that we drew from the following friends and colleagues: Valentina Kalk, chief of the UN Publications, New York; John E. Steffens, executive director of the Infopoverty Center and Public Service Institute,

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University of Oklahoma, Norman, Oklahoma; and St. George Joiner, a creative thinker and former UN senior economist, based in Gambia, West Africa. May 2012 Co-Authors: Abraham Joseph and Takako Hamaguchi

Introduction: Emergence of Asia’s Newest Nation 1

Timor-Leste is one of the youngest nations in the world. It attained full statehood in May 2002, although its independence from Portuguese colonial rule had been declared twenty-seven years prior, only to be revoked by Indonesia in ten days. The Indonesian occupation lasted for a much shorter period of time than the Portuguese rule that had endured for more than two and a half centuries. While Portugal ruled Timor-Leste by neglect and left the country only with twenty kilometers of paved road and one doctor, Indonesia sought to establish firm control over its small impoverished half-island “province.” Although Indonesians built a vast network of roads and hospitals and clinics and brought teachers to educate mostly illiterate Timorese, one third of the Timorese population is said to have perished during this time and scores more were driven from their homes. Not only did the birth of the new state unfold amidst such pain and anguish, but also the initial years of its statehood abounded with obstacles and setbacks. The national landscape that emerged following the Restoration of Independence in 2002 was of a country that had suffered under successive foreign rule and was further devastated by a series of disturbances. Severely underdeveloped infrastructure, institutions, and human resources, which had been inherited from the pre-independence era, were the main reasons behind the high incidence of poverty, hunger, and disease prevailing across the territory when the occupiers left; this was only exacerbated as the system of basic social services ceased to function or exist in the turmoil during the transition period. Yet, Timor-Leste did rise from the ashes of ravages of conflict and destruction and, within a short span of time, has made remarkable strides toward recovery and reconstruction. It is today a nation well on its way to 1

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Introduction: Emergence of Asia’s Newest Nation

peace and prosperity, creating of itself an example to be followed by other fragile and underdeveloped countries. In the wake of the Restoration of Independence, the imminent challenges to Timor-Leste’s peace-building and state-building endeavor were to establish democratic governance, restore institutions, and formulate strategies and implement plans for national development. The nation’s initial steps in this direction included promulgating and enforcing the new constitution, establishing statutory institutions, and upholding the rule of law while strengthening transparency, accountability, and competence of justice and security sectors. Further, it tackled a range of development issues by adopting a pro-poor growth policy and a participatory strategy to engage stakeholders and the public, while preparing a course of action into the medium-term future in accordance with the National Development Plan. The National Development Plan, which was launched soon after the Restoration of Independence, was designed as Timor-Leste’s road map of how to achieve its development visions for 2020 and including (1) to build a society with adequate food, shelter, and clothing available to all citizens; (2) to nurture health and wellness of the citizens and enhance their knowledge and skills, so that they can lead long, active, and productive lives and contribute effectively to achieving equity and national unity and progress; (3) to develop infrastructure in all parts of the country without spatial disparity and isolation; and (4) to expand production and create jobs across all sectors of the economy. In 2006, a major breakdown in order and security erupted, resulting in the displacement of 10 percent of the population. Despite finding itself once again in the throes of widespread chaos so soon after restoring independence as a nation, Timor-Leste made yet another comeback by putting forth intensive relief and recovery efforts and quickly regaining the path to reconstruction and development. Within three years of the crisis, all sixty-four camps that had been set up across the country to accommodate displaced Timorese were closed as the occupants were able to return home. Meanwhile, the national economy grew at double-digit rates in real terms despite that the global economy was reeling from the unprecedented global financial crisis and worldwide recession. TRANSFORMATION FROM FRAGILITY Although Timor-Leste’s Gross Domestic Product (GDP) contracted briefly in the aftermath of the 2006 crisis, its economic growth began to pick up soon after. Since 2007, the national economy has registered an average annual growth into double digits in real terms. It is ranked one of the fastestgrowing economies in the world.

Introduction: Emergence of Asia’s Newest Nation

3

Agriculture is one of the most important sectors in the Timorese economy, as a majority of its population makes a living off of farming, particularly subsistence cultivation. While Timor-Leste’s agricultural output has also registered a double-digit expansion in recent years, thanks to the governmentled distribution of improved seeds and tractors and provision of extension services, presently the country is only capable of producing less than half of its population’s basic food needs. Poor water and land management, limited dissemination of know-hows and technologies, shortage of storage capacities and processing facilities, and scarce marketing opportunities are just some of the hurdles in bolstering food production. Still, agriculture has brought much needed export revenues to TimorLeste. Coffee alone represents the second largest share of the country’s exports behind oil and gas, which is its predominant export item. The agriculture sector holds the key to narrowing the widening trade gap that TimorLeste is currently experiencing, as its imports have expanded drastically in recent years in order to support input requirements for sustaining rapid economic and population growth. Among Timor-Leste’s major import items are foodstuffs and industrial and transport essentials such as mineral fuels, vehicles, machinery and parts, electrical equipment, and construction materials. In fact, its import base in 2010 approached more than one fourth the size of the GDP in the same year, exclusive of the petroleum sector. 2 An important issue facing Timor-Leste’s agriculture today is to address the bottlenecks to raising domestic production capacities, so that a solution can be provided not only to the country’s high dependency on food imports with increased food output, but also to its soaring trade deficit through expansion and diversification of agricultural exports. The driving force behind Timor-Leste’s double-digit expansion of its economy is found in the rising trajectory of government spending, which has been made possible by petroleum revenues that contribute to national wealth at a rate of US$ 2.5 billion per year. These revenues, to which the Timorese government has exclusive access, have been applied to programs for social assistance and human capital formation, as well as major infrastructure projects. The impact of increased government spending on social assistance and human capital formation is most visible in the recent dramatic improvement in the socioeconomic conditions among the Timorese, which were in the past one of the most unimpressive not only within the Asian region but also globally. This is illustrated, for example, by the nation’s eleven-place jump in ranking in the United Nations’ Human Development Index between 2005 and 2010, to 120th. Still, there are other areas of socioeconomic development in which Timor-Leste has made very little progress, including poverty reduction, retention in school enrollment and enrollment beyond the primary level, gender equality, control of preventable illnesses, and youth employment.

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Introduction: Emergence of Asia’s Newest Nation

In 2009, the Timorese government announced the arrival of a new era, in which the nation would bid farewell to conflict and disturbance permanently and renew the resolve for sustained economic growth and poverty reduction, under the slogan “Goodbye Conflict, Welcome Development.” It was the affirmation of a new beginning for Timor-Leste’s journey toward peace and prosperity. In 2010, the government proposed a comprehensive strategy for taking the country to the next frontier of advancement and presented it in the preview of Timor-Leste’s second long-range national development plan, the Strategic Development Plan 2011–2030, which was under preparation. A series of consultations with civil society and the public to discuss the plan followed in all 13 districts and 65 sub-districts across the country. In July 2011, the National Parliament approved the final draft of the Strategic Development Plan as submitted by the government, and the process of implementation began. The Strategic Development Plan 2011–2030 is an integrated package of strategic policies to be implemented in the short term (one to five years), medium term (five to 10 years), and long term (10 to 20 years). Objectives of the plan include: • To accelerate economic growth, and so to raise the national income to the upper-middle tier by 2030; • To build a diversified economy around core sectors such as agriculture, tourism, and petroleum, by sustaining a high level of public investment during the first decade of the plan, then transitioning to the private sectorled growth in the following decade; • To eradicate poverty by 2030; and • To realize universal access to basic services such as primary and preventive health care, education and skill-building, and provision of safe drinking water and sanitation. The Strategic Development Plan is designed to achieve these objectives in a three-pillar approach, consisting of (1) nurturing of human capital through education and professional training, provision of healthcare and other basic services, preservation of an ecologically sound environment, and promotion of culture and heritage; (2) development of infrastructure, such as by way of constructing roads and bridges, restoring seaports and airports, and installing power lines, telecommunication links, and other utility services; and (3) encouragement of industrial and business development through fostering entrepreneurship, mobilizing investment capital, and targeting investment to core sectors. Timor-Leste will pursue the plan objectives by following these three pillars while strengthening institutional capacities for maintaining stability and security, an important precondition for sustained economic growth and human development. The Strategic Development Plan also incorporates the

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United Nations (UN) Millennium Development Goals, which is a blueprint agreed to in 2000 by all nations globally for lifting people out of extreme poverty and multiple deprivations. FINANCIAL RESOURCES FOR DEVELOPMENT In the wake of the Restoration of Independence in 2002, the Timorese government faced a major challenge in mustering sufficient resources for financing its state budget and rehabilitation and reconstruction projects. International donors played a significant early role in bringing in financial resources to meet much of Timor-Leste’s post-conflict needs. In the years that ensued, commercial exploitation of oil and gas resources was set in motion for the first time in the part of the Timor Sea over which Timor-Leste has negotiated interests. The oil and gas receipts that started to accumulate as national saving in 2005 gave hope to the new nation for financing even larger goals for the long-term development. So far most of Timor-Leste’s petroleum revenues have come from the single oil and gas field Bayu-Undan, located in the north central Timor Sea. Production in Bayu-Undan reached 57 million barrels of oil equivalent in 2010, which is estimated to have hit the peak at 59 million barrels in 2011. Meanwhile, Timor-Leste saw petroleum revenues of US$ 2 billion per year from 2008 to 2010, which rose further to over US$ 3 billion in 2011. With access to petroleum revenues, Timor-Leste began to gradually reduce its dependency on foreign aid to the state budget and development programs. At present, a majority of its government funds are sourced from withdrawals from the government-managed Petroleum Fund. In 2008, for example, the government withdrew a total of US$ 396 million from the Petroleum Fund to finance the state budget, which increased two-and-a-halffold to US$ 1 billion in 2011. The nation continues to strive to translate resources from its petroleum sector as efficiently as possible into growth in the non-oil economy and improvement in living conditions for its citizens. Most remarkable nonetheless is the institutional architecture by which Timor-Leste governs its petroleum sector, to such successful and prosperous effect. Many developing countries have failed to turn their natural resource endowments into a sustainable base for economic growth and poverty reduction, which is often termed a “resource curse.” By contrast, Timor-Leste has been able to establish effective mechanisms to avoid possible negative outcomes on the national economy from oil and gas resources. Timor-Leste’s petroleum industry today is in full compliance with the conditions set forth by the Extractive Industries Transparency Initiative, and its Petroleum Fund is considered one of the best-managed sovereign funds in the world. The effective, transparent, and accountable manner in which Timor-Leste man-

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ages its oil and gas resources bears testament to the nation’s commitment to using its natural endowments to drive economic growth, to the benefit of its people. Despite its efforts to ensure the judicious use of petroleum revenues as well as to derive the maximum benefit therefrom, Timor-Leste will soon be required to mobilize additional resources in response to the enormous investment imperative envisaged for upcoming years. Massive oil-funded public investment during the first ten years of the Strategic Development Plan 2011–2030 is expected to induce private investment from both domestic and foreign sources in the following decade, to the extent, it is hoped, that it can cede to the latter the primary position for catalyzing Timor-Leste’s economic growth. The Timorese government has recently implemented a number of measures to improve the country’s business environment in order to attract greater private investment. Timor-Leste’s private sector has just begun to take root, primarily in small- and medium-sized business sectors, although a few scores of large foreign corporations have been in operation in the country’s petroleum, banking, construction, transport, telecommunications, and tourism industries. In 2010, in a decisive step to raise the profile of the nation’s private sector, Timorese businesses came together for the first time to found the TimorLeste Chamber of Commerce and Industry under the guidance of the Ministry of Tourism, Commerce and Industry. TIMOR-LESTE AND THE WORLD As a small nation that is sandwiched by two G-20 nations, Indonesia and Australia, and being situated in a region of the globe that comprises several “miracle” economies such as Indonesia, Malaysia, Singapore, and Thailand, Timor-Leste’s peaceful coexistence with the world around it and sustained cooperation with its regional partners is indispensable to its own economic prosperity. The same applies more widely to its internal stability and security, without which any progress on the economic and socioeconomic fronts would be impossible. Timor-Leste has come a long way not only in the neighboring region but also in the international community since its new beginning a decade ago, through its firm commitment to solidarity and friendship with neighbors, allies, and partners, as well as its steadfast advocacy for regional and world harmony and mutual support. Following the Restoration of Independence in 2002, Timor-Leste became the 191st member of the United Nations. Since then, despite being a newcomer to the organization, this tiny half-island nation has engaged actively in various negotiations on important questions of international peace and development. Timor-Leste has been serving on the executive boards of the World

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Health Organization and UN Women, a new entity devoted to gender equality and women’s empowerment. Recognized by the United Nations as one of the Least Developed Countries and Small Island Developing States, TimorLeste has benefited from special attention and assistance from both the United Nations itself and the international community at large, but this did not stop the country from representing these groups of disadvantaged nations and appealing to the world to continue with further dialogue and engagement with them and to ensure that these efforts are adequately financed and closely monitored for better results. As chair of the g7+, the only international forum for fragile and conflictaffected countries, and as co-chair of the International Dialogue for Peacebuilding and State-building, Timor-Leste has played the lead in advocating a more meaningful global compact for fragile and conflict-affected countries. In these roles, Timor-Leste has spoken for 1.5 billion people that are confronted with particularly difficult development challenges and has successfully mobilized international solidarity and support for the cause. In addition, Timor-Leste has strengthened ties not only with Portugal, despite their colonial history, but also with other Portuguese-speaking countries, by joining the intergovernmental organization Community of Portuguese-Speaking Countries. Timor-Leste has expressed sympathy to nations near and far, as well as rich and poor, and provided humanitarian aid to those in great need, including during the period of relief and recovery from natural disasters and in times of other hardship. Recipients of humanitarian aid from Timor-Leste include Australia, Brazil, Chile, Cuba, Guinea-Bissau, Haiti, Indonesia, Japan, the Philippines, Portugal, Samoa, Sri Lanka, Tonga, Vietnam, and the United States. One of the few diplomatic efforts from which Timor-Leste has yet to secure conclusive results is its pursuit of membership in the Association of Southeast Asian Nations (ASEAN). ASEAN is one of the international community’s most successful examples of regional economic integration, with a combined GDP of US$ 2.3 trillion and a total merchandise trade value of US$ 2.5 trillion. Besides a number of economic advantages that it would be likely to access as a member state, Timor-Leste considers the alliance with its regional counterparts an essential element for its long-term peace and survival. Although the Timorese leadership expressed its desire to join ASEAN even before independence was restored, it submitted the formal application for membership in 2011, which is now under consideration by the association.

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TIMOR-LESTE’S DEVELOPMENT TRAJECTORY In May 2012, the tenth anniversary of the Restoration of Independence was celebrated in the capital Dili, amid the international community’s glowing tributes to the nation’s “impressive advances” over the past decade, particularly in maintaining stability and upholding democracy. Still, Timor-Leste must continue its efforts to preserve internal order and ensure public safety, by negotiating the triggers to disturbances and tackling them in the bud if they do occur. At the same time, the country will need to address divisive national issues and contentious policy questions, many of which can trace their origins back to the conflict era, and find comprehensive and sustainable solutions to them. Experience has shown that fragile and conflict-affected countries often fail to attain their economic and developmental goals without mastering the challenges of security and stability. Further, these countries will have to ensure, down the line, that fully operational democratic governance takes deep root in the society where the people express their concerns freely and have their basic needs satisfied readily by the authorities; extreme poverty and deprivation of basic needs not only form many causes of violence, but also often function as its predictors. In other words, there will be no development without peace, while it is also true that there will be no peace without development. Timor-Leste will need to address the following issues, among others, in order to accelerate economic growth and improve the living conditions of its people, which will in turn promote its internal security and stability in the long run: • Economic growth with equity through distribution of its benefits to narrow the urban-rural, gender, and other socioeconomic gaps; • Transition from an oil-led to more broad-based economic growth by catalyzing various sectors in the non-oil economy, such as agriculture and rural businesses, medium- and small-scale enterprises, and external trade and investment activities, and further by seizing every opportunity to create more jobs in each of these areas; and • Enhancement of institutional capacities in all areas of public services including government ministries and departments, courts and prosecution offices, and the security sector, by providing staff training and mentoring, enforcing standards of discipline, strengthening surveillance and control, and preventing and investigating cases of non-compliance and corruption. Timor-Leste’s is a story of victorious emergence from protracted conflict. Yet, while the country has made significant strides since the Restoration of Independence, formidable challenges remain. The following chapters will

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take readers on this Asia’s newest nation’s journey, from the initial postindependence struggle to consolidate stability and restore order, deliver relief supplies to the conflict-stricken population, and rebuild institutions and the economy; through its attempt to reclaim lost ground after lapses in security; on to its recent efforts toward the goal of establishing long-term peace and prosperity. Finally, the conclusion of this volume will guide readers to the realm of Timor-Leste’s future with endless possibilities. Despite having struggled between alternating success and failure in earlier days, this new nation has today gained irreversible ground on its path to stable, prosperous statehood. Timor-Leste now faces a new crossroads, as it readies itself to take a definitive step forward into a future of hope and promise, with the confidence that the nation acquired not only by winning independence but also by successfully battling against poverty, hunger, ignorance, and disease. President of Timor-Leste José Ramos-Horta reflects on his aspirations for his country with the following: “My dream for East Timor is to be able to feed the poorest and the hungriest in the country, to clothe those who are naked, to give shelter, roof to the homeless . . . My dream is to deliver computers to every classroom in the country . . . We can set Internet cafés in most towns in East Timor, so then people in the town, the youth in particular, have access to study. So these are very simple and basic dreams that are doable, because we have the money and there is international generosity to assist us and realize this dream.” 3

NOTES 1. All sources for facts and figures, as well as detailed explanations to what is explored in the introductory pages, are provided in subsequent chapters. This introduction is meant as a preview to the in-depth discussion that follows. 2. Timor-Leste’s petroleum sector currently operates as an enclave, with only minimal employment and income linkages to the rest of the economy. All receipts from oil and gas exploitation are deposited directly into the Petroleum Fund, which was established by the Timorese government in 2005 for the purpose of receiving such funds. The funds received in the Petroleum Fund are subsequently invested in global financial markets to ensure intergenerational equity and fiscal stability. Only interest income on these investments is made available for use in principle and assigned exclusively for government spending. As one of the most oil-dependent economies in the world, Timor-Leste has the petroleum sector that is more than three times the size of its non-oil economy. In the following, the term “non-oil GDP” will be used to indicate the GDP minus the petroleum sector. 3. Ramos-Horta, J. (2007). My Dream for East Timor [YouTube video]. Available at http:// www.youtube.com/watch?v=KsA1vcN4be4.

Photo 1: An aerial view of Chritu Rei in Dili, Timor-Leste. Timor-Leste is one of the Least Developed Countries and Small Island Developing States, according to the United Nations. Source: United Nations Integrated Mission in Timor-Leste/ Martine Perret.

Photo 2: A woman casting her ballot during the 2007 election in Ossu, central Timor-Leste. Over 80 percent of registered voters turned up to cast their ballots in 2007, during two rounds of the first presidential election since the Restoration of Independence. Source: United Nations Integrated Mission in Timor-Leste/Martine Perret.

Photo 3: A view of a ceremony to celebrate Timor-Leste’s Independence Day in Dili. The Timorese defense force hoists the national flag on Independence Day, celebrated annually on November 28. Source: United Nations Integrated Mission in Timor-Leste/Martine Perret.

Photo 4: A Timorese judge preparing for a swearing-in ceremony. Judges were sworn in at the Court of Appeals in Dili in 2009, which was witnessed by the president and prime minister. Source: United Nations Integrated Mission in Timor-Leste/Martine Perret.

Photo 5: Timorese children enjoying mid-morning school meals. The TimorLeste Ministry of Education provides free mid-morning meals in schools to enhance enrollment, attendance, and learning. Source: United Nations Integrated Mission in Timor-Leste/Martine Perret.

Photo 6: Workers at Cooperativa Café Timor sifting coffee beans. Every year, exports of certified organic coffee, as processed in this factory, bring US$ 12 million in revenue to Timor-Leste. Source: United Nations Integrated Mission in Timor-Leste/Martine Perret.

Photo 7: Spectators cheering cyclists on in the Tour de Timor. People gather near the finish line of the Tour de Timor bike race, inaugurated in 2009 as a celebration of peace. The race takes bikers over a 600-kilometer route in eastern Timor-Leste. Source: United Nations Integrated Mission in Timor-Leste/Martine Perret.

Photo 8: Retail employees at Timor Plaza exchanging greetings. The newly opened Timor Plaza in Dili is Timor-Leste’s largest commercial development. The premises feature showrooms, offices, hotel suites, and a conference center. Source: United Nations Integrated Mission in Timor-Leste/Martine Perret.

Chapter One

Timor-Leste and Its Economic History in Brief

Timor-Leste (Leste meaning “east” in Portuguese) is Asia’s newest nation. This is an introductory note on the nation that many in the world may fail to find on the map. Situated at the eastern end of the Indonesian archipelago, Timor-Leste occupies the eastern half of the island of Timor, the Timorese enclave of Oecussi-Ambeno (Oecussi) in Indonesian West Timor, and the islands of Atauro to the north and Jaco to the east, all of which represent a total land area of about fifteen thousand kilometers, slightly larger in size than the state of Connecticut in the United States. The city of Dili, in northcentral Timor-Leste, is the country’s largest city and its national capital. According to the national census conducted in 2010, the total population of Timor-Leste has reached over 1.06 million. At 5.7 births per woman, 1 the country’s fertility rate is twice the world average, which is the main reason behind its 2.4 percent annual population growth rate, the highest among the Southeast Asian nations. This fast population growth has in turn resulted in a high proportion of youth among the Timorese; 41 percent of them are below the age of 15. Seventy percent of the Timorese population lives in rural areas, a majority of which is engaged in agriculture. Portuguese and Tetum, one of the native languages of Timor-Leste, have been adopted as the nation’s official languages, while at least fifteen others are spoken in various parts of the country. 2 Timor-Leste receives US$ 2.5 billion annually in receipts from offshore petroleum development projects in the Timor Sea, but the country is nevertheless ranked one of the United Nations’ forty-eight Least Developed Countries, which are identified as the most vulnerable states in the world. The US dollars circulate as Timor-Leste’s official currency. 3

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PERIOD BEFORE THE RESTORATION OF INDEPENDENCE 4 The Portuguese made the first Western contact with Timor in the early sixteenth century. Later in the seventeenth century, the Dutch attempted to expand their influence over the region. A territorial dispute between the two European colonial powers began, but it ultimately ended in the conclusion of a border treaty in 1904 that officially divided the island into the western half, which became part of the Dutch East Indies and later Indonesia, and the eastern half and Oecussi, a Portuguese colony. Timor-Leste remained under Portuguese rule until the mid-1970s, except for the brief but violent threeyear period during World War II, when an estimated 60,000 Timorese, or 13 percent of the population at that time, were decimated during the Japanese occupation. In 1974, the right-wing dictatorial regime that ruled Portugal for forty years fell under the Carnation Revolution, a bloodless left-wing military coup, which was followed by a series of broad democratic reforms. One of the reforms concerned the granting of independence to all Portuguese colonies in Africa in a year’s time. As for Timor-Leste, the then only colony in Asia under its rule besides Macau, the new regime in Portugal initiated preparation for establishing a provisional government in Dili and a popular assembly that would determine the future status of the territory. This coincided with the desire of the Timorese people to follow the examples of Mozambique and Angola in Africa, both of which declared independence from Portugal in 1975, and to become free themselves. At this time, two groups in Timor-Leste in particular were gaining prominence in their campaigns for national independence: the União Democrática Timorense (UDT) and the Frente Revolucionária de Timor-Leste Independente (FRETILIN), while other Timorese factions preferred integration with Indonesia. Clashes broke out among the contending parties in quest for supremacy, especially between UDT, which staged a coup in an attempt to snatch power from Portugal, and FRETILIN, the UDT’s major opposition. In November 1975, in the midst of continuing turmoil, FRETILIN proceeded to self-proclaim the sovereignty and independence of Timor-Leste. In the following month, however, taking advantage of the divided aspirations for the future that prevailed among the Timorese, Indonesia invaded the country on the pretext of protecting its citizens. Indonesia took control of the entire Timor-Leste in a storm of violence over the fierce resistance and chaotic displacement of a large number of Timorese and declared the island as its twenty-seventh province. As a result of the Indonesian invasion, as well as its brutal suppression and forced relocation of the population that ensured for the next twenty-four years, an estimated 100,000 to 200,000 Timorese, or about a quarter of the population at that time, perished either in combat or by famine and starva-

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tion. Meanwhile, the Timorese resistance movement progressively gathered momentum, initially under the leadership of FRETILIN. Kay Rala Xanana Gusmão, commander-in-chief of the Forças Armadas de Libertação Nacional de Timor-Leste (FALINTIL), which was the armed wing of FRETILIN, gradually brought together all Timorese political sectors and unified their resistance efforts under the “National Unity” policy. Although the United Nations condemned Indonesia’s invasion and did not recognize its annexation of Timor-Leste, no substantial follow-up action was taken. By doing so, the world seemed to have tacitly accepted Indonesia’s rule over the territory. The Santa Cruz Massacre in 1991 marked a turning point in international attitude toward the Indonesian occupation of TimorLeste, as the shocking images of atrocities against unarmed Timorese were beamed to television audiences all over the world. Individuals and organizations sympathizing with the resistance movement started to put increasing pressure on their governments and international organizations on TimorLeste’s behalf. The imprisonment of Gusmão in 1992 additionally turned the spotlight on the human rights situation in the territory. The award of the Nobel Peace Prize to two Timorese leaders, Roman Catholic Bishop of Dili Ximenes Belo and exiled resistance leader José Ramos-Horta accentuated assertiveness in the Timorese resistance movement. It was only after the forced resignation of President Suharto in 1998, who ruled Indonesia for more than three decades without interruption, that the Indonesian government agreed to let the people of Timor-Leste cast a vote in the referendum as to whether to accept a measure of autonomy within Indonesia. The Popular Consultation of 1999, as it is known, was supervised by the United Nations (UN) Mission in East Timor and saw an overwhelming 78.5 percent of Timorese choose independence from Indonesia. Subsequently, extreme disturbance erupted and spilled over the entire territory. According to the UN High Commission for Refugees, more than 1,000 Timorese died and another 200,000 fled or were deported to West Timor and other parts of Indonesia, while half a million more were displaced from their homes within Timorese borders, in a rampage that lasted only for a few weeks. As buildings and infrastructure sustained extensive damages, farming, trade and commerce, and all other economic activities were severely disrupted. According to the World Bank, about 70 percent of economic infrastructure in the territory was lain waste as a result of this disturbance. After considerable international pressure, Indonesia accepted the deployment of an Australian-led multinational force to Timor-Leste, under the auspices of the United Nations, to contain the crisis. The UN Transitional Administration in East Timor was established shortly thereafter with the immediate goals of providing security, restoring order, and delivering relief and rehabilitation assistance, as well as the longer-term objectives to resume essential public and social services and prepare the territory for self-govern-

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ment. The UN Transitional Administration in East Timor was composed of a governance and public administration component and a 1,640-member civilian police contingent, in addition to an armed UN peacekeeping force, which was gradually reinforced to a strength of about 8,500 troops from twentyseven countries at its peak in 2000, when it took over from the Australian-led multinational force. As the security situation remained under control and humanitarian conditions improved, the United Nations set out to implement the long-term objectives of its mission in Timor-Leste. In consultation with the Timorese leadership, the National Consultative Council, consisting of eleven Timorese and four UN officials, was formed to oversee the decision-making process during the period of transition to the restoration of independence. With the council’s endorsement, a series of rules and regulations designed to introduce effective systems of public administration over the territory was issued, which covered two important areas: the rule of law and public finance. The regulations on the rule of law set forth main objectives and basic principles of the new legal structure, the judiciary service, and border control operations, while those on public finance were meant to provide guidelines for instituting the official currency regime, taxation policies, and the consolidated budget for the territory. The United Nations, at the same time, initiated work to reorganize the transitional administration’s structure to more closely resemble that of the new nation’s future government by establishing the East Timor Transitional Administration and creating eight cabinet portfolios, namely internal administration, infrastructure, political affairs, economic affairs, social affairs, finance, justice, and police and emergency services, which were shared equally by the Timorese and UN officials. Meanwhile, in an effort to enhance its own capacities to maintain peace and enforce security, the Timorese leadership founded the defense force, Falintil-Forças de Defesa de Timor-Leste (F-FDTL), and the police, Policia Nacional de Timor-Leste (PNTL), in 2000 and 2001, respectively. It was decided that the 1,500-member, infantry-based defense force would be drawn mostly from the ranks of the former armed wing of FRETILIN, the Forças Armadas de Libertação Nacional de Timor-Leste (FALINTIL), and supplemented by an equal number of reservists. In addition, the transitional administration’s police authority began recruiting personnel to fill 3,000 staff positions from the public, including former police officers in the Indonesian era. Furthermore, in order to strengthen enforcement of the rules and regulations issued under the transitional administration, a series of judicial and law enforcement functions was established in 2000, such as the prosecutor general’s office, a defender service, three district courts, a court of appeals, and prisons in the capital Dili and two other locations. Reorganization in line with the future government structure was undertaken as well in other parts of the transitional administration. An all-Timorese

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National Council was constituted in 2000, with members drawn from various segments of the Timorese population and different regions, to replace and expand on the former National Consultative Council. The National Council was further superseded by an eighty-eight-member Constituent Assembly in the following year, which was summoned after the first democratic elections ever held in the territory. The Constituent Assembly would be transformed into a national assembly upon the restoration of independence. A new allTimorese, twenty-four-member Council of Ministers was subsequently sworn in, which would form the nucleus of the new nation’s executive branch. The Constituent Assembly immediately set out with the important task of drafting a new constitution and charting a course for a successful beginning of the new nation. The Constituent Assembly signed into force the first Constitution of the Democratic Republic of Timor-Leste in March 2002. The constitution of Timor-Leste provides for the protection of fundamental rights and freedoms for every citizen in a democratic and pluralistic society. It also prescribes that the sovereign state, which is the agent of the citizens, is responsible for safeguarding their rights and freedoms as well as for ensuring checks and balances on four organs of sovereignty, namely the Presidency, the National Parliament, the Government, and the Courts. The presidential elections were held in the following month and saw Kay Rala Xanana Gusmão, who had been commander-in-chief of FALINTIL, elected as the first president of the new nation. The Restoration of Independence of the Democratic Republic of Timor-Leste was formally proclaimed on May 20, 2002. AFTER THE RESTORATION OF INDEPENDENCE 5 At the time of the Restoration of Independence, the United Nations handed over control of the territory to the state of Timor-Leste, but its support continued through the new UN Mission of Support in East Timor with a fresh mandate to assist the young nation with essential administrative functions and interim internal and external security operations. Within a couple of years of restoring independence, the world’s youngest nation earned praise from the international community for the progress that it had made along the path to self-sufficiency in governance and maintenance of peace and security. Subsequently, the United Nations decided to pull out by 2005 all peacekeepers, who numbered more than 4,700 at their post-independence peak, except for a small team of advisors for carrying out capacity-building activities in the country’s state and security institutions. In 2006, the United Nation’s support was scaled down to the smaller UN Office in Timor-Leste in preparation for the organization’s complete withdrawal from the country, to take place after an additional year.

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However, a series of events that unfolded early in 2006 escalated into a political, humanitarian, and security crisis of major dimensions and with serious consequences for the nation. It began with the dismissal of nearly 600 members, or about 40 percent, of the Timorese defense force F-FDTL. In April 2006, the dismissed members, known as the “petitioners,” held a fourday generally peaceful demonstration in Dili and demanded that the authorities address their grievances, including the alleged discrimination that they faced within the defense force as natives of the western districts of the country. As the demonstrators carried their protest into a fifth day, unidentified youths broke through the police lines kettling the protest and attacked a government building, seriously injuring a police officer and destroying property and vehicles. A general deterioration of the security situation ensued throughout the city, prompting the government to call on the F-FDTL force to restore order. In the meantime, many petitioners, including Alfredo Reinado, a former commanding officer of the military police, retreated to the western highland towns of Gleno and Aileu and announced a formal breakaway from F-FDTL. As Reinado returned to Dili from his base in Aileu in the following month, the headquarters of F-FDTL near Dili came under heavy fire from an armed group reportedly consisting of petitioners, some officers of the national police PNTL, and civilians. Subsequently, a number of PNTL officers of an origin of eastern Timor-Leste are purported to have thrown in their lot with F-FDTL and accompanied the F-FDTL members and civilian elements sympathetic to them in launching armed attacks against the PNTL headquarters and its district head office in Dili. The security situation worsened as the police force disintegrated and organized groups of youths and criminal gangs committed widespread acts of arson and looting. Tens of thousands of Dili residents sought refuge in churches and other public places, while many others fled to other districts. As a result of the crisis, the United Nations estimated, more than 150,000 people were displaced from their homes. Upon the request of the Timorese government, a multinational force consisting of Australian, New Zealand, and Portuguese contingents was deployed to Timor-Leste to assist in restoring law and order. The multinational force secured the Dili airport and other critical facilities such as the UN office compound where many Timorese had taken refuge. The United Nations responded to the crisis by establishing in August 2006 a new mission, the UN Integrated Mission in Timor-Leste, which has remained in place to date. When initially approved, the mission in Timor-Leste consisted of a civilian police contingent of about 1,600 officers and a military component of thirty-four military liaison and staff officers and was mandated to restore and maintain public security and to facilitate a process of national reconciliation.

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With the multinational force and the United Nations restoring stability, Prime Minister Mari Alkatiri resigned and was succeeded by then Foreign Minister José Ramos-Horta. Many of the elements linked to the crisis, including antagonisms within and between the defense and police forces and east-west frictions, were still at work in all segments of the society, reaching even the country’s leadership. In addition, the crisis had created new potential sources of instability, such as a large number of weapons in civilian hands, tens of thousands of displaced persons, and discontented members in the uniformed forces, many of whom were no longer integrated into the command structure. The caretaker government headed by Prime Minister Ramos-Horta immediately began the difficult task of consolidating the fragile security situation, repairing damaged communal ties, and preparing the nation for the first post-independence presidential and parliamentary elections, which were to be called in less than a year’s time. The presidential elections held in April 2007 and the parliamentary elections that followed in June were organized with logistical and monitoring support from the United Nations and played out in a largely peaceful atmosphere, despite occasional lapses in security. The elections brought a victory for Prime Minister RamosHorta in the contest for the presidential seat and resulted in the constitution of a new government under the prime ministry of the previous president, Gusmão. In his new position, President Ramos-Horta focused attention on the postelections policy priorities, including the consolidation of security in Dili and throughout the rest of the country; the reconstitution of the security sector to bolster the state’s provision of protection and administration of justice to its citizens; the return and reintegration of displaced people from the 2006 crisis to their homes; the productive engagement of the youth, who was reportedly involved in the crisis; and the job creation and income generation, particularly in rural areas where a majority of the population lives. In particular, in order to address the societal fragmentation stemming from east-west divisions and inter-gang fights that persisted even after the crisis, President Ramos-Horta personally led nationwide, community-initiated discussions under the Simu Malu (“To receive each other”) program and invited members of the defense as well as police forces, which fought on both sides of the 2006 crisis and were still deeply divided along the regional lines, to come together and assist in its implementation, on the condition that any personnel participating in this humanitarian initiative be duly screened and unarmed. In February 2008, the nation suffered another setback when an armed group led by Reinado, who led the breakaway group of the defense force FFDTL in the 2006 crisis, carried out separate attacks against President Ramos-Horta and Prime Minister Gusmão, ending with a nearly fatal injury to the president and Reinado’s own death. The president received rapid medical intervention in Dili and subsequently in Darwin, Australia, and survived. The

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incident presented an unexpected and serious new challenge to Timor-Leste, but in contrast to the incidents of 2006, it did not precipitate a destabilizing crisis. State institutions responded promptly and efficiently and in adherence to constitutional procedures. Following the attacks, the National Parliament immediately declared a state of siege, with curfews extended to the entire country. A joint command integrating members of the defense and police forces was established for conducting security operations jointly. As the security situation remained calm, the state of siege was gradually reduced in geographic scope and degree across the country and was lifted in full by May 2008. In the meantime, the Timorese government continued intensive efforts to put its nation on the road to recovery from the 2006 crisis. Under the national reconciliation strategy Hamutuk Hari’i Futuru (“To build our future together”), the government made an earnest attempt to accelerate the return of displaced persons not only by offering a package of assistance for immediate relief such as emergency rations and free and safe passage home, but also by responding to their longer-term socioeconomic as well as psychosocial needs for the reintegration to the communities where social networks and kinship ties had been destroyed during the crisis. This strategy entailed the provision of assistance in five important areas: housing, social protection, stability, socioeconomic development, and trust-building. In the wake of the crisis, sixty-five camps for displaced individuals and families had sprung up in the districts of Dili, Baucau, and Ermera, but in a matter of three years, all of them closed, including one in Metinaro of the Dili district, the last major camp that had been slated for closure. PERIOD OF PEACE AND STABILITY Since 2008, Timor-Leste has enjoyed one of its longest periods of postindependence stability. In 2009, ten years after the Popular Consultation, the nation reached a milestone in its rehabilitation and reconstruction effort. Embracing a new slogan “Goodbye Conflict, Welcome Development,” Timor-Leste embarked on the medium- and long-range development process by preparing a draft Strategic Development Plan 2011–2030, with the objective to transform the nation from a conflict-torn, underdeveloped former colony into an environmentally sustainable and democratic society with an uppermiddle income. As it stands now, the economy of Timor-Leste is small. Its non-oil Gross Domestic Product (GDP) in 2011 was US$ 1 billion, and much of its population is poor by international standards. In the years to come, however, the country will continue to benefit from the exploitation of oil and gas resources in the Timor Sea, which have already begun to fuel promising economic

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growth. The amount of petroleum revenues that the country can expend per year while setting a sufficient balance to secure the same level of revenues for future generations measured at US$ 266 million for the fiscal year 2007–2008, which rose to US$ 502 million in 2010 and further to US$ 734 million in 2011. 6 With sufficient petroleum revenues at its disposal, Timor-Leste is likely to maintain a certain degree of fiscal latitude at least for the medium term, which will allow it to undertake social programs along with heavy public investments in key sectors such as infrastructure, agriculture, and petroleum resource exploitation and processing. Positive signs for Timor-Leste’s shortrange through medium-range growth potential have already manifested in the performance of its economy in recent years. Momentum as generated by acceleration in public investments led to an average annual double-digit increase in real terms of the country’s non-oil GDP from 2007 to 2011, which is illustrated in Figure 1.1. This is an outstanding achievement when compared to the performance of the world economy, of which the GDP grew by an annual average of only 3.3 percent in real terms between 2007 and 2011, as the severe impact of the global financial crisis, accompanied by the worldwide recession, is still being felt. 7 The rate of real economic growth for Timor-Leste is compared with those for the world and the regions of the world during the same period in Figure 1.2. Timor-Leste’s pace of economic growth approached that of China, one of the world’s leading emerging markets, over the same period. It also surpassed the leading economies in the Southeast Asia region, notably Singapore, whose GDP grew by an annual average of 6.0 percent in real terms over the same period; and the next five largest economies in the Association of Southeast Asian Nations (ASEAN), including Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, where their GDPs altogether grew by an annual average of 4.9 percent in real terms, as indicated in Table 1.1. Behind the scene of Timor-Leste’s rapid economic growth is government spending that quadrupled from US$ 242 million in 2007 to US$ 1 billion in 2011, when it approached the size of the country’s non-oil GDP for that year, as more funds were channeled into the state budget from petroleum revenues. Government spending has been instrumental in strengthening the overall productive capacities of the Timorese economy. For instance, Timor-Leste’s agriculture sector, which contributes one sixth of the country’s non-oil GDP and provides staples and livelihoods to an overwhelming majority of its population, achieved an average annual increase of over 6 percent in output value from 2008 to 2010, thanks in part to government incentives such as free distribution of improved seeds and tractors as well as government-supported extension services. 8 Much of the rest of Timor-Leste’s government spending has been quickly ploughed into other areas of the local economy. A substantial portion of this

20

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Figure 1.1. Timor-Leste- From conflict to development, 1999–2009 and beyond. * Non-oil Gross Domestic Product annual increase/decrease in percentage, adjusted for inflation. Note: A graphic representation (not exactly drawn to scale) of Timor-Leste’s economic growth rates. Source: Timor-Leste Ministry of Finance, from its presentation Conflict to Development: Timor-Leste’s Challenges and Opportunities at the Asian Development Bank, Mandaluyong City, in 2009.

spending has been deployed to support not only large public works in urban centers but also smaller-scale rural infrastructure projects. Increased government spending has attracted private investment, as many local and foreignowned businesses have come up with proposals for fresh or additional investment in recent years in order to take advantage of the opportunities arising from the government’s strong demand for their goods and services. In addition, private consumption has risen as increased government spending has entailed successive pay raises for public sector employees as well as cash transfers to the public as part of wide-ranging social programs that have been introduced. The dramatic increase in private consumption in recent years is reflected in an array of indicators. For example, the number of mobile phone subscriptions rose sharply by 344 percent between 2008 and 2010 to more than 430,000; in other words, four out of ten Timorese may own, or have easy access to, a cell phone. Likewise, new vehicle registrations grew by 156 percent during the same period. Timor-Leste’s robust economic growth has impacted the overall wellbeing of the nation quite favorably. According to the United Nations, the country’s Human Development Index 9 value for 2010 was 0.502, placing it

Timor-Leste and Its Economic History in Brief

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Figure 1.2. Real economic growth 2007–2011. Sources: International Monetary Fund. (2011). World Economic Outlook September 2011. Washington, D.C.; and Timor-Leste Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili.

in the medium human development category and ranking it 120th out of the 169 countries assessed in the United Nations’ Human Development Report 2010. Timor-Leste ranked ahead of some of the countries in the Southeast Asia region, including Laos, which was ranked 122nd; Cambodia, ranked 124th; and Myanmar, ranked 132nd. It also constituted substantial betterment in Timor-Leste’s human development status since 2005, when the country was first included in the Human Development Report after the Restoration of Independence and was ranked 131st. The jump in Timor-Leste’s Human Development Index ranking reflects the remarkable improvement that the country was able to materialize on its socioeconomic fronts in a matter of several years; between 2005 and 2010, Timor-Leste’s life expectancy at birth extended by more than two years, while its Gross National Income per capita 10 rose more than three times, from US$ 837 to US$ 2,817. Furthermore, the country has been able to achieve stellar records in other important areas including child and maternal health and school attendance. The nation’s outstanding performance, not only purely in economic terms but also in socioeconomic measures, attests to its policy commitment to and organizational

Chapter 1

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Table 1.1. Table .1: Real economic growth* in Asian economies 2007–2011 (%) Country/Year

2007

2008

2009

2010

2011**

China

14.2

9.6

9.2

10.3

9.5

Australia

4.6

2.6

1.4

2.7

1.8

Singapore

8.8

1.5

-0.8

14.5

5.3

ASEAN-5#

6.4

4.7

1.7

6.9

5.3

Indonesia

6.3

6.0

4.6

6.1

6.4

Malaysia

6.5

4.8

-1.6

7.2

5.2

Philippines

6.6

4.2

1.1

7.6

4.7

Thailand

5.0

2.6

-2.4

7.8

3.5

Vietnam

8.5

6.3

5.3

6.8

5.8

Timor-Leste

8.8

12.7

12.9

9.5

10.8

*GDP year-over-year increase/decrease in percentage at constant prices. Excludes petroleum sector for Timor-Leste. **Projected/Estimated. #Includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Sources: International Monetary Fund. (2011). World Economic Outlook September 2011. Washington, D.C.; and Timor-Leste Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili. efficacy in turning its natural resource endowments into a base for economic growth and poverty reduction. Such considerable economic and socioeconomic success had previously been elusive for Timor-Leste, with a history permeated with foreign rules and serious lapses in security. Following the 2006 crisis, the country’s nonoil GDP contracted by 3.2 percent in real terms. Delivery of social services came to a complete halt, leaving a widespread adverse impact on the welfare of the people, and especially the most vulnerable among them. For example, while 45 percent of children under five years of age were underweight in 2001, the same percentage rose to 49 percent in 2007, reflecting the hardships that the youngest Timorese faced in the aftermath of the crisis. Likewise, a deterioration of sanitary conditions and the quality of medical services during and after the crisis led to a surge in incidence of infectious diseases such as malaria, which climbed from 113 cases per 1,000 people in 2000 to over 200 cases per 1,000 people in 2007. This quick turn of events for the worse over the period of the 2006 crisis is a telling case in point of “no development without peace,” illustrating that durable peace and sustainable development must go hand in hand and that both cannot be achieved simultaneously without the presence of one another. For conflict-affected and fragile nations, peace is an immutably necessary

Timor-Leste and Its Economic History in Brief

23

precondition for sustained progress—especially the progress as staggering as Timor-Leste’s. Asia’s newest nation has taken this lesson from its own history to heart; the state, the government, civil society, and, above all, the entire Timorese public, in partnership with the international community, were united in their effort in creating this urgently needed precondition for building a prosperous nation. Together, they assiduously tackled the problems of public order and safety by strengthening capacities of the security sector and restoring the judicial system and public confidence in the rule of law, while they continued to work on rectifying the abuses committed in the past and engaging in dialogue to promote reconciliation and communal harmony as a way to prevent future disturbances. The Timorese also made an earnest attempt to establish accountable, transparent, and responsive governance, and enhance social inclusion and cohesion in an additional effort to boost resilience resources. Ten years after the Restoration of Independence and eight years following the 2006 crisis, Timor-Leste has today regained most of the institutional capacities of a fully democratic and peaceful state. In the area of safety and security management, for instance, the policing responsibility for the entire territory of the nation was handed back by the UN Police to the national police of Timor-Leste in 2011. This is the culmination of several years of intensive efforts in resurrecting the national policing that disintegrated during the 2006 crisis, when the UN Police took over an interim charge to provide transitional law enforcement in order to restore and maintain peace. The UN Police, besides carrying out law enforcement, assisted in the reconstitution process of the national police force by undertaking screening and certification of personnel and conducting training workshops and mentoring programs for both new recruits and existing staff. Timor-Leste has distinguished itself as well in bolstering institutional and human resource capacities in the judiciary sector. In the wake of the 2006 crisis, when there was a general breakdown in the country’s ability to uphold law and enforce order, the Court of Appeals in the capital Dili and district courts had to rely heavily on international staff for filling such positions as judge and prosecutor. The international legal and paralegal personnel carried out essential functions to keep Timor-Leste’s court system running while guiding and mentoring Timorese staff who were serving on a probationary basis. As more Timorese underwent training and completed certification, a larger portion of the country’s judiciary service has been taken back from international personnel. As of mid-2010, seventeen Timorese were sworn in as judges in the Court of Appeals and four district courts, while sixteen other Timorese nationals were serving as prosecutors in these courts, in addition to the equal number of the Timorese public defenders. Yet, much more work needs to be done to enhance access to justice and raise standards, especially in rural areas where traditional justice systems are still in force.

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Chapter 1

The extraordinary journey of a conflict-torn former European colony in Asia with a profound backwardness to become the Asia’s newest democracy with great promise for success would not have been possible without active engagement of the people of Timor-Leste themselves. During the presidential and parliamentary elections in 2007, which were held only about a year after the 2006 crisis, more than 80 percent of eligible voters defied occasional breaches in pre-election security and showed their resolve to stay involved in the determination of their government by turning up to cast their ballots in three rounds of voting, all of which yielded the results that were widely accepted as valid by all political actors in the country as well as by the international community. Timorese people’s unyielding determination to stay engaged in their country’s governance has made its state institutions attentive to their voices and answerable to their needs. The Timorese government is in the process of carrying out a long-range reform to improve the efficacy of its public services. Efforts in the government reform in this direction include: to refine standards and procedures for service execution and delivery and put in place mechanisms to enforce them; to design systems for ensuring propriety, regularity, and accuracy in public finance and procurement processes; and to build capacities of public service personnel through professional development and mentoring. In addition to its active public engagement, civil society’s role in maintaining a regular, open, and constructive contact with the government is a sine qua non for good governance, which ensures that state institutions act according to the broad consensus of the public. To this end, the Timorese government has taken steps to vitalize civil society and the media, including assurance of a constitutional safeguard to the citizen’s right to information and the enactment of a new criminal code that no longer includes libel. Timor-Leste’s endeavor in institution-building reached an important milestone around the time of the tenth anniversary of the Restoration of Independence in 2012, when the third president of the independent republic was elected after two rounds of orderly nationwide voting with no reported major incident. The voting was widely regarded as a litmus test for how successful the past ten years of work by Timor-Leste was in terms of the consolidation of peace and stability. The peaceful, free, and transparent conduct of presidential ballots is a testament to the fact that national institutions are now fully capable of enforcing good governance and ensuring public security in the country, while the people remain loyal to the principles of democracy and the rule of law. The inauguration of Timor-Leste’s new president, Taur Matan Ruak, coincided with the festivities for the 10th anniversary of the Restoration of Independence, which was participated by tens of thousands of Timorese who emerged successfully from this test of their true commitment to the peace and stability of their motherland.

Timor-Leste and Its Economic History in Brief

25

Despite the outstanding accomplishments that Timor-Leste has achieved in every respect, this newest nation in Asia faces yet more challenges. A pressing concern is the lack of skilled and semi-skilled manpower to keep pace with rising demand from the country’s booming economy, as well as to support its government’s effort to deal effectively with a number of priorities on the national development agenda. Institutional and legal frameworks to guide sustained industrial and commercial development are still incomplete. These problems are compounded by the country’s largely underdeveloped infrastructure. Unemployment and population growth also continue to stay too high. To cap it all, ten years of reconstruction efforts since independence was restored have not yielded a substantial retreat of poverty; over 40 percent of Timorese remain poor, and the majority of this group relies on low-yield subsistence agriculture. The mode of life and certain aspects of social services, particularly in rural areas, have not changed much from where they stood in the Indonesian era. In remarks made in a documentary film Hero’s Journey, Timor-Leste’s Prime Minister Gusmão articulated the essence of his nation’s challenging future: “The dream that the people had during the long struggle was with Independence they could get a better life. And we are still fighting.” 11 NOTES 1. According to the Timor-Leste Human Development Report 2011, a 2009 projection by the UN Population Fund put the country’s fertility rate at 6.53 births per woman, while the Demographic and Health Survey conducted in 2010 by the Timorese government reported a lower rate, 5.7 births per woman, over the period 2005 to 2009. For details, see: UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili. 2. In addition, English and Bahasa Indonesian are used as the languages of business. 3. Timor-Leste adopted the US dollar as its official currency and legal tender for all public and private transactions in 2000, which came after a complex decision-making process. There was general agreement then that the time was not right to introduce a separate national currency to Timor-Leste; economic and social conditions were strained and the capacity to administer a new national currency did not exist. After intense discussions among its leaders, Timor-Leste agreed to the use of the US dollar as the national currency. The US dollar’s relative strength and stability, it was hoped, would lower inflation, which had been considerable under the Indonesian Rupiah currency regime. Additionally, Timor-Leste’s major export product, coffee, was already in trade in the US dollar, while future sales of oil and natural gas from Timor Sea, which were being explored at that time, were expected to be traded likewise. For details, see: Jácome, L. and Lönnberg, Å. (2010). Implementing Official Dollarization (IMF Working Paper WP/10/106). Washington, D.C.: International Monetary Fund. 4. A wealth of resources detail the history of Timor-Leste. Some of the most noted examples can be found in the section “Selected References” on Timor-Leste of this volume. The overview of developments in Timor-Leste before the Restoration of Independence as described in this section is based on: Timor-Leste. Office of the President. (n.d.). A Brief History of Timor-Leste. Available at http://presidenttimorleste.tl/about-timor-leste/; Timor-Leste. Office of the Prime Minister. (n.d.). History. Available at http://timor-leste.gov.tl/?p=29&lang=en; and United Nations. (n.d.). East Timor—United Nations Transitional Administration in East Timor. Available at http://www.un.org/en/peacekeeping/missions/past/etimor/etimor.htm.

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5. The overview of developments in Timor-Leste since the Restoration of Independence as described in this section is based on: United Nations. (2006). Report of the Secretary-General on Timor-Leste Pursuant to Security Council Resolution 1690 (UN Doc. S/2006/628); and various issues of the Report of the Secretary-General on the United Nations Integrated Mission in Timor-Leste, covering the periods of August 9, 2006 to January 26, 2007 (UN Doc. S/2007/ 50); January 27 to August 20, 2007 (UN Doc. S/2007/513); August 21, 2007 to January 7, 2008 (UN Doc. S/2008/26); January 8 to July 8, 2008 (UN Doc. S/2008/501); July 9, 2008 to January 20, 2009 (UN Doc. S/2009/72); January 21 to September 23, 2009 (UN Doc. S/2009/ 504); September 24, 2009 to January 20, 2010 (UN Doc. S/2010/85); January 21 to September 20, 2010 (UN Doc. S/2010/522); September 21, 2010 to January 7, 2011 (UN Doc. S/2011/32); and January 8 to September 20, 2011 (UN Doc. S/2011/641), all published by the United Nations, New York. 6. For a detailed examination of the estimated sustainable income from the Petroleum Fund, see chapter 3. 7. Statistics on the Timorese and world’s major economies as provided in this and subsequent paragraphs are quoted from: Timor-Leste. Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili; and International Monetary Fund. (2011). World Economic Outlook, September 2011. Washington, D.C. 8. Timor-Leste’s fiscal year began and ended mid-year previous to 2006–2007, when it was changed to the calendar-year format. The figure for government spending in 2007 provided in this paragraph is adjusted to reflect the change in fiscal-year format that took place mid-year. Statistics provided in this and subsequent paragraphs are quoted from: Asian Development Bank. (2011). Asian Development Outlook 2011: South-South Economic Links. Mandaluyong City. 9. The Human Development Index measures nations’ development through a new approach, by combining the indicators of life expectancy, educational attainment, and income into a single composite index. The Human Development Report, which was first launched by the UN Development Programme in 1990 and is issued annually, addresses as its main theme the question of how economic growth translates—or fails to translate—into human development, with the help of the Human Development Index. 10. A country’s Gross National Income is calculated as the sum of three figures: the total value added by all of its resident producers, or its Gross Domestic Product (GDP); any product taxes (less subsidies) not included in the valuation of the total value added; and the net receipts of primary income (compensation of employees and property income) from abroad. 11. Phan, G. (Producer/Director). (2006). Hero’s Journey [Motion picture]. Singapore: Luxlucis.

Chapter Two

Declaring Development as a Right

The Constitution of the Democratic Republic of Timor-Leste, which was promulgated at the time of the Restoration of Independence, provides for the protection of fundamental rights and freedoms for all citizens in a democratic and pluralistic society. The constitution exhorts the state to guarantee and promote the following for the benefit of its citizens: • To safeguard the sovereignty and independence of the nation; • To guarantee fundamental rights and freedoms to all citizens while respecting the rule of law; • To uphold democracy and ensure participation of all citizens in the resolution of national problems; • To promote the material and spiritual welfare of citizens and advance social justice across the society; • To respect personal value and cultural heritage; • To protect the environment and preserve natural resources; • To ensure equality of opportunities between women and men; and • To develop the economy in a harmonious and integrated manner across sectors and regions, with fair distribution of its benefits. The last item on the list resonates with the new nation’s commitment to making development a reality to which all Timorese are entitled. Nevertheless, nowhere in the constitution is explicit mention made of the right to development that could provide an institutional guarantee for every Timorese to take part in and benefit from the economic, social, and political advancement of the nation. Yet, Timor-Leste’s constitutional mandate to promote balanced economic growth and equitable development impacts in essence intends to ensure that the people of Timor-Leste will enjoy the right to 27

28

Chapter 2

engage in its development process and partake in the benefit resulting from the process. THE RIGHT TO DEVELOPMENT The right to development is defined by the United Nations (UN) Declaration on the Right to Development as “an inalienable human right by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural, and political development, in which all human rights and fundamental freedoms can be fully realized,” as adopted by the UN General Assembly in 1986. 1 This right is recognized in the African Charter on Human and Peoples’ Rights 2 and the Arab Charter on Human Rights 3 and affirmed in other instruments, including the 1992 Rio Declaration on Environment and Development, 4 the 1993 Vienna Declaration and Programme of Action, 5 and the Millennium Declaration in 2000. 6 According to the UN Declaration on the Right to Development, this unique right refers to: • Placing people at the center of development; • Ensuring the people’s free, active, and meaningful participation in development efforts; • Securing non-discrimination; • Distributing fairly the benefits of development; • Respecting self-determination and sovereignty over natural resources; and • Ensuring that the right to development is part of a process that advances civil, political, economic, social, and cultural rights. According to Arjun Sengupta, 7 the former Independent Expert on the Right to Development to the UN Commission on Human Rights, the definition of the right to development underscores the entitlement of all persons and peoples to participate in as well as to receive enjoyment from the process of development. Although the term “process” is not included in the formal definition of this right in Article 1 of the UN declaration of 1986, the definition of development as a process is derivable from the preamble, which interprets “development” as a “comprehensive economic, social, cultural, and political process, which aims at the constant improvement of the wellbeing of the entire population and all individuals, on the basis of their free, active, and meaningful participation in development and in the fair distribution of benefits resulting therefrom.” For example, if a nation experiences a sharp increase in Gross Domestic Product (GDP), rapid industrialization, and/or an impressive expansion of

Declaring Development as a Right

29

exports, accompanied by a large increase in capital inflows, this does not in itself constitute development as conceived in the UN declaration. If these outcomes neither lead to improvement in the well-being of all of the nation’s people, nor entail their substantive participation in the process nor equal, fair, and just distribution of benefits among them from the process, it will not be regarded as development under the UN Declaration on the Right to Development. Among the different modes of development, only those by which all human rights and fundamental freedoms can be realized may qualify as the object of claim as a human right to development. According to Sengupta, and with the UN definition of development in hand, the right to development not only calls for a comprehensive human-centered policy, but also requires integrated incorporation of good governance principles such as equality, fairness, non-discrimination, participation, transparency, and accountability. Furthermore, treating development as a right gives rise to the obligation of authorities at both the national and international levels to create local as well as global conditions favorable to its realization. As the right to development would cover a wide range of human activity, its implementation is inevitably subject to the availability of resources in financial, infrastructural, and institutional terms. However, Sengupta argues that resources may not be an insurmountable problem for realizing individual economic, social, and cultural rights, as they do not necessarily require those in massive quantity. To the contrary, he suggests, they may be paid for by reorganizing and redistributing existing resources. Nevertheless, promoting and sustaining development over the long term would eventually demand a greater amount of resources. This can be achieved only through a rate of economic growth that affords an increased level of overall well-being for all people in the nation. Development may be seen as an objective because it implies higher per capita consumption and, ultimately, higher living standards; it may also be considered a means as it is indeed one of the important enabling conditions for the fulfillment of all human rights, with which the right to development is fundamentally concerned. TIMOR-LESTE’S FRAMEWORK FOR THE RIGHT TO DEVELOPMENT In line with its constitutional mandate to “promote the harmonious and integrated development of the sectors and regions and the fair distribution of the national product,” the Timorese government has strived since the Restoration of Independence to address key issues as related to balanced and equitable progress of the nation in which the people’s right to development may be fully realized. The main objective of Timor-Leste’s development strategy, especially in the aftermath of the 2006 crisis, was to accelerate investment in

30

Chapter 2

infrastructure and the industrial base, initially with the injection of a vast amount of petroleum revenues into the economy, in order to achieve rapid growth. However, while pursuing this growth-focused strategy, concerns were raised over the possible consequences of a development paradigm that places exclusive emphasis on the pursuit of economic growth. Policy makers’ hope that the paradigm emphasizing on economic growth would lead to a “trickledown” effect, largely through a higher level of employment and real wages that would alleviate poverty, has yet to see considerable success. Rather, they have become wary about possible negative byproducts of this strategy such as rising inequality and marginalization as exemplified in the experience of other developing nations in the fast-globalizing world economy. In order to deal with the possibility of undesirable consequences from the growth-focused strategy, Timor-Leste has taken measures to strengthen interventions specifically targeting the poor and vulnerable in the form of social security and safety nets. Presented below are some of the main constituents of policies for promoting development and the right to development as adopted and implemented by the Timorese government. The policies are outlined in two parts: the first referring to those designed to foster an adequate level of sustained economic growth as an enabling condition for the fulfillment of the right to development, and the second to those devoted to strengthening social security and safety nets for ensuring the attainment of this right especially by the weaker sections of the society. POLICIES FOR SUSTAINED ECONOMIC GROWTH Establishment of the Petroleum Fund Timor-Leste’s receipts from offshore petroleum projects in the Timor Sea, which is currently opperated by foreign consortia, have well exceeded US$ 2 billion a year on avergae since 2008. To avoid problems such as corruption and wasteful spending, the Timorese government set up several mechanisms, including the Petroleum Fund, in which all petroleum receipts are deposited and then invested in global financial markets until they are withdrawn to finance the state budget allocations. The fund also serves as a means to ensure fiscal stability and inter-generational equity in the distribution of benefits from petroleum resources. The balance in the Petroleum Fund exceeded over US$ 10 billion as of March 2012. 8 Timor-Leste’s Petroleum Fund has proved an enormous fiscal bounty to its capital development undertakings as well as to its social protection programs, as it can sustain the delivery of these activities over the short-term and medium-term future. The Petroleum Fund and related mechanisms in place

Declaring Development as a Right

31

for handling petroleum revenues have spared the country from falling into a “resource curse,” the term often used to describe the failure of developing nations in turning their natural resource endowments into a sustainable base for economic growth and poverty reduction. 9 Thanks to the government’s monumental efforts to enhance accountability, transparency, and efficiency in the management of the Petroleum Fund, Timor-Leste’s Petroleum Fund has received a number of international accolades. In 2010, the Washington D.C.–based Peter G. Peterson Institute for International Economics declared the Timorese fund the eighth-best managed among all sovereign funds in the world. Timor-Leste is also the third in the world to be granted a full compliance status under the Extractive Industries Transparency Initiative. 10 Land reform During the final century of Portuguese colonization and especially the quarter century of Indonesian occupation, widespread hostilities and strategic relocations saw a large number of Timorese displaced from their ancestral homes. Further, in the aftermath of the disturbance that followed the Popular Consultation of 1999, an estimated 83 percent of the population was dislocated, and the majority of land and property records were destroyed. Seven years later, the 2006 crisis led to the displacement or re-displacement of an additional 10 percent of the population. This history has contributed to heightened confusion over land and property ownership across the TimorLeste territory, as customary rights, colonial Portuguese land titles, Indonesian titles, and non-traditional long-term land occupation compete for primacy. Some Timorese have returned home since fleeing or abandoning their ancestral lands years ago, while many others have been unsuccessful at reclaiming land lost to new occupants. 11 Nevertheless, a certain important progress has been made lately in the matter of Timor-Leste’s land property rights. The government initiated a land registration program in which more than 54,000 Timorese across the country laid claim to over 50,000 parcels by 2011. Additionally, in 2010 a draft transitional land law was approved by the Council of Ministers, which is under consideration by the National Parliament for legislative action. This law aims to establish a regime for the identification and regulation of land ownership, including cases of competing claims. It also provides a starting point for the legal recognition and protection of community land rights. 12 Capital development Development of physical and human capital is one of the driving forces for sustaining economic growth and poverty reduction. Timor-Leste’s poor infrastructure, due to its shortchanged capital development, is perhaps the

32

Chapter 2

most binding constraint on growth for the country today. Infrastructural bottlenecks are likely to be exacerbated in the upcoming years by its high population growth and urbanization rates. What is more, the country faces a severe shortage of skilled and semi-skilled manpower not only in the lifeblood of its economy, such as infrastructure and extractive industries, but also in other strategic areas, including health care, education, agriculture, tourism, and banking and finance. Currently, Timor-Leste relies on foreign expertise to fill this large gap in human resources and meet its development needs. In order to aid its severely constrained capacities for growth in the medium and long term, in 2010 the Timorese government established the multiyear special funds: the Infrastructure Fund and the Human Capital Development Fund. 13 Under the Infrastructure Fund, large-scale capital projects such as installation of power plants and transmission lines and rehabilitation of transport infrastructure including seaports, airports, roads, and bridges, as well as construction of critical public services buildings such as government offices, schools, and hospitals, are being scheduled for now for the period through 2016. The Human Capital Development Fund is intended for supporting vocational programs and providing grants and scholarships for professional development of personnel in strategic sectors. A total of US$ 4.3 billion was allocated to the two special funds for the six-year period 2011 to 2016, to which withdrawals from the Petroleum Fund are applied. Business reform Timor-Leste’s overarching developmental goal for the medium to long term is to build up the economic capacity with massive public investment, but the country hopes, at the same time, to induce a significant level of private investment by using public investment as leverage. The Timorese government plans to encourage domestic private capital for the development of small-scale and medium-scale businesses, while welcoming foreign direct investments in key modern industries including petroleum, tourism, fisheries, finance and banking, and telecommunications. To this end, measures have been taken to ensure that Timor-Leste is hospitable to domestic and foreign investors, to whom an array of competitive benefits is being offered. For instance, a tax law adopted in 2008 provides fresh incentives such as reduction in the profit tax rate from 30 to 10 percent, withdrawal of the alternative minimum tax and the withholding tax on interest, and allowance for all depreciable assets to be fully written off in the year of purchase and for abolishment. Furthermore, the previous requirement of obtaining approval by the Ministry of Justice before starting a business has been eliminated. In the course of 2011, Timor-Leste’s National Parliament considered three draft laws that would address some of the major legal obstacles to

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private investment. These were (1) a civil code that deals with, among others, the enforcement of contracts; (2) a labor law that provides for protection of the rights for both employers and workers and governs the relationship between the two; and (3) a land law that sets out procedures for registration and award of titles as well as for leasing contracts. The first two draft laws have been already enacted as of early 2012. Additionally, Timorese investors and businesses will likely receive a sizeable boost from the soon-to-be-launched Timor-Leste’s first national development bank with increased access to credit and long-term financing at affordable rates. Last but not least, the newly established Timor-Leste Chamber of Commerce and Industry plans to offer advice for setting up and running a business and staff training for the benefit of both Timorese and foreign investors. Still, as Timor-Leste’s business reform gathers momentum, the World Bank ranked the country just 168th out of 183 nations in the “Ease of Doing Business” ranking for 2012. 14 Those areas of Timor-Leste’s business environment that are in particular need of further improvement include enforcement for rules and regulations on starting and operating businesses, availability of financial services and skilled manpower, and access to basic utility services such as electricity, transport, and telecommunications. Export promotion Timor-Leste’s economy is highly dependent on imports to feed its rapid growth due to the limited possibility of local sourcing. Timor-Leste’s total merchandise imports totaled US$ 298 million for 2010, while its non-oil merchandise exports amounted to only US$ 41 million in the same year, resulting in a trade balance deficit of US$ 256 million, or 9 percent of the country’s non-oil GDP. 15 As Timor-Leste plans to undertake heavy investment in capital development, which will require intensive use of imported machinery and equipment as well as foreign technical services, relief from the large imbalance in its non-oil trade would come only through the expansion and diversification of non-oil exports. Endowed with tropical weather and bountiful rainfall, there are promising opportunities for Timor-Leste to expand its production of cash crops for export. Market access has not been a major issue for Timorese exports, even though the country is not member to any multilateral or regional trade arrangements. As one of the Least Developed Countries, according to the United Nations classification of nations by development stage, Timor-Leste receives preferential tariff treatments in major international markets. Further, the Timorese government has given top priority to the issue of accession to the Association of Southeast Asian Nations (ASEAN), which would grant the country the right to various intra-regional trade and investment benefits. Still, Timor-Leste must resolve the bottlenecks to enhancing its productive

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and technological capacities in the export sector, which have constrained its growth and competitiveness. POLICIES FOR STRENGTHENING SOCIAL SECURITY AND SAFETY NETS Food security measures Food insecurity and under-nutrition are highly prevalent in Timor-Leste, with about 20 percent of its population being food insecure and another 23 percent at high risk of becoming food insecure. Despite the widespread food and nutritional deficiencies in the population, the country is able to produce only less than half of its requirements for staple foods. This large shortfall in supply over demand for staples has been met through imports, which are financed with fiscal resources and distributed to the population at subsidized prices. Bolstering the production of rice, the country’s premier staple food, is therefore not only crucial for the prosperity of its agriculture sector, but also indispensable for advancing its paramount developmental goal of eliminating hunger. The Timorese government has strived to encourage the national rice production by providing free of charge to rice farmers improved varieties of seeds, farming machinery and equipment, and extension services. It is also in the process of preparing medium-range and long-range plans for the construction of large-scale irrigation systems and multi-purpose dams for increasing the availability of water for rice cultivation, while expanding smalland medium-scale irrigation systems and rehabilitating those that were damaged or abandoned during the years of conflict. In addition, the government’s effort is underway to contain high postharvest losses, which are reflective of the dismal conditions under which Timorese farms operate today. For instance, losses in the corn production, which is generally as high as 30 percent in storage, are found to have been reduced to 15 percent with the simple introduction of small airtight metallic silos invented by the Food and Agriculture Organization. Food-processing facilities, which were non-existent in the country until recently, provide another solution for post-harvest losses as well as for the problems of food insecurity and under-nutrition. The first food-processing plant in TimorLeste opened in 2010 with an annual production capacity of up to 5,000 tons of fortified blended food, which is mostly destined for expecting and nursing mothers and young children. 16 Millennium Development Goals Timor-Leste was admitted to the United Nations in 2002 and, as a new member, formally began work toward the eight UN Millennium Develop-

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ment Goals—to reduce poverty, hunger, and disease and to promote gender equality, education, environmental sustainability, and global partnerships, all to be achieved by the target date of 2015—when all other member nations were already well along in this process. Despite being challenged by a number of problems that are endemic to post-conflict societies, such as underdeveloped infrastructure and low institutional and human resource capacities, Timor-Leste has made steady progress toward the goals, observable, for example, in an upward trend in its Human Development Index ranking in recent years. Its value on the Human Development Index for 2010 positioned it in the medium human development category, at 120th out of 169 countries, up from 131st in 2005, when Timor-Leste was first ranked in the index. In rebuilding the nation devastated by conflict, the Timorese government has placed special emphasis on the rehabilitation and further improvement of living conditions for those who bore the brunt of turmoil. The Millennium Development Goals have provided a meaningful framework for achieving this objective, as they concern the needs of the poorest and most vulnerable in any society. Given the importance of internalizing the Millennium Development Goals into the entire national development process, and in order to promote a nation-owned and driven approach to the achievement of the Millennium Development Goals in a more systematic and coherent manner, the Timorese government has established the Millennium Development Goals “architecture,” featuring, among others, the National Millennium Development Goals Steering Committee, the country’s primary policy coordination mechanism for mobilizing efforts toward reaching the goals; and the Millennium Development Goals Suco (village) Fund for providing funds for implementing innovative approaches that can boost their attainment through empowering communities. 17 Assistance to the vulnerable Shortly after the Restoration of Independence in 2002, Timor-Leste acceded to major human rights treaties, including the Convention on the Rights of the Child 18 and the Convention on the Elimination of All Forms of Discrimination Against Women. 19 The new nation has dealt successfully with the difficult challenge of fostering a post-conflict culture characterized by peace, observance of human rights, and respect for the rule of law, in accordance with the principles embodied in these conventions, so that its citizens can freely articulate views, exercise rights, meet obligations, and mediate differences. Still, the vulnerable among the population, including children, youth, and women, are often found to be overshadowed by the broader peacebuilding and state-building agenda, which has resulted in gaps between the convention standards and their application, particularly in respect to these groups of citizens.

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Nevertheless, Timor-Leste has managed to make significant strides in empowering the vulnerable over a relatively short period. For instance, the national Millennium Development Goals on infant and under-five mortality rates were achieved in 2010, well ahead of the deadline of 2015. The Millennium Development Goals on the net enrollment ratio in primary education will likely be achieved by 2015. Timor-Leste is also expected to attain the Millennium Development Goal on the maternal mortality ratio by 2015. Behind the scene of the marked improvement in socioeconomic status of Timor-Leste’s disadvantaged citizens is their greater involvement in democratic governance and public service. For example, 29 percent of Timor-Leste’s parliamentary seats were held by women in 2011, while they occupied three important portfolios of justice, finance, and social solidarity, or 25 percent, of the twelve ministerial posts in the same year. In order to encourage the participation and contribution by the weaker sections of the society at the community level, the Community Leadership and Election Law was enacted in 2009, under which a certain proportion of seats in the assemblies at the district and sub-district levels are earmarked for women and youth. 20 Anti-corruption measures Timor-Leste has strived of late to also build a culture of anti-corruption and a free media environment in the society with the objective to enhance the government openness and facilitate the public scrutiny into state affairs as a means to improve the quality of its public services. Elements of the legal framework that are considered instrumental in making Timor-Leste’s public services attentive to the people’s voices and answerable to their needs include a constitutional safeguard to the citizen’s right to information; the enactment of a political party finance law and a new criminal code that no longer includes libel; and the ratification of the UN Convention Against Corruption. 21 Various institutional mechanisms have been established to enforce these measures and include the Anti-Corruption Commission, an autonomous body with a broad mandate against corruption; the Provedor for Human Rights and Justice, an ombudsperson responsible for investigating violations of human rights and maladministration; the Civil Service Commission, an independent authority on hiring and standards of discipline in public services; a parliamentary sub-commission on corruption tasked with the oversight over government actions; and the state’s judiciary, which has begun hearing corruption cases. TOWARD REALIZATION OF THE RIGHT TO DEVELOPMENT Due to Timor-Leste’s recent history of human rights violations and subsequent initiatives for restoring justice and the rule of law and promoting

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reconciliation, its government not only protects and promotes human rights as part of its legal mandate, but also views them as the valid policy basis for any comprehensive approach to development. However, in an operational context, the government also recognizes various challenges to making the right to development a reality, including those to creating an enabling environment for development with economic equity and social justice. In July 2011, Timor-Leste launched the Strategic Development Plan 2011–2030 in an earnest attempt to transform itself from a conflict-torn, underdeveloped former colony into an environmentally sustainable and democratic society at the upper middle of the income ladder and with extreme poverty fully eradicated. The success of the plan presupposes adherence to the following guiding principles: • A democratic government operating on fundamentals such as observance of human rights, active civic engagement, separation of powers, accountability and transparency in public services, and respect for the rule of law; • Balanced economic growth and equitable development impacts across various socioeconomic groups and regions; and • Respect and tolerance for different faiths, creeds, races, cultures, and values, and appreciation for creativity and innovation. These principles were upheld as early as the drafting stage of the Strategic Development Plan. Open public debate on the plan was conducted in town hall meetings across all thirteen districts and sixty-five sub-districts of Timor-Leste, at the personal initiative of Prime Minister Kay Rala Xanana Gusmão, in order to ensure equity, diversity, and inclusiveness in the people’s participation in this process. Below are some expressions of the aspirations of the people who attended the meetings: “We want to go to school, so one day we can be somebody.” —A primary school student, Quelicai sub-district, Baucau district “We need more medical staff, especially midwives, as there is only one in our region.” —A sub-district administrator, Lolotoi sub-district, Bobonaro district “The roads need to be repaired, so we can get to markets.” —A mother, Fohorem sub-district, Cova Lima district “The women in our village want solar panels, so their children can study at night.” —A community leader, Laulara sub-district, Aileu district “I want our oil to be used to create our own industry and to provide jobs for Timorese people.” —A teacher, Hatólia sub-district, Ermera district 22

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NOTES 1. United Nations. General Assembly. (1986). Declaration on the Right to Development (UN Doc. A/RES/41/128). New York. 2. See Preamble and Article 22 of: African Union. (1982). African (Banjul) Charter on Human and Peoples’ Rights (OAU Doc. CAB/LEG/67/3 rev. 5, 21 I.L.M. 58). Addis Ababa. 3. See Article 37 of: League of Arab States. (2004). Arab Charter on Human Rights (English translation of the text adopted by the Arab Standing Committee for Human Rights). Cairo. 4. See Principle 3 of: United Nations. General Assembly. (1993). Report of the United Nations Conference on Environment and Development (UN Doc. A/CONF.151/26, Vol. I). New York. 5. See Articles I:10 and I:11 of: United Nations. General Assembly. (1993). Vienna Declaration and Programme of Action (UN Doc. A/CONF.157/23). New York. 6. See Articles III:11 and V:24 of: United Nations. General Assembly. (2000). United Nations Millennium Declaration (UN Doc. A/RES/55/2). New York. 7. From 1999 to 2004, a total of seven reports on the concept and content of the right to development were submitted by the Independent Expert on the Right to Development to the UN Commission on Human Rights. These include: (1) United Nations. (1999). Study on the Current State of Progress in the Implementation of the Right to Development Submitted by Dr. Arjun Sengupta, Independent Expert, Pursuant to Commission Resolution 1998/72 and General Assembly Resolution 53/155 (UN Doc. E/CN.4/1999/WG.18/2). New York; (2) United Nations. (2000). Report of the Independent Expert on the Right to Development, Dr. Arjun Sengupta, Pursuant to General Assembly Resolution 54/175 and Commission on Human Rights Resolution E/CN.4/RES/2000/5 (UN Doc. E/CN.4/2000/WG.18/CPR.1). Geneva; (3) United Nations. (2001). Third Report of the Independent Expert on the Right to Development, Dr. Arjun Sengupta, Submitted in Accordance with Commission Resolution 2000/5 (UN Doc. E/ CN.4/2001/WG.18/2). New York; (4) United Nations. (2001 and 2002). Fourth Report of the Independent Expert on the Right to Development, Dr. Arjun Sengupta, Submitted in Accordance with Committee Resolution 2001/9 (UN Doc. E/CN.4/2002/WG.18/2 and Add. 1). New York; (5) United Nations (2002). Fifth Report of the Independent Expert on the Right to Development, Dr. Arjun Sengupta, Submitted in Accordance with Committee Resolution 2002/ 69 (UN Doc. E/CN.4/2002/WG.18/6 and Add. 1). New York; (6) United Nations. (2002). Preliminary Study of the Independent Expert on the Right to Development, Dr. Arjun Sengupta, on the Impact of International Economic and Financial Issues on the Enjoyment of Human Rights (UN Doc. E/CN.4/2003/WG.18/2). New York; and (7) United Nations. (2004). Review of Progress and Obstacles in the Promotion, Implementation, Operationalization and Enjoyment of the Right to Development – Consideration of the Sixth Report of the Independent Expert on the Right to Development (UN Doc. E/CN.4/2004/WG.18/2). New York. The UN Commission on Human Rights was reconstituted as the UN Human Rights Council in 2006. 8. Statistics on Timor-Leste’s Petroleum Fund as provided in this paragraph are quoted from two sources: Timor-Leste. Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili; and Central Bank of Timor-Leste (formerly Banking and Payments Authority). (2005 to 2012). Petroleum Fund of Timor-Leste Quarterly Reports (Nos. 1 to 27). Dili. 9. Timor-Leste’s Petroleum Fund Law of 2005 establishes that natural resources, including fossil fuel resources, are owned by the state so that they be used “in a fair and equitable manner.” The law also outlines key parameters for the operation and management of the fund. The official English translation of the law, originally drafted in Portuguese, is available online at http://www.bancocentral.tl/PF/laws.asp. 10. For a detailed examination of the Petroleum Fund, see chapter 3. 11. For details on the history of land ownership in Timor-Leste, see: World Bank. (2010, June). The Lay of the Land - Land Access and Dispute Resolution in Timor-Leste (Justice for the Poor Briefing Note, Vol. 5, Issue 3). Available at http://www-wds.worldbank.org/external/ default/WDSContentServer/WDSP/IB/2010/08/02/000334955_20100802041407/Rendered/ PDF/560060BRI0J4P1149468B01PUBLIC1print.pdf.

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12. For details on the latest development in land ownership in Timor-Leste, see: UN Development Programme. (2012, January 12). Timorese Finally Land Property Rights. Available at http://74.119.210.141/justice/?q=node/305. In addition, the Timorese government foresees two other types of challenges in land reform: (1) urban land in need of zoning and clear property rights, which is crucial for industrial and commercial development; and (2) government land to be used for public and private investment in strategic sectors such as tourism and petroleum and petrochemical industries. 13. For a detailed examination of the multi-year special funds, see chapter 9. 14. International Finance Corporation and World Bank. (n.d.). Ease of Doing Business in Timor-Leste. Available at http://www.doingbusiness.org/data/exploreeconomies/timor_leste. 15. Statistics on Timor-Leste’s trade as provided in this paragraph are quoted from: TimorLeste. National Directorate of Statistics. (2011). External Trade Statistics Annual Report 2010. Dili. 16. For a detailed examination of Timor-Leste’s agriculture and food security, see chapter 4. 17. For a detailed examination of Timor-Leste’s achievements and challenges in the Millennium Development Goals, see chapter 7. 18. The UN Convention on the Rights of the Child, adopted by the UN General Assembly in 1989, is an international legal instrument to safeguard the civil, political, economic, social, health, and cultural rights of children. The convention generally defines a child as any human being under the age of 18. For details, see: United Nations. General Assembly. (1989). Convention on the Rights of the Child (UN Doc. A/RES/44/25). New York. 19. The Convention on the Elimination of All Forms of Discrimination Against Women, adopted by the UN General Assembly in 1979, is often described as an international bill of rights for women. The convention defines what constitutes discrimination against women and presents an agenda for national action to end such discrimination. For details, see: United Nations. General Assembly. (1979). Convention on the Elimination of All Forms of Discrimination Against Women (UN Doc. A/RES/34/180). New York. 20. For a detailed examination of the condition of vulnerable groups in Timor-Leste, see chapter 5. 21. The UN Convention Against Corruption, adopted by the UN General Assembly in 2003, requires signatory countries to take action in the following four areas: (1) prevention against corruption, with measures directed at both the public and private sectors; (2) criminalization of a wide range of acts of corruption; (3) international cooperation among the signatories in every aspect of the fight against corruption; and (4) recovery of assets that are plundered from the national wealth or obtained from resources badly needed for reconstruction and rehabilitation of societies under new governments. For details, see: United Nations. General Assembly. (2003). United Nations Convention Against Corruption (UN Doc. A/RES/58/4). New York. 22. Timor-Leste. Office of the Prime Minister. (2011). Timor-Leste Strategic Development Plan 2011–2030 (version submitted to the National Parliament). Dili.

Chapter Three

Investing with Natural Resource Endowments

Natural resources, despite being a critical element for facilitating post-conflict peace-building and reconstruction, are often identified as the important influence on the motives behind the resort to war and its continuance. According to the United Nations (UN) Environment Programme, conflicts associated with natural resources are twice as likely to recur within five years after they cease. In other words, failure to manage natural resources for peaceful ends at a critical juncture during the post-conflict period not only disrupts the conflict-to-peace transition process, but also increases the probability of reigniting conflict. There are ways to ensure that natural resources are called into play only to advance peace and development in post-conflict nations, despite the risk that they continue to be misused or abused to support another war drive. Firstly, with proper governance and careful management, highly valued natural resources such as hydrocarbons, minerals, metals, and timber can spur investment and promote income generation; they can also mobilize additional state revenues for public investments and social programs in the economies that are still reeling under huge debt burdens from wartime expenses. A caveat exists, however, when natural resources are explored and exploited without an appropriate regulatory framework, or if the benefits resulting therefrom are used for wasteful consumption or without a set of prudent fiscal policies. The pressure to jump-start development after conflict tends to be so high that it can unleash a reckless and haphazard rush to exploit resources, which may harm the environment or else cause disparity from the unequal distribution of resource revenues. When environmental degradation occurs as a result of the uncontrolled exploitation, or if the benefits are not shared equally, conflict may return to haunt the weary population that is just 41

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back on its feet from war trauma. In consequence, many countries emerging from conflict today, in which natural resources had no insignificant part, carry out, as one of their first peace- and state-building undertakings, a task of designing and piloting a new system of governance for natural resources and the environment. Second, preservation of the natural and environmental resource base is a crucial issue for any post-war economy, as it not only serves to fulfill immediate needs of its people, who struggle for survival to secure daily provisions even as basic as food, water, shelter, and energy supplies, but also help restore their livelihoods that may have been either damaged or destroyed in conflict. A failure to adequately respond to the natural and environmental resource requirements of the war-affected population, by way of, among others, shortchanging investment in conservation of water sources, watersheds, plant cover, and vegetation, can perpetuate the humanitarian situations; this may cause the state to divert scarce post-war revenues and efforts over a prolonged period of time away from other important items on the stabilization and reconstruction policy agenda, including the maintenance of peace and security, institution-building, and infrastructural development. Third, sharing natural and environmental resources can serve as an effective platform for promoting dialogue, building mutual confidence, and enhancing cooperation amongst divided states or regions. To collectively own and manage geological and ecological assets such as water, land, forests, wildlife, and marine life often facilitate communication and interaction even among parties in dispute, effectively addressing common concerns at the source while laying the ground rules for engagement. Successful examples in the attempt to foster national and regional solidarity through natural and environmental resource management capitalize on a notion of ecological interdependence and a shared future, which generally works as an incentive for contending factions across and within borders to come to the negotiation table and find mutually agreeable solutions to divisive issues. In the following, we will examine how Timor-Leste has employed its natural resource endowments to advance post-conflict national goals in reconstruction and development. A BRIEF HISTORY OF TIMOR-LESTE’S HYDROCARBON ACTIVITIES 1 According to the United Nations classification of nations by development stage, Timor-Leste ranks among the Least Developed Countries and Small Island Developing States 2 due to its manifold economic, social, and geographical handicaps, including low income, socioeconomic backwardness, limited prospects for expansion in domestic markets and resource bases, as

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well as vulnerabilities to unexpected external events such as natural disasters and global market conditions. Yet, the country is blessed with rich natural and environmental resources. According to the World Bank, Timor-Leste’s total national wealth 3 per capita was valued at US$ 56,000 for 2005. This is more than three times the average per capita wealth value for the entire Southeast Asia region and is even comparable to that of some upper-middleincome nations in the region, notably Malaysia. Timor-Leste’s wealth is derived primarily from non-renewable mineral resources such as oil and gas, which account for 85 percent of the nation’s per capita wealth, while forests and farmland, besides others, constitute the remainder. Timor-Leste’s oil and gas reserves sit on a zone of collisions between the massive Australian and Eurasian continental plates. The collisions lend the island its entire complex geological structure, adding shelf and deep-sea sediments and continental crust material to its environment for the last fifteen million years. The collisions and resulting mountainous formations created several large marginal basins along the southern coast of Timor-Leste, which are prominent targets in on-land and near-shore hydrocarbon exploration. As organic materials were transformed in the earth’s deep crust over millennia, liquid petroleum was formed, shifted upward and along the flank of the plate by the uplift at collision lines, and then pulled by buoyancy into shallow traps or released through oil and gas seeps. More than thirty major oil and gas seeps have been identified within Timor-Leste’s territory, many of which are found along the southern coast in proximity of hot springs and mud volcanoes. The hydrocarbon exploration of the Timorese territory 4 began in 1893, with a small-scale oil recovery operation in the Pualaca seeps in the central region. However, the first commercial attempt to search for oil reserves on the island would not take place until the early twentieth century, when Australian oil and gas company Timor Oil explored the Viqueque Basin complex, which lies partly on land and partly off shore along the southern coast. Test drilling commenced in 1911, and Timor Oil concentrated its initial efforts in exploring the western part of the basin, near the town of Suai. Between 1957 and 1975, more test holes were drilled in the Cova Lima district and in the Aliambata area of the Viqueque district. Out of the twentyone wells that Timor Oil drilled, it found six to seven shows, but all were appraised as uneconomical. While Timor-Leste’s interior has not shown much promise for a large commercial success, largely due to its rugged terrains and complex tectonic settings, great potential exists for offshore exploration. Beginning with the discovery of the vast gas field Greater Sunrise in 1974, exploration in the Timor Sea has yielded a string of successes, especially since the advent of advanced geological understanding and seismic technologies. Further in the early 1990s, the entry of eleven consortia representing more than twenty

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companies through production-sharing contracts ignited a highly competitive search for hydrocarbon deposits in the Timor Sea. Global oil giants such as Phillips Petroleum and Royal Dutch Shell, along with Woodside Petroleum, the second largest oil company in Australia, conducted 50,000-kilometer, two-dimensional and 3,000-kilometer, three-dimensional seismic surveys, in order to increase the chance of new commercial discoveries. As a result, over a ten-year period, out of forty-five test wells drilled in the joint development zone for Australia and Timor-Leste—under the Indonesian occupation for much of the period—five turned out to be exploitable, yielding a remarkable discovery rate of one oil- and/or gas-containing well for every five wells drilled. The newly formed Timorese government assumed control of the joint development zone with Australia upon the Restoration of Independence in 2002. Discoveries within the joint development zone up to 2003 were made in the Elang-Kakatua, Jahal, and Kuda Tasi oil fields, the Kelp Deep and Chuditch gas fields, and the Bayu-Undan oil and gas field; just outside the zone, an important discovery was made in the Laminaria-Corallina oil field. The Elang-Kakatua oil field, where exploitation commenced in 1998, was the first commercial discovery in the eastern Timor Sea. The oil field produced a cumulative total of more than thirty-two million barrels of oil up to 2007, when the well ran dry. The Bayu-Undan oil and gas field was considered a major discovery, with estimated reserves of eight hundred million barrels of oil and twelve trillion cubic feet of natural gas. Bayu-Undan is the only field in the joint development zone for Timor-Leste and Australia that has been continuously in operation under independent Timor-Leste. The Jahal and KudaTasi fields are thought to contain combined reserves of over fifteen million barrels of recoverable oil, but have been deemed unprofitable due to their small sizes, unless infrastructure already in place at nearby fields can be put into use for production. Nevertheless, considerable potential for additional discoveries exists in other sections of the Timor Sea, and part of it may well lie within areas over which Timor-Leste has or will have negotiated interests. 5 As the search for oil and gas in the late 1960s began to uncover exploitable deposits on the seabed contiguous to the Australian continent, Australia set out to establish its national seabed boundaries with its neighbors. Seismic work carried out in 1969 and 1970 by the British-Australian oil company Burmah Oil concluded that the Timor Sea, virtually in its entirety, could be considered a highly prospective area. Before Australia could proceed to establish its boundaries, its surrounding nations would have to deliberate their respective national claims to the seabed. In fact, Portugal, then ruling the colony of Timor-Leste, had claimed sovereignty over the seabed in accordance with the Convention on the Continental Shelf, adopted at the UN Conference on the Law of the Sea in 1958, and poised to draw its boundary

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at the median line between Timorese and Australian shores. On the other hand, the Australian government claimed that the Timor Trough, which lies closer to the shores of Timor-Leste, was the rightful seabed boundary between Timor-Leste and Australia, on the basis of the fact that it separated two distinct continental shelves: a narrow shelf extending from Timor-Leste and a wide shelf extending from the Australian coastline. The 1958 UN conference did not establish explicit guidelines for a case involving two continental shelves. 6 When Indonesia took over control of Timor-Leste in 1975, Australia turned its attention to the territory’s new ruler as its partner for the negotiation on its seabed boundary with Timor-Leste. Australia reportedly sought an accord greatly in its favor in return for recognition of Indonesia’s sovereignty over Timor-Leste. In fact, prior to its invasion to Timor-Leste, Indonesia was already in negotiation with Australia over the demarcation of areas of the Timor Sea to both the west and east of Timor-Leste that lay between Australian and Indonesian waters. An agreement was reached in 1972 between the two nations, in which the seabed boundaries to the west and east of TimorLeste were drawn roughly one third of the way down the southern side of the Timor Trough, but much north to the median line between Timorese and Australian shores. The agreement nevertheless made no reference to the “gap” in the Timor Sea between the eastern and western ends of the Australian-Indonesian seabed boundaries, located directly off the southern coastline of Timor-Leste, which was later referred to as the Timor Gap. When Australia and Indonesia recommenced negotiations after the Indonesian takeover of Timor-Leste in 1975, the two nations attempted to close the Timor Gap and include it in the seabed boundary between them. Instead, the Timor Gap Treaty was signed between Australia and Indonesia in 1989 to deal provisionally with the area of seabed in and around the Timor Gap without drawing the boundary permanently. The treaty established a threepart zone of cooperation in the Timor Sea that stretched from south of TimorLeste to north of Australia and included the Timor Gap at the center, as illustrated in Map 3.1. The zone comprised the 75,000-square-kilometer “Area A,” the largest among the three parts and located in the middle, which was to be administered jointly by Australia and Indonesia, in addition to another to the north and the other to the south of the Area A that were placed under direct control of Indonesia and Australia, respectively. The Timor Gap Treaty of 1989 lapsed after the Popular Consultation of 1999 and was succeeded in 2002 by the Timor Sea Treaty, which was concluded between independent Timor-Leste and Australia. This was an interim agreement that did not favor either nation’s maritime boundary claims. Under this treaty, the Joint Petroleum Development Area replaced the Area A of the zone of cooperation in the previous Timor Gap Treaty, as indicated in Map 3.2. In fact, the Timor Sea Treaty incorporated a number of articles

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Figure 3.1. Map 3.1. Timor Sea—Tectonic elements. Source: Excerpt from United Nations Economic and Social Commission for Asia and the Pacific. (2003) Geology and Mineral Resources of Timor-Leste (Atlas of Mineral Resources of the ESCAP Region, Vol. 17) New York.

from the Timor Gap Treaty, but there was an important difference in the determination of the revenue split. Under the Timor Gap Treaty, revenue was to be shared equally between Australia and Indonesia; the Timor Sea Treaty awarded Timor-Leste 90 percent of upstream revenues—in the form of royalties from the transference of extraction rights, taxes on profit oil assessed after a project recovers capital expenses, and other charges collected from the companies involved in the project—from the Joint Petroleum Development Area, while Australia was entitled to the remaining 10 percent of them. One of the reasons for which the new nation assumed such a large majority of revenue would have been that, had the line of equidistance been adopted as the seabed boundary between Timor-Leste and Australia, the Joint Petroleum Development Area would fall predominantly within Timorese waters. The new revenue split would also address the implications that drawing a seabed boundary between Timor-Leste and Australia permanently would have for

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Indonesia and Australia, of which seabed boundary did not lie equidistant from both countries. 7 Yet, Australia was given access to the entirety of downstream revenues under the Timor Sea Treaty, in exchange for giving most of upstream revenues up to Timor-Leste. According to an estimate from that time, these downstream revenues, which were expected from natural gas processing at the plant complex at Darwin in northwestern Australia, would amount to at least eighty billion Australian dollars over the following two decades. The Bayu-Undan field is the only hydrocarbon project in the Joint Petroleum Development Area that has been in operation without cease under independent Timor-Leste. Discovered in 1995, the field underwent the first phase of development beginning in 1999 by a consortium led by American

Figure 3.2. Map 3.2. Timor Sea—Oil and gas fields. Source: Excerpt from Australian Strategic Policy Institute (2011, April) A Reliable Partner: Strengthening Australia-Timor-Leste Relations (Special Report Issue 39) Barton.

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oil giant Phillips Petroleum. Upon completion of this phase, which was estimated to incur a total capital expenditure of US$ 1.6 billion in 1999 dollars, a plant built on an offshore platform would handle the entire process from extraction of raw natural gas, though stripping of condensate and liquid petroleum gases for shipment, finally to re-injection of dry gas back into the reservoirs. Bayu-Undan went into full-scale production in 2004, but just before, Phillips Petroleum announced that it would proceed with a second phase of development, for an additional US$ 3 billion in expenses, to pipe the dry gas re-injected into the reservoirs to Darwin where one of the world’s largest processing complexes for liquefied natural gas was planned to be constructed. This move followed the execution of an agreement between Phillips Petroleum (subsequently ConocoPhillips) and its consortium partners—Australia’s largest gas company Santos, Italy’s industrial giant ENI, and three Japanese energy concerns—for the purchase of nearly all of the field’s proven reserves during a seventeen-year period to begin in 2006. It is estimated that Timor-Leste will earn as much as US$ 17.5 billion in total as upstream revenues over the twenty-year life of the project. 8 Bayu-Undan’s profitability is likely to expire around 2022, after which the Greater Sunrise field is expected to become an important source of petroleum revenues for Timor-Leste. This massive gas field, which consists of the Sunrise and Troubadour sub-fields, was discovered in 1974 and promises conservatively proven reserves of 300 million barrels of condensate and liquid petroleum gases and 7.7 trillion cubic feet of natural gas. The Timor Sea Treaty of 2002 stipulates that 20.1 percent of the Greater Sunrise field falls within the Joint Petroleum Development Area, while the remaining 79.9 percent goes under the exclusive Australian jurisdiction. Instead of dividing the gas field in accordance with the treaty’s provision, Timor-Leste and Australia signed the International Unitisation Agreement for Greater Sunrise in 2003 in order to consolidate all deposits in the Greater Sunrise on the same operational basis for achieving higher efficiency and split entire receipts therefrom between the two, with Timor-Leste and Australia taking 18.1 percent and 81.9 percent of the total, respectively. In 2006, Timor-Leste and Australia entered into yet another agreement, the Treaty on Certain Maritime Arrangements in the Timor Sea, which permitted exploitation from the Greater Sunrise field to proceed under more preferential conditions for Timor-Leste, while suspending both nations’ maritime boundary claims for the next fifty years and maintaining in principle all past treaty arrangements in place. 9 Under this treaty, it is agreed that both Timor-Leste and Australia will share equally in upstream revenues, despite that all provisions of the International Unitisation Agreement for Greater Sunrise of 2003, including the revenue apportionment that accords Australia a major share, remain valid. It is estimated that Timor-Leste will receive as

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much as US$ 13 billion over the life of the Greater Sunrise project under the 2006 treaty. 10 Although the treaties of 2003 and 2006, which establish the parameters for shared exploitation of the Greater Sunrise field by Timor-Leste and Australia, have been signed and ratified by both nations, ground is not yet broken on the project as of early 2012 due to a number of impediments that have meanwhile emerged. In 2005, Australia’s Woodside Petroleum, the leader of the Greater Sunrise consortium, which includes global oil giants such as ConocoPhillips and Royal Dutch Shell, announced that it would cease committing funds further to the project and withdraw all employees working on it, after having presumably invested more than US$ 200 million. The announcement came after the company received a report that the Timorese government was withholding the International Unitisation Agreement for Greater Sunrise from the Timorese parliament for ratification. The Greater Sunrise project hit another obstacle in 2011, when this time Timor-Leste threatened to pull out by rescinding all treaties that they signed and ratified concerning this undertaking. It all began when Woodside Petroleum readied itself to move the initial phase of development along, which would involve building a floating plant for processing gas to be extracted from the underwater field. Timor-Leste then came forward with an alternative proposal to pipe gas over a distance of 200 kilometers to the southern coast of the country for processing on its own soil, which would bring opportunity for additional employment and income to its economy. Woodside Petroleum vehemently opposed this proposal, citing the massive expenses and technical complexities required for laying pipes over the “seismically active” three-kilometer-deep Timor Trough. The then Timorese chief petroleum negotiator, Francisco da Costa Monteiro, countered the opposition by the Australian oil company by declaring that Timor-Leste would seriously consider nullifying both the International Unitisation Agreement for Greater Sunrise and the Treaty on Certain Maritime Arrangements in the Timor Sea. Da Costa Monteiro later recapitulated, explaining that his earlier statement was in response to Woodside Petroleum’s reluctance to prepare and deliver project documents as requested by the Timorese authorities, while he still insisted that piping the gas to Timorese soil would foster the best outcome for the country. In 2008, as the Greater Sunrise project faltered under threats of suspension from both sides of the Timor Sea, another oil field Kitan was discovered in the Joint Petroleum Development Area. The Kitan field is estimated to contain 34.6 million barrels of extractable oil and, according to projections, would bring Timor-Leste another US$ 700 million to 1.2 billion in revenue, depending on prevailing oil prices, over a life of about five years beginning in 2011. 11

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THE PETROLEUM FUND AND ITS IMPACT ON THE TIMORESE ECONOMY Though not extraordinarily large from a global perspective, Timor-Leste’s petroleum resources are substantial compared to its relatively small economy and population. On the basis of the absolute level of proven oil reserves and output, Timor-Leste appears far down on the list of global petro-powers; at 554 million barrels, the nation was ranked forty-eighth in the world in 2011 in terms of proven oil reserves, while at eighty-eight thousand barrels, it was ranked fifty-first in 2010 in terms of daily oil production. Both figures represented about one tenth the corresponding statistics of Oman that came in 25th in these two measures. By contrast, when these numbers are presented on a per capita basis, Timor-Leste’s global rankings in 2009 rose to twentieth in terms of proven oil reserves and eighteenth in terms of daily oil production in 2009. 12 These statistics indicate lacking value in the country’s hydrocarbon resources from a global perspective, yet great sway in the local economy. Timor-Leste’s petroleum revenues well exceeded US$ 2 billion in 2010 and reached two and a half times the size of the country’s non-oil Gross Domestic Product (GDP) for that year. When the total gross value of oil and gas output is compared to its Gross National Income, Timor-Leste ranked well above any of the sixty petroleum-producing countries reported in British Petroleum’s Statistical Review for the year 2007, in which the value of its oil and gas production was more than twice as large as its Gross National Income. 13 Needless to say, petroleum revenues have been the most dominant driving force behind the recent double-digit growth in the Timorese economy, which only a few other countries have been able to emulate, particularly in the face of the unfavorable climate that has prevailed in the world economy of late. Timor-Leste’s Gross National Income at current prices, inclusive of the petroleum sector, grew at an average annual rate of 36.5 percent from 2006 to 2010. Yet, the annual rates of change in the country’s Gross National Income during the period ranged from an expansion of 69.4 percent in 2008 to a contraction of 21.3 percent in 2009, reflecting in part the high volatility in global oil markets; the weekly spot price of crude oil, after having shot above US$ 137 per barrel in mid-2008, registered a spectacular fall to below US$ 35 per barrel in 2009, as the global recession set in and demand for oil slumped. On the other hand, Timor-Leste’s non-oil GDP expanded at a much slower pace, as it was not impacted by changes in oil prices as directly as its Gross National Income, though it fluctuated more widely than the rates of inflation. The country’s non-oil GDP at current prices grew at an average annual rate of 14.4 percent from 2006 to 2010. Even if the effect of inflation is factored out, the percentage increases in Timor-Leste’s non-oil GDP from

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this period remained within the double-digit range, except for 2006 when it registered a fall of 3.2 percent in the wake of the nationwide crisis. 14 Petroleum revenues have likewise boosted Timor-Leste’s per capita income. According to the United Nations, Timor-Leste’s Gross National Income per capita at current prices in 2005 measured at US$ 837, which increased by more than three times to US$ 2,817 by 2010. 15 As the virtual lifeblood of Timor-Leste’s economy, petroleum revenues are circulated throughout with the aid of the Petroleum Fund. 16 The overall goal of Timor-Leste’s Petroleum Fund is to stabilize fiscal revenues from oil and gas exploitation not only for current population of the country, but also for future generations. Equally important, the fund is intended for fostering economic growth and human development in a sustainable manner by ensuring flexible, long-term, and predictable funding for related support programs and services. The Petroleum Fund is structured after the Norwegian Oil Fund model and aims specifically (1) to limit the risk of Dutch Disease, 17 and prevent a contraction in the non-oil tradable sector; (2) to shelter the state budget from unstable commodity prices and associated swings in government spending; and (3) to preempt possible rent-seeking activities, which can lead to economic and social divisions and weakened institutions. Established by the Petroleum Fund Law of 2005, 18 the fund is in essence an account within the Central Bank of Timor-Leste: petroleum receipts are credited to the bank’s account, while debits are made to finance the state budget. The fund operates according to the following key principles: Management. The Petroleum Fund is to be managed in accordance with the principles of good governance not only for the benefit of the Timorese today but also for the welfare of their future generations. The Timorese government, via the Ministry of Finance, is entrusted with overall managerial direction for the fund, while the Central Bank of Timor-Leste is responsible for its operational management. Income. Receipts from all petroleum operations are deposited into the Petroleum Fund, which also retains investment incomes from the assets held in the fund. Investment. All assets held in the Petroleum Fund are placed in established global financial markets, 90 percent of which was to be invested in US dollar-denominated fixed income instruments, in accordance with the original Petroleum Fund Law. Since 2009, the investment universe of the Petroleum Fund has been gradually enlarged to include non-US-dollar assets as well as global equities. A substantial revision in the Petroleum Fund Law was made in 2011 to incorporate the changes that have been already taking place in its investment universe. 19 Savings policy. Withdrawals from the Petroleum Fund are guided by the concept of sustainable income, which is the amount that the country can spend without depleting the fund’s long-term balance. Each year, the estimat-

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ed sustainable income 20 from the Petroleum Fund is calculated as 3 percent of the sum of the fund balance and the present value of expected future petroleum receipts. To withdraw more than the estimated sustainable income requires the Timorese government to obtain approval from the parliament by submitting a justification as to why it is in the country’s long-term interests, along with a report certified by an independent auditor detailing its possible impact on future estimated sustainable incomes. Reporting. The Central Bank of Timor-Leste publishes quarterly reports on the Petroleum Fund’s performance and activities. In addition, the Timorese government prepares annual reports for review and approval by the parliament, which carry audited statements on the financial status of the Petroleum Fund and its investment portfolio. Oversight. An investment advisory board advises the Timorese government on the overall investment strategy and management of the Petroleum Fund. In addition, an independent consultative council advises the parliament on the performance and operation of the fund as well as on the effective use of withdrawals in the state budget. Transparency. Management of the Petroleum Fund is to be carried out with the utmost transparency. Quarterly and annual reports are made public, as is the advice of the consultative council to the parliament. Besides, minutes from meetings of the investment advisory board of the fund have routinely been posted on the website of the Central Bank of Timor-Leste. Timor-Leste’s Petroleum Fund has already received several accolades for its accountable and transparent management. In 2010, the Washington D.C.–based Peter G. Peterson Institute for International Economics ranked the fund eighth in its transparency index for sovereign funds, just behind the pension funds managed by the governments of Norway, Canada, and France, and two US states. The Petroleum Fund was also ranked among the top twenty funds for the first quarter of 2009 in the Linaburg-Maduell Index for sovereign funds, a transparency indicator developed by economists Carl Linaburg and Michael Maduell at the Las Vegas–based Sovereign Wealth Fund Institute. 21 Furthermore, despite being challenged by numerous institutional and human resource constraints typical of a post-conflict nation, the Timorese government has managed to devise and implement a comprehensive legal framework for production, taxation, and revenue management for petroleum industry that is considered to be exemplar of international best practices. As a result of this effort, Timor-Leste has earned a full compliance status with the Extractive Industries Transparency Initiative, 22 which has been accorded only to eleven countries in the world as of 2011. The Petroleum Fund has expanded in size and scope since its inception in 2005. During its initial year and a quarter of operation, receipts in the fund averaged US$ 50 million per month. As profit oil, or tax revenues assessed after a project recovers capital expenses and becomes profitable, started to

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flow, receipts to the fund doubled to a monthly average of some US$ 100 million in the course of 2007, which have further climbed to an average over US$ 150 million a month, or over US$ 2 billion a year, since 2008. Altogether, from the outset to year-end 2010, total receipts to the Petroleum Fund amounted to US$ 8,096 million, and investments made from the fund returned another US$ 628 million. After subtracting withdrawals for the annual state budgets and management expenses, the fund’s total balance at the end of this period reached US$ 6,904 million. The balance in the Petroleum Fund continued to surge beyond US$ 9 billion by year-end 2011 and reached the 10 billion mark by March 2012, as indicated in Figure 3.1. Although larger budgetary withdrawals from the Petroleum Fund are planned in the upcoming years, the balance is expected to rise steadily in the medium term. 23 BUILDING A FUTURE WITH THE PETROLEUM FUND In 2010, at the invitation of Timorese Minister of Finance Emilia Pires, leading international development expert Jeffrey Sachs visited Timor-Leste to offer his advice on its prospects for economic growth and poverty reduction in the near to long term. Sachs, who also serves as an advisor to the UN Secretary-General on the Millennium Development Goals, called for prudent management of oil and gas wealth, explaining that it can make a most valuable contribution to the country by financing critical actions to kick-start the economy and human development. In a critical assessment of Timor-Leste’s handling of its petroleum revenues, a majority of which have been invested in global financial markets so far, Sachs observed, “The economic benefits of investing in your own economy are much higher than building a bank balance in the United States through investments in U.S. treasury bills.” Around the same time as Sachs’s visit, the Timorese government undertook an major shift in policy on the Petroleum Fund. According to the Petroleum Fund Law of 2005, the total annual government spending from the Petroleum Fund was limited to the estimated sustainable income, which is in principle the amount that the government may expend a year without depleting its long-term balance. Under the law, the Timorese government was nevertheless allowed to go over the limit of the estimated sustainable income when the parliament found that it was in the best interest of the nation and gives consent to the proposed overdrawing. In 2008, the Timorese government significantly expanded the scope of the Petroleum Fund in financing its economic growth and poverty reduction by making a withdrawal larger than the estimated sustainable income for the first time since its inception. The government initially requested from the parliament a total budgetary appropriation of US$ 347 million for the 2008 state budget, 85 percent or US$ 294 million of which was to come from a

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Figure 3.1 Timor-Leste’s Petroleum Fund. * Projections (except for the Petroleum Fund balance for 2011). +Balance at the end of the year. #Data on petroleum revenues are based on the mid-year to mid-year financial period. Sources: Central Bank of Timor-Leste (Formerly Banking and Payments Authority). (2005 to 2011). Petroleum Fund of Timor-Leste Quarterly Reports (Nos. 1 to 24). Dili; and Timor-Leste. Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili.

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withdrawal of the estimated sustainable income set aside for the year. After several months into implementation of the budget following the parliamentary approval, the government submitted a proposal for a mid-year rectification that would increase the total spending outlay to US$ 773 million, more than double the original appropriation. Accounting for the enormous increase in spending within a period of half a year were the US$ 240 million Economic Stabilization Fund, a new social assistance program for alleviating suffering of the Timorese public from escalating prices of mostly imported food, fuel, and construction materials; as well as the first installment for the construction of a heavy oil power plant and electrical grid system with a total capital outlay of US$ 390 million for the peroid through 2011, in an attempt to alleviate the chronic power shortage experienced across the nation. As part of its drastic effort to mobilize additional US$ 425 million in expected budgetary disbursements, the Timorese government adjusted the sustainable income for 2008 upward to US$ 396 million, 35 percent over and above the original estimate calculated several months earlier. 24 A spurt in government spending, followed by the over-the-limit withdrawals from the Petroleum Fund, has continued as a fiscal trend to date. For the 2009 state budget, the Timorese government initially proposed an expenditure outlay of US$ 681 million. Accompanying the steady uptrend in the government’s budgetary outlay were another upward adjustment to the estimated sustainable income, to US$ 408 million for 2009, and a substantially over-the-limit withdrawal from the Petroleum Fund amounting to US$ 589 million. In 2010, the government adopted a more systematic approach to updating the level of the estimated sustainable income by modifying its formula for calculation. Previously, the oil price used for determination of the estimated sustainable income had been the “low” case from the US Energy Information Administration’s Annual Energy Outlook 25 for a given year, which materially lies below market and other respected forecasters’ projected prices. To address its valid concern over use of the low case for the estimated sustainable income, the Timorese government explored alternatives that would be more reflective of reasonable expectations, yet still prudent. It ultimately decided to choose the average of the low and reference cases and incorporated it into the new formula, which has consistently produced higher levels of the estimated sustainable income since then. For 2011, for example, the estimated sustainable income according to the new formula was US$ 734 million, compared to the US$ 548 million had the previous formula alone been used. Furthermore, the Timorese government carried out a major alteration to the investment universe of the Petroleum Fund. The original mandate that predominantly favored the investment in US dollar–denominated fixed income instruments was rather simple and conservative, primarily because of Timor-Leste’s lack of experience in global financial markets, particularly in

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those for higher-yielding but riskier and more complex options. The Petroleum Fund Law of 2005 nevertheless provided for the possibility of revisiting the issue of qualifying investments after the fund’s first five years in existence. In 2009, following the spirit of this provision, Timor-Leste contracted the Bank for International Settlements, a Basel, Switzerland-based intergovernmental financial institution involved in the management of foreign reserves for various governments’ central banks, and entrusted it with the investment of 20 percent of assets held in the Petroleum Fund. In addition, 14 percent of the fund’s assets have been diversified to global equity holdings with the facilitation provided by two renowned global investment firms. In 2010, five years after the enactment of the Petroleum Fund Law, the Timorese government initiated action to formalize changes that had already been taking place in practice, as well as to introduce revisions that it hoped would strengthen the Petroleum Fund’s performance and reach. The government drafted an amendment to the Petroleum Fund Law of 2005 by that incorporated, among other terms: reinforcement of the governance framework by adopting the Santiago Principles of sovereign wealth funds, 26 particularly with regard to reporting requirements, monitoring mechanisms, and professional standards for fund management; and recapitulation of the objectives of the investment policy, concerning the greater diversification of portfolio in which a maximum of 50 percent of assets may be invested in equities and other measures. After extensive consultations amongst government ministries and departments as well as with civil society and the public, the Timorese government finalized the draft for the revised Petroleum Fund Law, which was later approved by the National Parliament in 2011. 27 Since fiscal year 2006–2007, the Timorese government’s capital investment as financed with state budget appropriations has risen tenfold in value, which is made possible only through increased withdrawals from the Petroleum Fund. Unfortunately, this has stretched beyond limits the investment management capacities of both the public and private sectors in Timor-Leste, threatening to diminish the performance of investment projects. In order to strengthen the cost and quality control of public investment, the Timorese government has established two multi-year investment accounts for infrastructural and human capital development: the Infrastructure Fund and the Human Capital Development Fund. Further, two specialized national agencies were formed to ensure efficient, accountable, and transparent management of these funds: National Development Agency for appraising largescale projects and monitoring their execution, and National Procurement Commission for addressing quality control and efficiency in the public procurement process. 28 It is hoped that the rates of return on Timor-Leste’s capital investments will rise over time to sufficiently offset the withdrawals from the Petroleum Fund, which are projected to be on steady increase for the short to medium

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term. To realize this outcome, Timor-Leste must, first of all, enhance the degree of complementarity between investment options and relevant policies and institutions. The investment return can be elevated, in a way, by catalyzing additional investment from the private sector at home and abroad. The Timorese government has already implemented a certain number of important measures to nurture its fledging business environment. A case in point is the 2008 tax law that provides incentives to investors in the form of lower profit taxes, rapid depreciations, and elimination of alternative minimum taxes and withholding taxes on interest. Still, the country faces many more bottlenecks in its investment climate, not least of which is poor infrastructure. Electricity supply, for instance, is uneven especially outside of the capital Dili, where the availability is typically restricted, if there is access at all, to six hours per day. Moreover, as nearly all of Timor-Leste’s electricity is generated by imported diesel fuel, Timorese businesses and households pay one of the highest electricity prices in Asia. During his visit to Timor-Leste in 2010, development expert Jeffrey Sachs described the country as being on the verge of a major economic “takeoff.” He elaborated, “Between 2010 and 2020, Timor-Leste will grow faster than China. Within a decade, Timor-Leste can end extreme poverty whereby every child can be assured to complete secondary school and citizens have access to proper health care, nutrition, and safe drinking water, among others. The key pillars of ending extreme poverty are investments in human capital, infrastructure, leading sectors of the economy like oil, gas, and agriculture, as well as in the service industries, including higher education, healthcare, tourism, and trade.” In the following chapters, we present an overview of how Timor-Leste’s oil and gas wealth is being invested in core sectors of its economy and key aspects of the life of its people, as the country prepares itself for a leap forward into the next frontier of development. NOTES 1. Timor-Leste’s history of mining and hydrocarbon exploration as described in this chapter is taken, unless otherwise noted, from three reports: Australian Department of Foreign Affairs and Trade. (n.d.). Australia-East Timor Maritime Arrangements. Available at http:// www.dfat.gov.au/geo/east_timor/fs_maritime_arrangements.htm; King, R. (2007). Certain Maritime Arrangements in the Timor Sea, the Timor Sea Treaty and the Timor Gap 1972–2007 (report submitted to the Australian Parliament’s Joint Standing Committee on Treaties Inquiry). Available at http://www.aph.gov.au/house/committee/jsct/6_7_february2007/subs/sub6.pdf; and United Nations. Economic and Social Commission for Asia and the Pacific. (2003). Geology and Mineral Resources of Timor-Leste (Atlas of Mineral Resources of the ESCAP Region, Vol. 17). New York. 2. Timor-Leste’s inclusion in the Least Developed Countries and Small Island Developing States is discussed in detail in chapter 8. 3. National wealth is defined as the sum of a nation’s non-financial assets and net claims on the rest of the world. The value of natural resources in the national wealth is determined by

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measuring the present value of resource rents over an assumed lifetime and calculating the net present value of such rents using a discounted rate. 4. The oldest extractive activity in Timor-Leste in the modern period was probably copper mining. The earliest reference to copper mining on the Timorese island is found in the correspondence of the Dutch Empire’s Ministry of Colonial Affairs from the period 1849 to 1850, which makes reference to “. . . copper mines on Timor and the gold mines on Celebes.” In the 1930s, the Allied Mining Corporation, a Belgian company working for Hong Kong interests, carried out a detailed geological reconnaissance survey of several areas along the northern coast of eastern Timor, particularly in Manatuto, Baucau, and Viqueque districts. The corporation reported findings of precious metals such as gold and silver in these areas, in addition to copper, manganese, and chromite, but considered the occurrences uneconomic and discouraged further development. Early discoveries by Australian prospectors of gold in Manufahi district have been lost in the canons of history. While mining companies were keenly interested to work in Indonesia from the 1960s to 1990s, eastern Timor was generally ignored, although the 1980s saw some interest from international companies in exploring for copper. A few large companies received mining concessions in Timor-Leste. For instance, Conzinc Riotinto of Australia/Rio Tinto, a global mining giant, received a concession in Oecussi district in the early 1980s, while Indonesian concern P. T. Dwi Tunggal Inti Sakta reported discoveries of gold deposits with its concession in Viqueque and Baucau districts. 5. An extensive discussion of the sea area between Timor-Leste and Australia, including maps and cross-sections of the geology and hydrocarbon prospects, is available online at the website of the US Geological Survey. See, for example: Bishop, M. (n.d.) Total Petroleum Systems of the Bonaparte Basin Area (Open File Report nr. OF 99–50P). Available at http// greenwood.cr.usgs.gov/energy/WorldEnergy/OF99–50P. The following passage from this report gives a synopsis of further offshore potential in the Timorese-Australian sea area: “. . . [t]he Bonaparte Gulf Basin Province contains three proven petroleum systems with numerous styles and ages of exploration targets and considerable under-explored potential. The eastern arm of the Mesozoic petroleum system contains one gas discovery, Evans Shoal-1 and several shows thought to be sourced from this portion of the Malita graben indicating the presence of mature source rocks in the eastern area of the province. Numerous exploration targets may be present within the Malita graben and on the faulted edges north and south. This eastern area also contains potential exploration targets involving Jurassic and Cretaceous sandstones onlapping basement rock along the northern edge of the Darwin shelf. These on-lapping stratigraphic and drape anticline type of prospects should be targets around the entire edge of the Darwin shelf. Some of these types of plays have been drilled on the western side of the Bonaparte Gulf, but most of the area of the Darwin shelf and the Moyle platform on the eastern side of the gulf adjacent to the mature Mesozoic system and the mature Paleozoic system remains unexplored. On the west side of the Joseph Bonaparte Gulf along the Berkeley platform and the Londonderry high, where drilling has also been sparse, similar on-lapping stratigraphic and paleotopographic drape style traps may occur. This play has been successful in the Browse Basin Province on the western edge of the Londonderry high with discoveries at Gwydion and Cornea. Fault traps on the margins of the Londonderry high, Laminaria high, Flamingo high, Sahul platform and Troubadour high, adjacent to mature source rocks in the synclines, have been successful exploration targets and could be the sites for additional discoveries. Lowstand, shallow-water and highstand, deep-water sandstones in the synclines offer numerous under-explored drilling targets. In the Vulcan graben, possible inversion structures similar to Jabiru, along with lowstand valley-fill clastics are potential targets. Similar lowstand stratigraphic and paleotopographic traps might be encountered in the Paleozoic systems along both the east and west sides of the gulf. High-quality mature source rocks are predicted adjacent to the Moyle platform on the east side of the Petrel assessment unit and shows occur to the west on the Plover-Lacrosse terrace and Londonderry high.” 6. Article 6.1 of the Convention on the Continental Shelf, adopted at the UN Conference on the Law of the Sea in 1958, stated, regarding delimitation of international boundaries: “Where the same continental shelf is adjacent to the territories of two or more States whose coasts are opposite each other, the boundary of the continental shelf appertaining to such States shall be determined by agreement between them. In absence of agreement, and unless another

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boundary line is justified by special circumstances, the boundary line is the median line, every point of which is equidistant from the nearest points of the baselines from which the breadth of the territorial sea of each state is measured.” For details, see: United Nations. (1964). Convention on the Continental Shelf, Done at Geneva, on 29 April 1958 (UN Treaty Series, Vol. 499, No. 7302). New York. 7. The border along the Joint Petroleum Development Area has been a sensitive issue, as several major gas and oil reserves lie just outside the area within Australia’s exclusive zones, including the Laminaria-Corallina field, which have produced about 200 million barrels of oil since the start of operations in 1999. In fact, Australia defined the southwestern maritime limit for Timor-Leste in the context of the multilateral peacekeeping operation that the country led to contain disturbance in the wake of the Restoration of Independence; the borderline was drawn perpendicular to the general direction of the coastline starting from the mouth of the Massin River that separates Indonesian West Timor and Timor-Leste. A similar projection of TimorLeste’s maritime claims, if adopted as part of the settlement on the Timor Gap maritime boundaries, would have brought the Laminaria-Corallina field, which is located just outside the western boundary of the Joint Petroleum Development Area, within Timorese waters. The delineation on the eastern side of the Timor Gap seems to have been made from the eastern tip of the Timor-Leste mainland, not the small outlying island of Jaco. Had the eastern boundary been rectified to account for Jaco, the adjustment would have shifted more of the Greater Sunrise gas field into the Joint Petroleum Development Area, out of Australia’s exclusive zone. Under the Timor Sea Treaty, only about 20 percent of the Greater Sunrise gas field falls within the Joint Petroleum Development Area. 8. At year-end 2009, Timor-Leste received a total of US$ 5.98 billion in petroleum revenues to its Petroleum Fund, the overwhelming majority of which flowed from operations at the Bayu-Undan field; only US$ 20.3 million of these revenues were received from operations at the Elang-Kakatua field. The remaining revenue projected for the estimated lifetime of the Bayu-Undan project through 2022 is estimated at US$ 11.4 billion, according to Timor-Leste’s 2010 state budget document. For details, see: UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili. 9. In addition to the Bayu-Undan and Greater Sunrise fields, there are smaller oil and gas fields such as Buffalo and Laminaria-Corallina just outside the Joint Petroleum Development Area, which are much closer in distance to Timor-Leste than the Bayu-Undan field. TimorLeste originally fought for a share of the revenues from these fields, but withdrew in the process of negotiating the Treaty on Certain Maritime Arrangements in the Timor Sea of 2006. According to one estimate, Timor-Leste gave up more than US$ 2.5 billion at that time to Australia in withdrawing the claim. 10. UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili. 11. Under Timor-Leste’s Petroleum Fund Law of 2005, the state has the opportunity to participate in exploration and exploitation of oil and gas resources in the Joint Petroleum Development Area as well as in its exclusive zones. In 2007, the Timorese government began drafting a decree-law to establish a national oil company. Rounds of redrafting of the decreelaw followed, while a series of workshops and consultations were held on this matter, after which it was finally approved by the Council of Ministers in 2011. The decree law will apply to neither for the Bayu-Undan and Greater Sunrise fields, for which production-sharing contracts predated enactment of the Petroleum Fund Law, nor to the Kitan field, which was declared commercial in 2008 when there was no national oil company in development. The Timorese government aims to equip the national oil company so that it can engage in new exploration exercises and production operations, whether in the Joint Petroleum Development Area or in Timor-Leste’s exclusive zone. Furthermore, the government plans to develop capacities in the company required to undertake midstream and downstream operations in the Tasi Mane complex of which construction began along the country’s southern coast at the launch of the Strategic Development Plan, The English translation of the decree-law of 2011 on the establishment of the national oil company Timor Gas & Oil, E.P. is available online at http:// www.unmit.org/legal/RDTL-Law/RDTL-Decree-Laws/Decree-Law%2031-2011.pdf

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12. Statistics on proven oil reserves and oil production as provided in this and preceding paragraphs are computed using data from various annual editions of: US Central Intelligence Agency. World Factbook, available online at https://www.cia.gov/library/publications/theworld-factbook. 13. Computed using data from: British Petroleum. (2008). BP Statistical Review of World Energy June 2008. London; and World Bank. (n.d.). The World Bank Open Data. Available at http://data.worldbank.org/. 14. Statistics on Timor-Leste’s national product as provided in this paragraph are computed using data from: International Monetary Fund. (2011). Public Information Notice on the Executive Board Discussion. In Democratic Republic of Timor-Leste (IMF Country Report No. 11/ 65). Washington, D.C. 15. Statistics on Timor-Leste’s per capita income as provided in this paragraph are quoted from: United Nations. (n.d.). World Statistics Pocketbook, available online at http://data.un.org/ CountryProfile.aspx?crName=Timor-Leste. 16. Information on the Timor-Leste’s Petroleum Fund as provided in this section is drawn from two reports: International Development Association and International Monetary Fund. (2011). Joint World Bank/IMF 2010 Debt Sustainability Analysis. In International Monetary Fund. Democratic Republic of Timor-Leste (IMF Country Report No. 11/65). Washington, D.C.; and International Monetary Fund. (2009). Democratic Republic of Timor-Leste—Selected Issues (IMF Country Report No. 09/220). Washington, D.C. 17. Dutch disease is the negative impact on an economy of sharply rising inflows of foreign currency, originating from the discovery of large mineral and hydrocarbon reserves. Currency inflows lead to currency appreciation, which renders the country’s other products less price competitive in the export market. It also results in higher levels of cheap imports and can cause de-industrialization, as the country’s industries, apart from extractive industries, may be moved to cheaper locations. 18. The English translation of the Petroleum Fund Law of 2005, originally drafted in Portuguese, is available online at http://www.bancocentral.tl/PF/laws.asp. 19. Issues concerning modifications in the investment universe of the Petroleum Fund beyond the original mandate are discussed in detail later in this chapter as well as in chapter 9. 20. The estimated sustainable income is calculated every year based on a set of assumptions on petroleum output and prices. The Petroleum Fund Law requires that prudent assumptions be used, for instance, that 70 percent of Timor-Leste’s oil wealth remains under the sea and that there is no diversification across multiple projects. In addition, only projects with approved development plans and firm investment commitments such as the Bayu-Undan and Kitan fields have been figured into the calculation of the estimated sustainable income. The Greater Sunrise field has been declared a commercial discovery, but it does not have an approved development plan and therefore, according to current policy, should not be included in the calculation of the estimated sustainable income. 21. Information on the rankings of Timor-Leste’s Petroleum Fund according to various grading schemes as provided in this paragraph is drawn from: UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili. 22. The Extractive Industries Transparency Initiative sets a global standard for transparency and accountability in oil, gas, and mining operations and aims to strengthen governance in the extractives sector. The initiative is organized by an international coalition, based in Oslo, of governments, companies, civil society groups, investors, and international organizations such as the United Nations, the European Union, and the G-20. It calls for improved governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas, and mining. Implementation of the Extractive Industries Transparency Initiative must be consistent with six criteria: (1) that data on all material oil, gas, and mining payments by companies to governments (“payments”) and all material revenues received by governments from oil, gas, and mining companies (“revenues”) is regularly published for a wide audience in a publicly accessible, comprehensive, and comprehensible manner; (2) that payments and revenues are the subject of a credible and independent audit that is in full compliance of international auditing standards; (3) that payments and revenues are reconciled by a credible and independent administrator in full compliance of international auditing

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standards and published later with the administrator’s opinion of said reconciliation; (4) that criteria (1) through (3) are applied to all companies, including state-owned enterprises; (5) that civil society is actively engaged as a participant in planning, monitoring, and evaluating this process and contributes toward public debate; and (6) that a public, financially sustainable work plan for all stakeholders is developed by the host government, which should include measurable targets, a timetable for implementation, and an assessment of potential capacity constraints. For details, see: Extractive Industries Transparency Initiative (EITI). (n.d.). What is the EITI? Available at http://eiti.org/eiti. 23. Current and projected figures on the year-end balance of the Petroleum Fund are quoted from two sources: Central Bank of Timor-Leste (formerly Banking and Payments Authority). (2005 to 2012). Petroleum Fund of Timor-Leste Quarterly Reports (Nos. 1 to 27). Dili; and Timor-Leste. Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili. 24. After weeks of vigorous debate, the National Parliament made further changes to the government request, increasing the total outlay further to US $788.3 million, 127 percent larger than the original appropriations, and approved the rectification in July 2008. The sequence of events surrounding the 2008 state budget and its mid-year rectification is detailed in: La’o Hamutuk. (2008, November). RDTL Doubles 2008 Budget in Mid-year. Available at http:// www.laohamutuk.org/econ/MYBU08/RDTLMYBU08.htm. 25. The US Energy Information Administration’s Annual Energy Outlook is available online at http://www.eia.gov/forecasts/aeo/. 26. The Santiago Principles, also known as the Generally Accepted Principles and Practices for Sovereign Wealth Funds (GAPP), is a code of ethical and responsible conduct for investment practices for sovereign wealth fund organizations, as well as a voluntary framework for transparent and responsive governance and accountable management that they are encouraged to adopt in their operations. For details, see: International Working Group of Sovereign Wealth Funds. (n.d.). Generally Accepted Principles and Practices (GAPP)—Santiago Principles. Available at http://www.iwg-swf.org/pubs/gapplist.htm. 27. For an unofficial English translation of the amendment to the Petroleum Fund Law of 2005 as approved by the National Parliament in 2011, see: Timor-Leste. (2011). First amendment to Law No. 9/2005 of 3 August, the Petroleum Fund Law. Available at http:// www.laohamutuk.org/Oil/PetFund/revision/PropostaLeiRevisionFundoPetroleu3Jun2011En.pdf. 28. The Timorese government’s effort to strengthen the country’s economic governance and reinforce its capacity for planning, implementing, and monitoring long-range capital development is discussed in detail in chapter 9.

Chapter Four

Promoting Agriculture and Food Security

Providing livelihoods for an estimated 80 percent of the population, agriculture is by far the most important part of Timor-Leste’s economy and the life of the Timorese. However, the contribution of country’s agriculture to its national economy is limited one sixth of the non-oil Gross Domestic Product (GDP) owing to the low productivity endemic to this sector. Smallholder farming performed with outdated inputs and technologies and marginal crop diversification, as well as under-employment of agricultural workforce during lean seasons, are some of the reasons behind Timor-Leste’s low agricultural productivity and resulting poverty that affects two fifths of people in the country. Because so many Timorese are engaged in farming and depend on it for their livelihood, increasing and diversifying Timor-Leste’s agricultural production is imperative for raising the income level of a large majority of its population, lifting the overwhelming number of the poor out of poverty, and moving the country forward economically. Expansion and diversification of the food production is critical as well for alleviating the country’s acute problem of food insecurity and under-nutrition that poses an imminent threat to the survival and welfare of more than two fifths of Timorese, among which are a large number of children. Although the growth in Timor-Leste’s agriculture sector has been phenomenal in recent years, it has not yet kept pace with its population growth, which is the highest in the Southeast Asia region at an annual rate of 2.4 percent as of 2010. So far, the substantial gap in demand for food over supply has been covered with imports, which are financed with fiscal resources and distributed to the population at subsidized prices. Bolstering the food production in terms of both quantity and variety is therefore the paramount challenge that 63

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the country faces in advancing its overarching developmental goal of eliminating hunger. CHALLENGES TO TIMOR-LESTE’S AGRICULTURE Timor-Leste’s principal agricultural commodities are food crops including corn, rice, peanuts, cassava, and sweet potato, which are supplemented with cash crops such as candlenuts, coconuts, coffee, cinnamon, and cloves, besides livestock. Agricultural activity in Timor-Leste is dominated by subsistence farming in which nearly all of the crops or livestock raised are used to maintain the farmer and the farmer’s family, leaving little, if any, surplus for sale or trade. About one third of households in Timor-Leste’s agriculture sector rely on subsistence farming exclusively. Crop yields in Timor-Leste are among the lowest in the Southeast Asia region. For instance, the yield per hectare for paddy rice in Timor-Leste is 1.5 metric tons, while neighboring Indonesia can attain a yield of 4.5 metric tons per hectare for the same crop. 1 Timor-Leste’s inherent geological conditions are often cited as reasons for its low crop yields. For one thing, Karst rocks with a layer of plant and forest cover on top that comprise much of Timor-Leste’s mountainous interior have very low water-retaining capacity, while 44 percent of its terrain has a slope of 40 percent or greater, which renders arduous the task of significantly raising crop yields in the country. Moreover, Timor-Leste’s agriculture has been challenged by the increasing occurance weather extremes as a possible consequence of climate change. Due to a drastic rise in the incidence of flash floods in recent years, which are likely not only to have been triggered by more frequent torrential rainfalls, but also to have been precipitated by the ongoing deforestation in upland areas, topsoil and plant cover in the country’s planting acres, which are critical to agricultural productivity, are now more often exposed to runoffs and erosions. There are likewise historical factors in Timor-Leste that stand in the way of its efforts to foster growth in agricultural productivity. During the final century of Portuguese colonization, and to a greater extent during the quarter century of Indonesian occupation, hostilities and strategic relocations saw a large number of Timorese displaced from their ancestral lands, for which they had an intimate knowledge of cultivation. Again, following the disturbance in the aftermath of the Popular Consultation of 1999, an estimated 83 percent of the population was displaced, and a majority of farmland was abandoned, with the records of ownership either lost or destroyed. The crisis in 2006 led to the further displacement or re-displacement of an additional 10 percent of the population. 2

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Repeated displacements and relocations have generated widespread confusion over land and property ownership across Timor-Leste. Legislation on land and property rights is still pending as of 2012, although Timor-Leste’s Ministry of Justice has already implemented a land registration project under which more than 50,000 land registration certificates have been distributed by 2011. In Timor-Leste as elsewhere, farmers are often hesitant to use disputed plots because they do not want to invest time and labor that may go to waste. As a result, some potential agricultural areas are not fully utilized; on other lands without clear ownership, degradation may have occurred due to unsustainable use. Timor-Leste also faces a major institutional challenge well in severely compromised capacities to train, support, and technologically elevate farmers, as these capacities have been lost or destroyed over the course of a conflict-laden history. There is an urgent need for the Timorese government to enhance the quality and skills of personnel delivering agricultural extension services, as well as to strengthen institutions for ensuring effectiveness and accountability in implementing agricultural programs. This host of constraints on Timor-Leste’s agriculture has impacted negatively on its food production and failed to alleviate the food insecurity and under-nutrition that have plagued much of the country since before the Restoration of Independence. In 2007, a joint assessment of the World Food Programme and the Food and Agriculture Organization indicated that about 20 percent of the Timorese population was food insecure, while an additional 23 percent was at high risk of becoming food insecure. The precarious food security condition has had lasting adverse effects on the health and nutritional status especially of children in Timor-Leste. According to a demographic and health survey released by the Timorese government in 2010, 45 percent of children under the age of five were underweight, while 58 percent were too short for their age, a possible result of chronic acute under-nutrition. To produce a sufficient amount of food for the nation is a daunting challenge for Timor-Leste; even to meet half of its demand for food has not been an easy task. The country’s current rice yields fall far short of the pace of increase in demand arising from its fast population growth. With a per capita consumption estimated at 90 kilograms annually, the Timorese required about 78,000 tons of rice in 2008, while its domestic production yielded about 27,000 tons. The 50,000-ton deficit in the availability of rice was met with imports, which would have cost the country over US$ 58 million in 2008 dollars. 3 This shortage in food supply has been further exacerbated, particularly for the poor, not only by fluctuations in global food prices due to its high import content, but also by a series of unfavorable domestic events. Following the 2006 crisis, for example, the price of a 38-kilogram bag of rice rose steeply from US$ 12 to US$ 30, as traders in the capital Dili stopped importing over concerns of continued violence. Such drastic price increases of the country’s premier staple food would have posed another potential

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threat of unrest for the Timorese authorities, as they were struggling to maintain order and security in the aftermath of the crisis. The government acted quickly on the potential food crisis by importing 11,000 metric tons of rice as a matter of urgency and distributing it to the public at a heavily subsidized price. 4 Another major bottleneck to enhancing food security in Timor-Leste is a widespread shortage of modern storage facilities for harvested crops. Of the approximately 100,000 metric tons of corn that Timorese farmers produce every year, about 30 percent is reported lost in storage, according to an estimate by the Food and Agriculture Organization. Effects of the shortage in storage facilities are felt most acutely in rural areas, where a majority of Timorese live and yet where market access is poor. Rural households suffer from food shortages, particularly during farming’s lean season, which runs from October or November through February in many parts of the country. On the other hand the food-processing capacity is almost non-existent in the country, which could have contributed to extending the period of consumability for food crops and strengthening food security across the nation. Production of cash crops does not directly affect Timor-Leste’s food security situation, but it does have an indirect impact by influencing the income and purchasing power of farmers and, by way of farmers’ sheer numbers in the Timorese population, holding considerable sway over the national economy. For example, according to the Asian Development Bank, approximately 28 percent of Timorese households earn some form of income from coffee, the country’s premier cash crop, through growing, processing, or being otherwise involved in its distribution process. Cash crops also hold the key to the diversification of exports for Timor-Leste, which is currently dominated by fossil fuel resources. Unlike fossil fuels that are non-renewable and bound for exhaustion by extraction, cash crops can ensure a stable stream of revenues over the long term. Set in a region of tropical weather and bountiful rainfall, the country enjoys promising opportunities for raising cash crop production. Moreover, there is a clear comparative advantage in international markets for Timorese cash crops such as coffee, vanilla, and groundnuts, as they are grown organically and often of excellent quality. Coffee is the country’s most important non-oil export item, which collected in revenue close to US$ 16 million in 2010, or 38 percent of the country’s total non-oil exports for the year. Yet, despite the considerable potential, many Timorese agricultural commodities are not competitive in international markets, as they are turned out by the informal sector of the economy where low productivity, and inconsistency in the output level and quality are the hallmarks of its operations. Moreover, the in-country capacity for processing commodities into final products according to global standards is still very limited. The country’s poor transport links to local and regional markets also affect the farmers’

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chances to sell excess crops while in a good condition for quick cash revenue, diminishing their earning capacities. In a 2001 World Bank survey in which multiple answers were allowed, 82 percent of coffee farmers reported a paucity of buyers for their produce, while 49 percent complained about the unavailability of transportation services to nearby markets and 15 percent about poor road conditions leading to the markets. The situation remains largely unchanged since then. During the past several years, Timor-Leste has experienced the longest period of peace and stability in its recent history. The economy has achieved an average annual growth into the double digits in real terms since 2007, even when excluding the petroleum sector. However, Timor-Leste’s agriculture sector did not experience such singular progress, but has rather suffered wide fluctuations in performance. For example, while the government expanded the free distribution of improved varieties of seeds and tractors in 2008 and 2009 and introduced extension services beginning in 2009, agricultural output grew by 13 percent over the two years, then barely rose in 2010. Fluctuations in output have been also observed for other commodities: rice production was estimated to have declined by 6 percent in 2010, while the production of corn reportedly registered an increase of 11 percent in the same year. Coffee is Timor-Leste’s most important cash crop and comprises a predominant share of its non-oil export revenues. However, growth in coffee exports has been uneven in recent years, reflecting volatilities in its production levels. Annual coffee exports ranged between seven and eight million kilograms for the period 2004 to 2007, then progressively expanded to more than 25 million kilograms by 2010, but with a marked fall to below 10 million kilograms during the very lean year of 2009. 5 WHAT HAS BEEN ACHIEVED Bolstering agricultural production is one of the nation’s most critical development challenges, not only because more than four out of ten Timorese face actual or potential threat to food security, but also because an overwhelming majority of them rely on farming for their livelihood. This can be achieved, in a way, by raising crop productivity. Considering the context and setting particular to Timor-Leste, measures for productivity improvement of agricultural crops may include the adoption of advanced input technologies and improved cultivation practices, as well as the investment in agricultural infrastructure. As rice being the most widely consumed staple food in Timor-Leste, particularly in urban areas, an expansion of paddy production forms an especially important objective for the country’s agricultural policy. The Timorese government has made an attempt to increase rice output by raising its yields

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substantially through the introduction of new, pest-resistant varieties, including Nakroma, which, according to the government, is on average 40 percent superior to local varieties. 6 It has also promoted new cultivation practices such as Integrated Crop Management, which focuses on modern interventions including tractor ploughing and the use of chemical fertilizers and pesticides; and the System of Rice Intensification, which is more flexible and less input-demanding than the former in terms of the use of seeds and soil nutrients, pest control and harvesting procedures, and land and water management. Efforts on all of these fronts have led to a dramatic increase in rice yields; the combined use of high-yielding varieties such as Nakroma and Integrated Crop Management achieved a three-fold jump in yields, while the use of high-yielding varieties and the System of Rice Intensification led to a 50 percent increase. High-yielding varieties have been introduced to corn cultivation as well, another staple food for Timor-Leste, which is grown in 60 percent of Timorese households and preferred especially in rural areas. The country’s average yield for corn measures just over 1.1 metric tons per hectare, but, according to the government sources, the Seeds of Life improved corn varieties can achieve yields of 2.4 to 2.6 metric tons per hectare without the use of any other superior inputs or cultivation practices. Nevertheless, high-yielding varieties can be promoted only to farmers who also have access to airtight storage facilities for protecting the harvest from pest attacks, to which these varieties are more vulnerable than traditional ones. 7 Thus, the introduction of high-yielding varieties requires the careful planning and comprehensive support for farmers ranging from training in the use of improved inputs to assistance in storage and marketing of increased outputs. As part of its intervention to increase yields of staple foods, the Timorese government has provided farmers’ cooperatives and select individual farmers primarily of the rice-producing regions free of charge with agricultural machinery such as tractors, harvesters, and mills. From 2007 to 2009, for example, the number of hand tractors in operation on Timorese farms increased from 100 to 2,591, as did that of medium and large tractors from 13 to 315. During the same period, a total of 133 now rice milling units were installed in various rice-growing areas. 8 Still, there is a need for accelerating the introduction of new machinery to Timorese farmers. Particularly for milling operations, not only are more units needed to be installed urgently to keep pace with the expected growth in rice output, but they are also required to be of a higher technology standard to reduce spoilage by grain breakage. Grain breakage at milling is not uncommon in Timor-Leste due to variable grain size and hardness of the harvest on Timorese farms. The combined use of both superior milling units and varieties of seeds with better grain qualities could increase the milling recovery rate from 50 percent, where it current stands, to 65 percent. Along with the delivery of advanced equipment, the

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Timorese government must also follow through with support programs for farmers, which may include, among others, operation and mechanics training, maintenance service, and assistance in securing fuel and spare parts, in order to ensure its optimal utilization for higher productivity and output. Diversification of crops is another key strategy that Timor-Leste has employed to boost its agricultural production. For instance, soya was widely grown in Timor-Leste during the Indonesian era and exported to the country as a cooking ingredient for a popular national delicacy, tempeh. The Timorese government has planned to revive the production of soya, as it may prove a high-demand ingredient in fortified blended food for feeding programs that target schools and pregnant and lactating mothers. Diversification into cash crops such as coffee, candlenut, and coconut is also crucial as it will increase the purchasing power of farmers and allow them access to more food during lean seasons as well as to foods with greater nutritional value year-round. Although Timor-Leste produces less than 0.2 percent of the global coffee supply, its coffee beans have a competitive advantage for being organic and fetch high prices in international markets. The Timor Hybrid variety, a natural crossbreeding product of the Robusta and Arabica coffee plants, is considered one of the prime organic coffee beans on the market. The Integrated Pest Management techniques, consisting of mechanical, biological, and cultural controls and plant resistance support, are used to achieve and maintain organic certification. Still, just as in other areas of the agriculture sector in Timor-Leste, coffee farming in the country suffers from low yield and diminished income-earning capacity. Of 52,000 hectares of land area currently under coffee cultivation, 29,000 hectares are estimated to be no longer economical because of the aging coffee plants that need to be replaced. Replacement with new seedlings and pruning alone could increase the average yield of green beans by more than three or four fold and double the final output level of coffee beans. On the other hand, the purchasing arrangement currently available to coffee farmers entails certain restrictions on their earning potential; farmers are paid a flat price for either cherry (untreated fruit) or parchment (semi-processed) with no premium being paid for processing, which does not provide any incentive to produce quality beans. A simple grading system for beans could encourage farmers to undertake early-stage processing and enhance their earning per bean. To raise crop productivity with the use of superior inputs and technologies alone is not usually sufficient to achieve a quantum leap in agricultural production, unless it is accompanied by improvements in agricultural infrastructure to enhance the coverage and efficiency in management of critical inputs such as water and land resources. Timor-Leste’s Ministry of Agriculture and Fisheries has devoted a large portion of its allocation from the state budget to constructing new irrigation systems and rehabilitating those that

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were damaged or abandoned during the years of conflict. From 2002 to 2007, irrigated land in the country increased significantly, from about 34,700 hectares to 56,300 hectares, which was earmarked exclusively for rice cultivation. Furthermore, under the Strategic Development Plan 2011–2030, 20,000 hectares or 40 percent of the current level of irrigated area, are projected to be added by 2020, which will also be reserved for rice cultivation. Unfortunately, despite successive expansions in irrigated land area, so far inadequate availability of irrigated water as well as high running and maintenance costs for irrigation has impeded a substantial increase in rice yields, although the overall production level has been on the rise. 9 Under the Strategic Development Plan 2011–2030, the Timorese government hopes to build several large multi-purpose dams to meet water needs for its agriculture sector, along with industrial and urban requirements, while at the same time tapping their impoundment capacities for strengthening the flood control operation and hydro-power generation. The government has already prepared a hydro-power master plan based on feasibility studies conducted for twentythree sites in all thirteen districts, including six for constructing large-scale dams and seventeen others for erecting small- and micro-scale barrages. 10 Furthermore, under the Strategic Development Plan, the Timorese government will intensify its effort to promote sustainable land management and reforestation in order to enhance the effectiveness of its work on water resource management. Besides flash floods, incidence of which has increased dramatically in recent years, Timor-Leste has become increasingly susceptible to annother environmental disaster—forest and plant cover loss. Loss in forest and plant cover is estimated to be occurring at an alarming estimated rate of 1.2 percent annually, owing to the large-scale extraction of fuel wood, a primary energy source for rural areas. What is more, unsustainable shortfallow shifting cultivation featuring “slash and burn” operations and free grazing practices is still being carried out countrywide, particularly in sloping upland areas, which has accelerated vegetation loss and soil degradation. 11 Under the Strategic Development Plan 2011–2030, conservation zones will be selected based on criteria such as land suitability for cultivation (soils, slope, altitude), climate (rainfall, temperature), and current land use, and set aside from farming and grazing. This is to ensure that Timor-Leste’s agriculture is developed in a manner that preserves land productivity and minimizes adverse effects on its environment. Conversation zones would include the particularly vulnerable ecosystems around rivers, lakes, forests, coastlines, and water catchment areas. In addition to the pursuit of a substantial increase in agricultural output through the adoption of improved inputs and technologies and enhancements in agricultural infrastructure, the development of agro-allied sectors such as agro-storage and agro-processing industries as well as marketing and distribution services for farm produce and agricultural products is considered as an

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important strategy for Timor-Leste, as it cannot only maximize farm income per unit of output, but also boost food availability and alleviate the country’s widespread hunger and under-nutrition. The expansion of agro-storage capacities can help cut sharply the extensive post-harvest losses endemic in the country. Corn, for example, suffers spoilage as high as 30 percent in storage, which may be reduced to just 5 percent through the use of 50-gallon oil drums and ferro-cement jars, or special airtight metallic silos designed by the Food and Agriculture Organization. Since 2002, the organization has worked with local blacksmiths to manufacture and deliver to farmers 10,000 silos with a storage capacity of up to 1.5 metric tons, though thousands more are still needed. Likewise, agroprocessing activities, which did not exist in the country until the first processing factory was opened near Dili in 2010, can offer an effective solution, not only for post-harvest losses, but also for the pervasive food insecurity and under-nutrition among the Timorese. This factory in Dili is capable of producing up to 5,000 metric tons of fortified blended food per year. Marketed under the brand name Timor-Vita, the fortified formula is a blend of 80 percent corn and 20 percent soya mixed with minerals, vitamins, and other nutrients. It is distributed as supplementary feeding for expecting and nursing mothers and children under the age of five. Any effort to bolster agricultural production, either for increasing food availability or for raising farmers’ income, would not be complete without intervention to establish efficient mechanisms for marketing and distributing the output on farms. Unfortunately, the current state of Timor-Leste’s transport sector, which must play a central role in ferrying perishable fresh produce in an expeditious manner to various parts of the country, is far from being satisfactory. A large percentage of roads in Timor-Leste are in dire conditions, failing altogether during rainy seasons and isolating rural populations from towns and markets for weeks, if not months. Even during drier seasons, many settlements and households in rural areas are not easily reachable from the outside by vehicle, as they are tucked away in rugged terrain, which covers much of the country’s interior. The problem in farmers’ market access due to the poor land transport conditions is compounded by other access issues such as limited marketing opportunities in the vicinity due to the underdevelopment of agricultural commerce in the country. The government’s action to restore and expand transport infrastructure under the Strategic Development Plan 2011–2030, particularly during its first decade, can help ease some of the bottlenecks in market access by farmers. In the meantime, farmers must travel to their districts’ main markets or urban centers often on foot, or by bus under more favorable circumstances, to sell their surplus produce. However, the limited quantity of produce that individual farmers can bring for sale usually makes the journey unprofitable. Timor-Leste is just beginning to see the formal organization of farmers and

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agricultural traders to spearhead the development of marketing and distribution opportunities for agricultural commodities, notably by forming cooperatives. 12 By 2010, Timor-Leste had eighty non-financial cooperatives for farming communities and cottage businesses and twenty-five microfinance cooperatives, enrolling a total of about 10,500 members as direct beneficiaries and 25,000 indirect beneficiaries including family members, relatives, and community members. A model case of agricultural cooperatives in Timor-Leste is the Cooperativa Café Timor. This wholly Timorese-owned organization specializes in processing and marketing organic coffee grown by its producer members. Established in 2000 under the Timor Economic Rehabilitation and Development Project, with a grant from the US Agency for International Development, Cooperativa Café Timor has grown into the largest single-source producer of certified organic coffee in the world, commanding high prices in the international specialty coffee markets for its exquisite products. Member farmers receive advice for improving the quality and consistency of their produce as well as support for processing coffee cherry into parchment with state-of-the-art pulping machines and drying techniques, along with assistance in marketing to high-end clientele, including the global coffee chain Starbucks. Today Cooperativa Café Timor, with 22,000 enrolled members, is not only the most important earner of non-oil export revenues for TimorLeste, contributing as much as US$ 12 million per year to its coffers, but also the nation’s largest employer during coffee harvest seasons. 13 As illustrated in the case of Cooperativa Café Timor, agricultural extension services for enhancing the farmers’ knowledge and skills in growing and processing of their produce and facilitating their access to markets are some of the benefits that the cooperatives in Timor-Leste offer to their members. Extension services have been particularly helpful for those farmers who managed to return to ancestral lands or to resettle in new areas and resumed farming after extended periods of displacement following the foreign occupations and the post-independence crises. Until recently, there had been a severe constraint on the availability of such services, as all agricultural extension and training facilities either run or guided by the Portuguese and Indonesian authorities no longer functioned, leaving a large vacuum in institutional capacities in Timor-Leste’s agriculture service administration. The government has since then intensified its efforts to fill post-conflict institutional gaps across the economy, in which the agriculture sector is no exception. In 2009, Timor-Leste’s Ministry of Agriculture and Fisheries assigned, for the first time since the Restoration of Independence, agricultural extension officers to all districts, sub-districts, and sucos (villages) across the country and further, in 2010, expanded state budgetary appropriations for agricultural research at the National University of Timor-Leste and capacity-building activities at the ministry’s three agricultural technical schools, in order to

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promote the development of technologies appropriate for Timorese soil as well as to encourage their transfer to farmers. Nevertheless, the government effort to produce enough food does not always guarantee that every Timorese will have enough to eat. As pointed out eariler, about one fifth of Timorese are either chronically or seasonally food insecure, with another one fifth and more at high risk of being food insecure. What is more, a large number of people were caught in transitory food insecurity in the history of Timor-Leste, not only during and after conflict but also in the aftermath of natural disasters, in each of which case food security proved so central to the survival and welfare of the nation. The other side of the coin of this is that lack of food security may pose a major threat to the country’s internal peace and stability, as its turbulent past indeed demonstrated at some points in time. Further, food security has been considered as a concept linked to a human right to food and nutrition in independent Timor-Leste, as elsewhere in the world, especially since the United Nations Committee on Economic, Social and Cultural Rights declared in 1999, “The human right to adequate food is of crucial importance for the enjoyment of all rights.” 14 The Constitution of the Democratic Republic Republic of Timor-Leste, which was promulgated just after independence was restored in 2002, provides for the protection of every citizen’s right to social security and assistance and exhorts the state to uphold this right “in accordance with its national resources.” 15 The Timorese government has aimed to fulfill this constitutional mandate by setting forth several important policies and measures to ensure food security, including those to strengthen food production, raise the incomes of farm and rural households, and target the distribution of food to the vulnerable. Two of the government’s major policy actions toward food security so far include launching the National Food Security Policy for Timor-Leste and establishing the National Food Security Committee Technical Working Group. The National Food Security Policy is intended to tackle the country’s post-conflict overarching development challenge of eradicating hunger in all of its forms and reducing poverty by 2020. The National Food Security Committee Technical Working Group is chaired by the Minister of Agriculture and Fisheries and functions as a forum for exchanging information, contributing to policy making, and responding to any concerns over food security and agricultural development in the country. One of the working group’s activities has been to ensure the deployment and training of the workers for monitoring the food security situation in each district as well as the agricultural extension staff in charge of transferring useful skills and knowledge to farmers and introducing them to new technologies. The Ministry of Agriculture and Fisheries is tasked to follow through on the implementation of these policy decision action. Examples of the ministerial follow-up include: to set up the early warning system for food security, to provide

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training to its staff in crop forecasting and food availability monitoring, and to conduct food crisis and preparedness exercises with all key players working on this issue in the country, including relevant ministries and departments within the government and development partners, notably the United Nations. Protection of land and property rights is another area in Timor-Leste’s institutional framework that the government has strived to streamline in order to strengthen its agriculture sector and promote food security. The constitution of Timor-Leste guarantees every Timorese citizen a right to private property and land, with a stipulation that “only national citizens have the right to ownership of land.” 16 The Timorese government has worked on a draft transitional land law for the last few years, with the objective to establish a regime for the identification and regulation of land ownership, including cases of competing claims arising from different types of ownership, such as customary rights, colonial Portuguese land titles, Indonesian titles, and non-traditional long-term land occupation. The draft law, which also provides a starting point for the legal recognition and protection of community land rights, is now under consideration by the National Parliament. In the meantime, the government initiated a land registration program; more than 54,000 Timorese across the country laid claim to over 50,000 parcels by 2011. The Strategic Development Plan 2011–2030 adopts a more systematic approach to addressing the structural and institutional bottlenecks to TimorLeste’s development in its earnest attempt to better prepare the national economy for a long-term economic takeoff. The plan’s specific goals for the agriculture sector include achieving self-sufficiency in food production to enhance food security and expanding a range of agricultural products that the country can offer to global markets and help narrow the widening trade gap. The Strategic Development Plan envisions that subsistence farming will be gradually replaced by the sustainable yet competitive smallholder agriculture by the end of the plan’s lifetime. The process of this transformation of Timor-Leste’s agriculture will be driven initially by the oil-financed public investment in input technology and infrastructure, but is expected to be transitioning later to the small- to medium-scale private capital-led development by building on the progress achieved during the early stages of the plan. ANIMAL FARMING AND FISHERY

17

Timor-Leste’s animal farming and fishery have the potential to play a key role not only in improving the food security and nutritional status of the Timorese, but also in adding employment and generating more income for the national economy. Furthermore, these two sectors together can make a

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significant contribution to the nation’s external trade by raising export revenues from overseas sales of livestock, meat, and dairy products, as well as fresh marine catch and its products. According to the 2010 census, about 80 percent of households in Timor-Leste rear livestock. This includes goats, sheep, and pigs for at-home consumption and trading in local markets; horses and buffaloes as a means of transportation and for farm work; and cattle for local consumption and for export, especially to Indonesia. Animal farming in Timor-Leste must overcome a number of hurdles before it can promise any real benefit not only to the country’s food security, but also to its economic growth and trade balance. The signs of low productivity, poor quality, and inconsistency in the output level, which affects the entire primary sector of the Timorese economy, are also present in the areas of animal farming and fishery. In Timor-Leste, many farmers lack access to resources for modern livestock management and veterinary health services,and animal farming has yet to expand in capacity beyond domestic and local needs; much of the country’s meat and dairy products on the market are imported. Still, farm animal production, especially of smaller animals such as pigs and poultry, can further be enhanced in Timor-Leste within the scope of traditional systems, provided that farmers can access veterinary services and as long as sufficient animal feed is made available, which will lead to another important issue in animal farming: securing animal feed. While grass or other types of fodder for farm animals are not grown on a large scale in the country, current volumes of byproducts and waste from crop harvests there are not sufficient to stimulate any investment in the processing industry for animal feed. As for Timor-Leste’s fishery although the country has a coastline of about 735 kilometers and an exclusive economic zone of 72,000 square kilometers, its fishery sector is as yet in a formative stage of development, with just over 5,200 fishers in operation that use primarily small canoes for coastal fishing and marine resource extraction in inter-tidal areas. Being generally intended for personal consumption, catch is not widely marketed on a commercial basis. An average Timorese takes 4.6 kilograms of fish per year, which is as little as one fifth of what Indonesians consume on average. Coupled with a minimal supply capacity and a low domestic demand for fish, severe shortages of transport and refrigeration facilities for the catch pose constraints on marketing fish nationally and using this sector to strengthen food security and the national income. In order to develop modern commercial fishery, Timor-Leste may set its sights on promoting deep-sea fishing in the exclusive economic zone as well as aquaculture in coastal areas. Commercial fishing in the exclusive economic zone would require vast capital expenditure for acquisition of large mechanized boats loaded with sophisticated fishing equipment and refrigeration facilities, for which the Timorese government is considering inviting direct

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foreign investment. In Timorese coastal areas, aquaculture of catfish, goldfish, milkfish, shrimp, and seaweed may prove benefical in raising income of fishing communities. Development of commercial fishery is likely to encourage further investment and generate additional employment in the processing industry for fish and marine products. In developing commercial fishery, Timor-Leste must cultivate export markets, as the domestic demand for fishery products is very limited. CHALLENGES AND OPPORTUNITIES FOR THE FUTURE A number of key factors are positioned to steer the future of Timor-Leste’s agriculture. Foremost is the nation’s fast population growth. Currently at about 1.1 million, Timor-Leste’s population is growing at 2.4 percent per year, the highest rate in the Southeast Asia region. As population growth exerts significant pressure on agricultural land, the country’s food security situation will likely be adversely impacted in the process. Second, while Timor-Leste has enjoyed the longest period of post-independence stability since the unsuccessful assassination attempts on its leadership in 2008, any disruption in internal peace and security could reverse the hard-earned progress that the country has achieved, including in the agriculture sector. Ultimately, longer-term stability across the country will require continued efforts in strengthening democratic governance and public security and building institutions for peace, justice, and the protection of human rights. Climate change presents a third key factor. Small island nations such as Timor-Leste are known to be extremely vulnerable to sea-level rises and inclement weather including tropical storms, monsoons, and cyclones, which have become not only increasingly common but also more intense in recent years, possibly as a result of climate change. For example, from the beginning of January to mid-February 2008, two active phases of extreme monsoonal storm activity hit Timor-Leste and produced severe localized wind, floods, and landslides, causing extensive damages to crops, homes, roads, and bridges in all thirteen districts across the country. Also around this time, three western districts of the country experienced locust infestations that ended in extensive crop failures, another sign of climate change that is often characterized by a pattern of alternating torrential rainfalls and heat waves accompanying droughts. Fourth, there is a serious and valid concern over the nature of the country’s economic growth. Many have attributed Timor-Leste’s average annual increase in GDP into double digits in recent years to the acceleration in government spending as financed with petroleum revenues, but it failed to modernize its agriculture sector significantly and uplift its status in the na-

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tional economy. Limited primarily to subsistence farming and with little progress in crop diversification, Timor-Leste’s agriculture today holds only moderate promise for national economic growth, let alone substantially enhancing food security and income for farmers. Despite these doubts and uncertainties around the future of its agriculture, there are yet a number of opportunities on which this Asia’s newest nation can capitalize to achieve substantial gains in its performance. First and most importantly, the launch of the Strategic Development Plan 2011–2030 marked Timor-Leste’s most major undertaking since the Restoration of Independence to provide food security, reduce poverty, and promote economic growth across the nation, and in rural areas in particular. The proposed program for agriculture under the Strategic Development Plan includes measures to increase productivity of basic foods such as rice, corn, and roots and tubers by 50 percent by 2030 as well as to expand progressively the area under cultivation of staple foods, with self-sufficiency in basic foods attained by 2020 and a 36 percent surplus in stock by 2030. The increased production of basic foods will be attained by investing petroleum revenues and other resources in adding irrigated areas—by 20,000 hectares, or 40 percent of the current area size, by 2030 in the case of rice—and equipping farmers with improved inputs and modern machinery. As a result of these measures, deficiency in rice, the country’s premier staple food, would decrease from over 76,300 metric tons in 2010 to 5,800 metric tons in 2030, while production of corn would almost triple during the same period, reaching a surplus of 124,400 metric tons by 2030, which will likely be used in supplementary feeding and animal feed products, or exported. Second, Timor-Leste has adopted a strategy to promote farming technologies and practices that are suitable for nurturing sustainability in agriculture. The country has pledged to avoid the uncontrolled use of inorganic inputs in order to limit environmental damage to land as well as to refrain from excessive land exploitation for preserving the long-term land productivity. In this strategy, Timor-Leste not only embraces the goal of achieving the environmentally sustainable agricultural growth, but also seeks to market environmentally friendly agricultural products to the world where the demand for green-conscious goods is rising steadily these days. For the purpose of substantially expanding the export of its unique agricultural products, notably their organic varieties, under the Strategic Development Plan, the current, widely practiced subsistence farming will gradually be relegated to the smallholder, commercial cultivation as Timor-Leste’s most common form of agriculture. This transformation is driven initially with public investment by the government, but is expected to be led at a later stage by small- and mediumscale investors in the private sector who will find opportunities open up in earlier stages of this process.

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Third, as touched upon in preceding chapters, Timor-Leste has prioritized fostering strong and collaborative ties on every level beyond its borders: with neighboring nations, within the Southeast Asia region, and across the entire global community. International alliances will likely increase intra-regional and global trade and investment flows, including in the agriculture sector, besides bringing a number of other ultra-economic advantages. As part of this endeavor, in 2011, Timor-Leste submitted a formal application for membership to the Association of Southeast Asian Nations (ASEAN), which comprises an economically vibrant region of 620 million people with a combined GDP of US$ 2.3 trillion and a total merchandise trade value of US$ 2.5 trillion. Timor-Leste also maintains close relations with the community of Lusophone countries, including Brazil, the emerging, eighth-largest economic power, which presents yet another set of opportunities for expanding external trade and investment. Finally, and critically, there is no doubt that women are the driving force behind Timor-Leste’s agricultural growth. With approximately 88 percent of Timorese women engaged in farming, compared to 82 percent of men, this group plays a particularly crucial role in the agriculture sector. Women are also active in micro- and small-scale agricultural trading, including marketing of produce from their own farms, and own over 40 percent of microenterprises in the country, many of which are found in agricultural and rural areas, 18 although they are largely absent from the formal sector. Timorese women are the engine that fuels growth in a largely unorganized agriculture sector; they are expected to remain so into the future. Timor-Leste’s agriculture forms the backbone of its national economy and makes a valuable contribution not only to reducing poverty and enhancing food security, but also to bolstering the overall prosperity of this new nation. However, despite the country’s earnest effort to restore and revitalize this dominant segment of the economy, pockets of vulnerability have persisted in various parts of this sector, which are constantly under the influence of socioeconomic stressors such as poverty, poor nutrition and hygiene, social deprivation, and susceptibility to natural calamities, among many others. In the following chapter, we examine how Timor-Leste is working to protect its vulnerable citizens, who might have fallen through the cracks of the system and experienced instead the exclusion from the benefits of development. NOTES 1. Statistics on Timor-Leste’s agricultural yield and output as provided in this chapter are quoted, unless otherwise noted, from two sources: Asian Development Bank. (2009). Trade and Growth Horizons for Nusa Tenggara Timur and Timor-Leste. Mandaluyong City; and Asian Development Bank. (2011). Asian Development Outlook 2011—South-South Economic Links. Mandaluyong City.

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2. World Bank. (2010, June). The Lay of the Land—Land Access and Dispute Resolution in Timor-Leste (Justice for the Poor Briefing Note, Vol. 5, Issue 3). Available at http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/08/02/ 000334955_20100802041407/Rendered/PDF/560060BRI0J4P1149468B01PUBLIC1print.pdf. 3. Statistics on supply and demand for rice in Timor-Leste as provided in this passage are quoted from G. Deichert, who worked as an advisor to the country’s rural development program that receives financial and technical support from the German aid agency Gesellschaft für Technische Zusammenarbei (GTZ) and the European Union. 4. For details, see: Kammen, D. and Hayati, S. (2007). Crisis and Rice in East Timor. In Reliefweb. Available at http://reliefweb.int/node/227550. 5. Timor-Leste. National Directorate of Statistics. (2011). External Trade Statistics Annual Report 2010. Available at http://dne.mof.gov.tl/trade/annualreports/Annual%20Reports/Annual%20Report%202009.pdf. 6. Timor-Leste - Poor Storage Adds to Food Insecurity. (2010, April 26). In Integrated Regional Information Networks (IRIN) News. Available at http://www.irinnews.org/Report.aspx?ReportId=88925. 7. For details on the Seeds of Life improved corn varieties in Timor-Leste, see: TimorLeste. Ministry of Agriculture and Fisheries. (2010, April). Community Based Seed Production and Storage of Improved Maize—CARE’s Experience. In Food Security Timor-Leste (Vol. 1 Issue 1, pp. 5–6). Dili. 8. Statistics on mechanization in Timor-Leste’s agriculture sector as provided in this paragraph are quoted from: Timor-Leste. Office of the Prime Minister. (2011). Timor-Leste Strategic Development Plan 2011–2030 (version submitted to the National Parliament). Dili. 9. For details on the impact of irrigation on Timor-Leste’s agricultural production, see: Timor-Leste. Ministry of Agriculture and Fisheries and Food and Agriculture Organization. (2010). Strategic Program for Promoting Agricultural Growth and Sustainable Food Security in Timor-Leste. Bangkok. 10. The Timorese government is also exploring multiplying the effects of large-scale water resource management by utilizing reservoirs and small-scale dams across the streamline or drainage line as well as off-stream between intake and service areas. Most of these dams with a capacity between 10,000 and 30,000 cubic meters will be of simple earth construction and with lined spillways similar to those constructed during the era prior to the Restoration of Independence. 11. For details on land use in Timor-Leste, see: Asian Development Bank. (2009). Trade and Growth Horizons for Nusa Tenggara Timur and Timor-Leste. Mandaluyong City. 12. Timor-Leste’s decree-law on cooperatives regulates the governance and operation of these organizations. Under the decree-law, the objectives of cooperatives are to improve members’ welfare and to participate in the national development. A cooperative can be established with a minimum of fifteen members and a minimum capital of US $1,000 and must have Cooperativa in the title. The English translation of the decree-law on cooperatives, originally drafted in Portuguese, is available online at http://www.unmit.org/legal/RDTL-Law/RDTLDecree-Laws/Decree-Law-2004-16.pdf. 13. For details on the Cooperativa Café Timor, see: NCBA-CLUSA International. (n.d.). Cooperativa Café Timor. Available at http://www.ncba.coop/ncba-clusa/our-work/agriculturea-food-security/view-all-projects/127-timor-economic-rehabilitation-and-development-projectteradp-ii. 14. United Nations. Economic and Social Council. (1999). Substantive Issues Arising in the Implementation of the International Covenant on Economic, Social and Cultural Rights – General Comment 12 (UN Doc. E/C.12/1999/5). New York. 15. Timor-Leste. Office of the President. (2002). The Constitution of the Democratic Republic of Timor-Leste , Section 56 (Social Security and Assistance). Dili. 16. Ibid., Section 54 (Right to Private Property). 17. This brief overview of Timor-Leste’s animal farming and fishery is based on: TimorLeste. Office of the Prime Minister. (2011). Timor-Leste Strategic Development Plan 20112030 (version submitted to the National Parliament). Dili.

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18. Hedditch, S. and Manuel, C. (2010). Timor-Leste—Gender and Investment Climate Assessment (Economic Opportunities for Women in the Pacific series). Washington, D.C.: International Finance Corporation.

Chapter Five

Empowering the Vulnerable

Armed conflict incurs a tremendous human, moral, cultural, and economic toll on individuals, families, and communities. While a good many people, combatants and non-combatants alike, are injured and killed in fire fight, intended and unintended attacks on civilians and communities provoke mass exoduses involving the displacement of people in large numbers within and beyond national borders. Among these uprooted millions worldwide, 80 percent are estimated to be particularly vulnerable, which include a large number of children and women. In Timor-Leste, during twenty-four years under the Indonesian occupation and especially in its early years, a quarter of the population reportedly perished, while many others were banished from home. Further, during the disturbance immediately following the Popular Consultation of 1999, more than 1,000 Timorese lost their lives and another 200,000 fled or were deported to West Timor and other regions of Indonesia, while half a million more were driven away within Timorese borders. Again, during the 2006 crisis, an additional 10 percent of the Timorese population was displaced or re-displaced. It stands to reason that this recent history of repeated chaos has had serious consequences for countless children, women, and other vulnerable Timorese. Armed conflict violates every right of sufferers, and especially the vulnerable among them. For a child, his or her right to life, right to good health and nutrition, right to be with family and community, right to be nurtured and protected, and right to development to his or her full potential, to name a few, are bound to be severely undermined. Disruptions in kinship care and support from community networks, which are vital to children’s physical, emotional, cognitive, and social development, have profound impacts on children; they will likely persist even after conflict ceases. As the systems of support and protection for children that were once available through their linkages to 81

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extended family and communities can no longer perform their regular valuable functions, children are left to fend for themselves. If they are orphaned, abandoned, or separated from their families in disturbance, they will likely find themselves in institutions or living as street children, or else will fall victim to exploitation at the hands of adults. 1 Likewise, armed conflict bears down heavily on children’s primary caregivers—women. Women often assume the full load of responsibility at home while men are at war. Women, like men, die in combat, are injured by arms, explosives, and other types of weapons, or else are forcibly displaced and lose their livelihoods, but there is an important difference between the experience of women caught in conflict and that of men. Women do not enjoy equal status with men in most societies, but where cultures of violence and discrimination against women exist in peacetime, they will only be exacerbated in conflict. For example, women are sometimes targeted in modern warfare, during which they are vulnerable to all forms of violence, including sexual assault and exploitation. Furthermore, the proliferation of small arms in recent low-intensity conflict has increased the risk of interpersonal violence against women, even at home where they live with their partners who may be in possession of these remnants of war. For this reason, women in conflict-affected situations are likely under the constant threat of violence and abuse, whether it be during conflict or in its aftermath. On the other hand, many instances of laws, policies, and programs in the countries emerging from conflict do not provide adequate protection to women despite their heightened risks and vulnerabilities, as they are often formulated in the process of decision making and institution-building that routinely excludes women and ignores their concerns. 2 Although the impacts of armed violence reach across age groups, they affect youth disproportionately. Armed violence is the fourth leading cause of death worldwide for persons between the ages of 15 and 44. 3 In addition, as many of today’s wars last the length of a “childhood,” that is, from birth to early adulthood, children living in conflict-affected situations experience multiple harms and abuses and their cumulative effects as they grow up. Youth who live in this environment do not usually attain the full potential for physical, social, and intellectual development to which they are entitled. What is more, the youth are increasingly involved in modern conflict as the proliferation of inexpensive light weapons has created abundant and easy opportunities for the youngest civilians to carry out warfare. Previously, the most dangerous weapons were heavy and complex, but due to technological innovations, models are made so light and manageable as to be easily operable to even uneducated, inexperienced, and immature youth. At the same time, international arms merchants, in pursuit of quick illegal profits, have succeeded in making small weapons and explosives inexpensive and widely

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available to the poorest communities in the remotest areas of the globe. Together, a deadly combination of the war-traumatized youth and the easy availability of weapons and arms dramatically increases the chance of causing devastating damage not only to the youth themselves but also to the postconflict society as a whole. 4 In the following, we briefly examine how these most vulnerable groups of the Timorese population, children, women, and the youth, have fared in postconflict Timor-Leste. CHILDREN At 5.7 births per woman, Timor-Leste had a fertility rate twice the world average at the end of the first decade of the twenty-first century, which propelled its population growth to 2.4 percent per year, the highest in the Southeast Asia region. Due to the high population growth, the national demographic profile is composed disproportionately of youth: 53 percent of Timorese are below the age of 19. 5 Yet, even as the population’s majority constituency, the youngest Timorese did not receive much needed attention and protection in the face of widespread displacement, physical and psychosocial stress, and the breakdown of basic services that resulted from the successive crises at and after the turn of the new millenium. In a 2000 study of Timorese children published in the prestigious British medical journal Lancet, 22 percent of respondents reported that their children had been injured or separated during conflict, while 12 percent noted that their children had died as a result of violence. 6 The harsh conditions that Timorese children endured during the period leading up to the Popular Consultation of 1999 are reflected in Timor-Leste’s key socioeconomic indicators, which lagged substantially behind Indonesian averages. 7 The mortality rates in 1999 for Timorese infants under the age of one and for Timorese children under the age of five are estimated to be 85 and 124 per 1,000 live births, respectively, while mortality rates for Indonesia in the same year were thirty-eight infants and fifty-two children under the age of five per 1,000 live births. The most common childhood illness then included acute respiratory infections, diarrhea, malaria, and dengue fever, as well as various perinatal conditions. The high child mortality rates that prevailed in Timor-Leste around the time of the Popular Consultation were most likely a result of inadequate health care and medical attention for children. For instance, very few children were immunized for preventable communicable diseases during this period; coverage of the DPT vaccine, which protects against the three major infectious diseases—diphtheria, pertussis (whooping cough), and tetanus—measured less than 20 percent.

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Timorese children’s health took a turn for the worse when Timor-Leste was caught in the turmoil following the Popular Consultation in 1999, which left its entire health care system in a state of despair. During the 1999 disturbance, 35 percent of health infrastructure was razed to the ground, while only 23 percent was spared from major damage. Many hospitals, health centers, and dispensaries were looted or destroyed, and the territory’s health monitoring and disease surveillance mechanisms stopped functioning for nearly a year. Furthermore, Indonesian medical professionals, who comprised more than 80 percent of Timor-Leste’s healthcare personnel in the Indonesian era, returned to their country after the violence broke out, entrusting a mere twenty-three physicians with the care of the entire territory. The drastic deterioration in the availability and quality of health services in the aftermath of the 1999 disturbance certainly had serious consequences on the well-being of Timorese children. For instance, the incidence of malaria registered a threefold increase and accounted for the largest share of mortality among children during the post-Popular Consultation period. Signs of total devastation were seen in almost every institution of the society, including those directly concerned with children. Valuable public records for children such as civil registry, health monitoring and school registration documents were either lost or damaged, and only 65 pre-secondary school teachers remained on the job for entire Timor-Leste at the turn of the new millennium. 8 Following the Restoration of Independence, Timor-Leste made an important initial move in its new nationhood in acceding to major human rights treaties; among them were the Convention on the Rights of the Child and the Convention on the Elimination of All Forms of Discrimination Against Women. 9 The accession of human rights treaties was followed by the appointment of advisors on gender and human rights within the prime minister’s office. The human rights treaties provided an authoritative framework for rebuilding institutions, particularly those concerned with the protection of basic rights for vulnerable groups such as children, as well as others dealing with their access to basic services. Further, in 2004, the Sector Investment Programs were launched to effectively coordinate with stakeholders and donors and to facilitate the efficient use of resources for intervention in the areas of health, nutrition, education, justice, public security, and advocacy, toward the achievement of Timor-Leste’s long-term goals in the socioeconomic sector. The Sector Investment Program in health and nutrition focused on (1) ensuring availability in all community health centers of immunization services and basic health care and treatment for common childhood illnesses such as pneumonia, diarrhea, and malaria; (2) making more accessible to women basic maternal health care, including emergency obstetric care; and (3) improving infant and young child feeding practices through micro-nutri-

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ent supplementation and community-based management of acute under-nutrition with the use of therapeutic food. Based on these overall objectives, Timor-Leste’s Ministry of Health, in collaboration with stakeholders and donors, set out to strengthen the country’s capacities for health administration at the national, district, and sub-district levels, with the goal of increasing the people’s access to and utilization of essential health care. For most Timorese families, the first and principal contact with the health system is through primary health care as delivered through the sub-district health service structure, which is comprised of health posts, mobile clinics, and community health centers. Health posts, usually staffed by one nurse and one midwife, provide the first line of curative and preventive care and health promotion activities to a majority of the population. At the district level, district health centers and hospitals offer a higher level of services with a greater number of skilled personnel, as well as technical and managerial support to units at the sub-district level. District health centers and hospitals provide a standard package of advanced services consisting of basic curative care, immunizations, maternal and child health care, delivery of nutritional supplements, tuberculosis follow-ups, mental health support, and health promotion and education activities. In the area of basic education, the Sector Investment Program was directed to ensure (1) that all students of the first through ninth grades benefit from the national basic education curriculum, consisting of the instruction of official languages, Tetum and Portuguese, and transfer of basic learning tools such as numeracy and problem-solving skills, along with civic education and enlightenment on other social causes, including environmental protection and gender equality; (2) that teachers receive training and corresponding teaching/learning materials for the curriculum; (3) that students enjoy a child-friendly school environment, featuring trained teachers, opportunities for meaningful participation, and access to vital school amenities, including on-site sanitation latrines, a safe drinking water supply, and in-school meals; and (4) that the education administration at all levels has the capacity to undertake evidence-based, result-oriented planning, monitoring, and reporting of education programs and initiatives. Although the Sector Investment Programs were subsequently consolidated into the National Priorities Programs in 2008, which was further replaced by the Strategic Development Plan 2011–2030, the efforts by the government to protect and nurture children and invest in their future has been consistently maintained to date and proven fruitful. In 2002, 125 out of every 1,000 children died before the age of five, which was almost halved to sixty-four by 2009. Similarly, in 2002, eighty-eight out of every 1,000 infants died before the age of one, which was halved as well to forty-five by 2009. The net enrollment ratio at the primary school level, which is the proportion of chil-

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dren of official primary school age who are enrolled in a primary education program, measured 65 percent in 2001 and rose to 83 percent by 2009. Despite the progress, Timor-Leste’s pursuit to advance children’s wellbeing has been marked with occasional setbacks. For example, before the 2006 crisis, the incidence of malaria, still a major cause of child mortality in the country today, was 113 per 1,000 people in 2000. This jumped to over 200 cases per 1,000 people in 2007 when the deterioration in law and order forced large numbers of Timorese to be relocated to crowded camps for the displaced with poor hygiene conditions. Disruptions to the security situation also posed hardships on children’s access to school. In 2007, the net enrollment ratio for primary school dropped to the pre-independence level of 66 percent, although it had been on a steady rise before the 2006 crisis. 10 Timor-Leste’s achievements thus far in child welfare are no mean feat. Still, further work and additional resources are needed to conquer many areas in which Timorese children continue to be disadvantaged. For instance, according to Timor-Leste’s Ministry of Education, just over half of six-yearold Timorese children start the first grade of education on time, while over 70 percent of children leave school before reaching the ninth grade. Even those who do remain in school take 11.2 years on average to complete schooling to the sixth grade. In the area of health and nutrition, although fewer children die from preventable diseases today, the nutritional status of children in Timor-Leste remains significantly below acceptable world standards. According to a demographic and health survey conducted by the Timorese government in 2009–2010, almost 45 percent of children are underweight for their age, with 15 percent severely underweight; about 58 percent of children under the age of five are stunted, with 33 percent severely stunted. 11 The Strategic Development Plan 2011–2030 addresses these issues as a priority, especially in the first half of the plan’s lifetime. First, the plan calls for a significant reform of Timor-Leste’s entire basic education system, which entails the adoption of a new, decentralized school management system to deliver quality education in an affordable, efficient, and sustainable manner; construction of school buildings and facilities to accommodate the country’s growing number of school-age children; and enhancement of teaching quality by intensifying training and mentoring of teachers and strengthening teaching staff management. Second, the plan aims to build on Timor-Leste’s shining performance in the area of health, by improving the quality and expanding the coverage of preventive and basic curative services to newborns, infants, and children for a continued reduction of infant and child mortality. Last but not least, the plan emphasizes enhancing food security for children, as well as for the wider general population, through the increased production and availability of staple and nutrient-dense foods. This is expected to be achieved by investing in agricultural infrastructure, notably irrigation; promoting advanced in-

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put technologies and crop diversification; and fostering the development of agro-allied sectors. WOMEN 12 The Constitution of the Democratic Republic of Timor-Leste guarantees men and women equality in opportunity and access to all rights. Yet, the lives of most Timorese women are still dominated by traditional values, norms, and practices, which render them susceptible to various types of discrimination and deprivation, despite their impressive achievement in recent years. Prior to the Popular Consultation of 1999, the health status of women in Timor-Leste was already much inferior to that of their Indonesian counterparts. According to a 2010 study on trends in maternal mortality conducted by the United Nations and World Bank, 13 maternal deaths per 100,000 live births in Timor-Leste measured an estimated 590 in 1995, compared to 440 in Indonesia. Since then, Timor-Leste’s maternal mortality ratio has been reduced considerably, to 370 deaths per 100,000 live births by 2008, marking a 37 percent drop and making the country one of forty-eight in the world to be recognized by the United Nations as progressing substantially in the reduction of maternal mortality. This reflects a wider trend of improved statistics in health care for Timorese women in recent years. For example, while health professionals assisted in 19 percent of births in 2007, 30 percent of births were attended professionally in 2009. Likewise, whereas 55 percent of pregnant women received at least one antenatal appointment in 2007, 86 percent of pregnant women did so in 2009. Still, Timor-Leste’s maternal mortality ratio is comparatively high among low- and middle-income countries in East Asia and the Pacific region, for which the regional maternal mortality ratio in 2008 was eightyning deaths per 100,000 live births. Timorese women continue to be educationally and academically challenged. In 2010, the government-conducted labor force survey indicated that almost 40 percent of Timorese aged fifteen and older had not been promoted beyond the primary level in school, but it is women whose educational attainment was markedly inferior: 45 percent of women had not completed any form of education, while for men this measure stood at 34 percent. Women have benefited disproportionately less from Timor-Leste’s achieved reduction in adult illiteracy. A household survey on living standards conducted by the government in 2007 indicated that only 43 percent of female respondents aged eighteen and older could read and write without difficulty, compared to 59 percent of male respondents. Notably, gender inequality in education is not observed in the youngest generation. At the primary level, more girls were enrolled in school than

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boys in 2008 with the ratio of female to male students at 102 to 100. The ratio declines progressively through higher levels of education, however. At the pre-secondary level, the ratio of female to male students was 84 to 100 in 2008, which further declined at the secondary level to 72 to 100 in the same year. As a result, the ratio of female to male students in receipt of degrees or certificates at the post-secondary level remained low, at 1 to 2.6 in 2009, although more recently, an increasing number of female students have reportedly entered universities and colleges. Despite the manifold obstacles that Timorese women face, their contribution to the national economy remains significant. This is seen especially in subsistence farming, small- and micro-scale trading, and home-based manufacturing, all of which fall almost entirely within the informal sector. According to a 2010 World Bank study, about 88 percent of Timorese women are engaged in farming, compared to 82 percent of men. The same study also indicates that women are estimated to own more than 40 percent of the country’s micro-sized businesses. Timorese women are nevertheless underrepresented in the formal sector and earn less than men, as they combine their businesses with social and domestic responsibilities, which are largely unpaid. Many women are so constrained by the time demanded by domestic tasks that they are often unable to pursue remunerated work outside the home. What is more, the division of labor between men and women in the Timorese society is firmly legitimized by patriarchal traditions, particularly in rural areas, which exhort women to focus on their primary role in the home. A great number of rural women therefore have no income of their own, making them economically and socially vulnerable. In fact, the host of discriminations that Timor-Leste’s women must confront is much more daunting than more general types of hardships that they face, such as poor health and educational services; and Timorese women have been historically subjected to various acts of gender discrimination, including gender-based violence. Due to certain cultural norms that are both deeply entrenched and widely accepted in the Timorese culture, domestic violence that arises from family disputes is often considered a “normal,” private occurrence within the family. Consequently, reporting on domestic violence is considered a taboo. There is also incidence of assaults against women in a wider communal setting, in which it is not uncommon practice to seek justice through traditional judiciary systems. A traditional process toward the disposition of such cases commences when the family of the perpetrator customarily offers animals to the victim’s family. This gift opens an avenue of reconciliation that concludes with a ceremony, usually a feast, with affirmation that there are no more hard feelings and no need for sanctions or retaliations. With the conclusion of the ceremony, the perpetrator is considered exonerated. This was the backdrop for a demographic and health survey conducted by the Timorese government in 2009–2010, in which 39 percent

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of respondent women aged 15 through 49 reported to have experienced domestic violence or gender-based violence outside home. 14 As it stands now, the comprehensive implementation of all principles enshrined in the Convention on the Elimination of All Forms of Discrimination Against Women, to which Timor-Leste acceded in 2003, may require consistent effort over a long peroid of time for the country, but it has begun to show modest, but irreversible progress on the issue of gender equality and women’s rights. As a concrete step forward in meeting its obligations under the convention, Timor-Leste enacted a domestic violence law in 2010, which marked the first time in the country’s history, including periods of foreign rule, that domestic violence entered into the penal code and was weighed as a punishable crime. The law sets out the legal processes to be followed in prosecuting cases of domestic violence as well as the support services that should be made available to victims. One such service is the Judicial System Monitoring Program Victim Support Service, which provides legal assistance to victims of sexual violence. The national police force, Policia Nacional de Timor-Leste (PNTL), has geared up its capacities to meet enforcement imperatives arising from the new domestic violence law. Timor-Leste’s national police have collected data on gender-based violence since 2000 to feed into its Vulnerable Persons Unit, which operates outposts in all thirteen districts to assist victims of sexual assault and harassment, domestic violence, and child abuse. The United Nations (UN) Police force, through its years of deployment in TimorLeste, has provided support to its Timorese counterpart for recruitment and certification of new recruits, staff training and mentoring, and other types of technical and material requirements. The support by the United Nations includes assistance to the Vulnerable Persons Unit as well as the entire Timorese police force in ensuring that its personnel possess not only complete command of operational procedures for handling the cases of the genderbased violence, but also mastery of dealing with the victims of such crimes and others at risk. Prior to the passage of this landmark law on domestic violence, the Timorese government initiated action to strengthen public security while fostering greater confidence among its people in security services that it provides. In the aftermath of conflict in which people, particularly the vulnerable among them such as women and children, suffer egregious violations of their rights, it often emerges as a great challenge in the reconstruction effort to restore and rebuild their trust in the state security actors. In order to address specifically the women’s apprehension about the security sector, Timor-Leste has worked vigorously on a broad set of reforms entailing establishment of specialized police cells for investigating sexual and gender-based violence crimes; reinforcement of programs for protecting victims and witnesses of gender-based crimes; and recruitment of more women into uniformed forces.

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One notable example of Timor-Leste’s success on this front is that the country has achieved an 18 percent share of women in its national police force, the highest in its surrounding region in Asia and the Pacific. In the domain of civic life and political participation, Timorese women are making gradual but immutable progress despite dominant traditional values that often prevent them from taking a visible role in the society. To encourage women’s public participation at the community level, TimorLeste’s National Parliament enacted the Community Leadership and Election Law in 2009 whereby every suco (village) is required to reserve a certain number of seats in its council for women and youth. In the first suco elections held under the new law, ten women were among 442 suco chiefs elected across the country. At the national level, the proportion of seats held by women in the Timorese parliament increased from 27 percent in 2001 to 29 percent by 2011, while women also occupy three important portfolios, or 25 percent, of the twelve ministerial posts as of early 2012: justice, finance, and social solidarity. For the purpose of further enhancing women’s role in its national politics, an amendment to the country’s 2006 election law was approved by the National Parliament in 2011 that sets forth a requirement of fielding at least one woman per three candidates in the contest for any parliamentary seat. The parliamentary elections in mid-2012 are expected to see more women take seats as a result of this amendment. In the Strategic Development Plan 2011–2030, the attainment of gender equality and protection of women’s rights is not only the goal on its own right but also an important vehicle for achieving other plan goals, including maintaining peace and stability, upholding the rule of law and principles of good governance, reducing poverty and deprivation, and advancing sustainable development. The plan addresses the issue of gender disparity in the country by strengthening social security and safety nets for women and girls while empowering them with knowledge, resources, and decision-making capacities in all spheres of their lives. For example, in promoting good health and welfare among women and adolescent girls, the Strategic Development Plan strives to enhance their access to high-quality obstetrics and reproductive health services for further reductions in maternal deaths and disabilities as well as in sexually transmitted infections such as HIV/AIDS. According to the plan objectives, by 2015, 70 percent of pregnant women will be guaranteed at least four antenatal care appointments, while 65 percent will be attended by qualified personnel during childbirth. At the same time, the plan takes aim at the wider dissemination of information on reproductive health, safe motherhood, and sexually transmitted diseases to adolescent girls and women, in order to strengthen their capacities for protecting their health and bolstering their overall well-being.

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THE YOUTH Timor-Leste is an overwhelmingly youthful society. In 2010, children and youth under 24 years of age accounted for 62 percent of the population; this results from the country’s high population growth, at 2.4 percent per year, which is expected to double its total population in the next 29 years. The population growth in Timor-Leste is concentrated in urban areas. The population of the national capital Dili, for instance, increased by one-third between 2004 and 2010, and the three most urban of the nation’s thirteen districts, Dili, Baucau, and Ermera, now comprise 43 percent of the entire national population. The high urban population growth is due not only to high birth rates in urban areas, but also to urban migration largely by rural youth in search of employment and better access to education, health, and other services that are more readily available in cities. Many instances of urban migration end in unemployment among the migrants due to the dire shortage of employment opportunities in urban TimorLeste; its labor markets have not been able to generate a sufficient number of additional jobs to keep up with the heavy inflow of migrants and high population growth. At present, approximately 16,000 Timorese youth enter the nation’s job markets each year, while just 400 positions are created annually in the formal sector, although a much larger number of vacancies might have been offered in the informal sector, for which no certain figures are known. Timor-Leste’s unemployment rate, which currently stands at 33 percent for those aged 25 to 34, may rise drastically in the coming decade. Rural youth, many of whom were not previously counted among the unemployed thanks to their engagement in family farming, will have to search for employment outside home when they migrate to cities, but may end up being unemployed instead in face of the prevailing tight labor market conditions. 15 As unemployed, unoccupied youth begin to settle in urban centers, many of them will likely be exposed to unproductive, or worse, criminal activities. Youth are considered to be at least partly responsible for the deterioration of public safety and political stability in Timor-Leste’s recent history. A number of youth were implicated in opportunistic violence during the 2006 crisis and in its aftermath for targeting displaced Timorese, as well as in committing violent acts before and during the 2007 parliamentary elections. Especially in Dili and other urban areas, violence involving young men in gangs and martial arts groups has grown into an ongoing problem. Indeed, in the Timorese society, there seems to be an innate tendency to condone youth violence due to certain elements in its tradition that idolize resistance fighters from the Portuguese and Indonesian periods. Symbols of the resistance are found in almost every household in Timor-Leste; much of the youth have grown up worshipping these fighters and their violent legacies.

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What is more, there is evidence of political marginalization among Timorese youth and young adults that is fuelling disillusionment and discontent, another possible contributing factor to the recent increased risk of youth violence. A feeling of exclusion must exist among that portion of young adults who were schooled in the Indonesian language during the Indonesian era, as Portuguese has been adopted as one of the nation’s official languages and now hampers these young adults’ ability to participate in national and regional decision-making processes. Educated youth in colleges and universities who might have been faced with limited opportunities to participate in national and regional politics for this reason or other have resorted to taking to the streets to press for political reform or change. There may be yet more young citizens who are dissatisfied with their government, as they do not believe that political leaders are concerned about or have worked for the welfare of ordinary Timorese. Coupled with a history of resistance under foreign rule and a lack of perceived alternatives, some of these youth seem to hold violence against authorities as a legitimate form of protest and dissent in order to obtain change. Some young people who find that the government does not live up to their expectations about their life, education, and work may turn to communities to find solutions. However, deep divisions left by instabilities over years in the past have rendered the social fabric of Timorese communities less cohesive. The ever-increasing flow of rural-urban migration, as well as the rise of a new culture that emphasizes individualism, seem to have accelerated this process, and the communities today may no longer hold sway over the youth as they used to. A lack of community cohesion is of particular concern in Dili, which was hit hard by past crises and is currently experiencing drastic demographic changes under the large influx of rural migrants. Many of the young people who are most at risk of engaging in violence are those who lived or have lived in and near camps for displaced Timorese or in barrios, a migrant neighborhood where neither formal nor informal community structures have ever been strong. 16 At the request of the Timorese government, the World Bank undertook an extensive study of the country’s youth following the instabilities of the 2006 crisis and the 2007 elections. The bank concluded the study with a recommendation for a youth development strategy that covers the following five areas of intervention: (1) to keep youth in school, (2) to increase youth employment opportunities, (3) to connect youth with the community, (4) to empower youth to participate in state-building, and (5) to strengthen formal and informal controls on youth. The strategy was formulated on an assumption that as the youth emerges as a numerically dominant force in TimorLeste’s demographic transition, their values, attitudes, and beliefs will likely come to define the direction of Timorese society in coming years. 17

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The Timorese government has already implemented a few components of the World Bank’s strategy. The first strategic component, with its educational focus, is particularly critical in the context of Timor-Leste, as the young people drop out of school at high rates; one in three children does not reach the fifth grade. Timor-Leste’s Ministry of Education initiated action, even before the 2006 crisis, to pilot the Program for Equivalence with Primary Teaching, which provided remedial instruction for out-of-school youth and training of teachers in equivalency education in four districts. Between 2007 and 2008, the program was extended to all districts and sub-districts across the country, benefiting approximately 1,300 youths. In 2008, the ministry launched the National Plan of Equivalence for Basic Education in TimorLeste to Promote Life-long Learning, to expand the coverage of the equivalency program, with technical and financial support from the Brazilian government, UNICEF, and the World Bank. Thanks to the ministry’s effort, by the end of 2010, more than 45,000 individuals, many of whom had dropped out of school as youths, had successfully completed various adult literacy and equivalency education programs. 18 With regard to the second component of the youth development strategy, to increase employment opportunities, it is important to note that in 2010, as a short-term remedy to the widespread lack of jobs in Timor-Leste, the government generated openings equivalent to more than 66,000 full-time positions in connection with public infrastructure projects, which is believed to have benefited a number of young Timorese. Additionally, a promising pilot program to create much-needed local jobs was launched by the American-Canadian non-governmental organization Peace Dividend Trust, which has gained much attention and popularity, especially since TimorLeste’s President José Ramos-Horta declared that the project had a “more tangible and important impact” than any other economic assistance project in his country. Since 2008, the Peace Dividend Trust has provided matchmaking services between small local businesses in Timor-Leste and buyers, many of whom are international aid agencies operating in the country, through its Peace Dividend Marketplace project. This project aims to fill the informational gap that exists between sellers and buyers of goods and services in local markets, thereby encouraging business interactions and fostering employment generation and private sector growth. The Peace Dividend Marketplace has generated a total of 275 full-time jobs through just twenty-six contracts. As these twenty-six contracts represent only 30 percent of the total dollar value of all business deals concluded and only 4 percent of the total tenders circulated under this project, the actual number of all jobs created by the Peace Dividend Trust in Timor-Leste is considered to be much higher. 19 In addition, mass media is employed in Timor-Leste’s attempt to reach out to its youth, which relates to the third component of the World Bank’s strategy for youth development. Today, the youth accesses information more

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often through, and using a wider variety of, media than older generations and are less likely to rely on friends and neighbors for information than are their elders. The US-based non-governmental organization Search for Common Ground is tapping these insights into youth behavior and culture with the Youth Radio for Peace-Building program, which is supported by the US Agency for International Development. Available to young people in all thirteen districts in Timor-Leste, the program focuses on transforming the way in which youth deal with conflict and dispute and improving their developmental prospects by providing skill-building opportunities, media and outreach activities, and enhanced mechanisms for collaboration. Under Youth Radio for Peace-Building, young reporters across the districts file stories to produce the twenty-four-episode weekly radio magazine Babadok Rabenta! (“Drums of Peace!”). This is followed by a one-hour talk show hosted by local radio presenters who are trained in “Common Ground” talk show techniques. Under the fifth component of the World Bank’s youth development strategy is, among others, the government’s effort to streamline the juvenile justice system is worth mentioning. Juvenile justice plays a critical part in maintaining law and order in Timor-Leste because of the involvement of youth in past disturbances. Still, minors in legal and administrative detention often suffer severe violations of basic rights; many of them are denied the nurture and support so crucial to physical, social, and intellectual development to which every child, even if he or she is a criminal offender, is entitled, rendering them incapable of reaching their full potential. Minors who are legally implicated must have access to alternatives to detention, in addition to special protection and care at the pre-trial, trial, and post-trial stages and at the time of acquittal or release, in order to ensure their successful reintegration into society. Timor-Leste’s Ministry of Justice recently drafted the country’s first juvenile justice legislation with assistance from UNICEF. In addition, Timorese judiciary and security sectorscollaborated with UNICEF and human rights organizations to establish operational procedures of law enforcement for minors who are victims or at risk and incorporated them into training at the police academy as well as in the code of conduct of the national police PNTL’s Vulnerable Persons Unit. The future of a nation depends on harnessing the energy of young people and developing their full potential. The ultimate goal of the World Bank’s strategy on youth development in Timor-Leste is to transform the youth into productive members of the society. To respond to the needs of Timor-Leste’s labor market today and into the future, which has been already under strain of an acute shortage of skilled and semi-skilled labor in the process of country’s fast-paced reconstruction and development, can be the most important contribution that Timorese youth can make to the society. Recognizing the need to approach this issue in a more comprehensive manner, the Timorese govern-

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ment has established the Human Capital Development Fund 20 for building the technical and professional capacities necessary for strategic sectors of the economy within the framework of the Strategic Development Plan 2011–2030. Currently budgeted at US$ 220 million over the six-year period 2011 to 2016, the fund is intended, among other purposes, to support the Secretariat of State for Professional Training and Employment in organizing vocational programs for youth, as well as to provide scholarships and training grants in critical areas of public services, such as administration, public finance, natural resource management, health care, justice, law enforcement, and defense, from which many young people will likely benefit. Young people represent a tremendous asset for the present and future of Timor-Leste, and every opportunity to empower them and help them flourish must not be missed. FOSTERING EQUITABLE DEVELOPMENT The collapse of state institutions during wartime and its devastating consequences on delivery of social programs have a far-reaching impact on the welfare of the poorer, weaker, and less fortunate segments of the population, which may last even after peace takes hold. Furthermore, an urgent need to contain post-war fiscal deficits as accumulated to support war efforts will likely exert pressure on the recovering nations to drastically cut initial peacetime budgetary expenditures, including the aid to the vulnerable. Many of these nations are further obliged to follow the mandate of highly restrictive macroeconomic policy changes, or structural adjustments, that are imposed by donor governments and international financial institutions as conditions for the release of loans for closing deficits and stabilizing the economy. These imperatives of the post-conflict economy only render fragile states more ill-adapted to the needs of the vulnerable. As the reach of globalization extends to every corner of the world, many who live in fragile, post-conflict nations have received only mixed blessings, to say the least; quite a few of them have been pushed by globalization even further toward marginalization and deprivation. Through globalization, the integration of markets would have promised greater opportunity and benefit to the entire global community. Unfortunately, such advantages are not always shared equally amongst all and have rather created more pronounced disparities in income and socioeconomic status between the haves and havenots. The global community’s most down and out, many of whom are from conflict-affected and fragile nations, will likely never see the benefits of globalization. Even in successful post-war economies in which globalization has indeed given rise to a wave of progress, the benefits are not often distributed evenly, with the most disadvantaged continuing their struggle for mere

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survival. The acceleration of urbanization and the wider acceptance of market-based values in post-conflict society may have hastened the pace of erosion in traditional social networks in which vulnerable groups previously sought support and protection. The Strategic Development Plan 2011–2030 emphasizes fostering equitable development not only across the socioeconomic strata of the population but also among different regions of the country, including both urban and rural areas. Timor-Leste will be able to achieve this objective through the redistribution and transfer of petroleum revenues and development benefits expected under the plan to its most vulnerable citizens. The plan incorporates targeted intervention in the form of social security and safety nets to tackle poverty and social exclusion. Thanks to the well-stocked Petroleum Fund, Timor-Leste is fortunate enough to be able to undertake social programs without compromising its overarching goal to sustain high-pitched economic growth with heavy investments in infrastructure and industrial development. NOTES 1. For a detailed examination of the impact of armed conflict on children, see, for example: United Nations. (1996). Promotion and Protection of the Rights of Children: Impact of Armed Conflict on Children—Note by the Secretary-General (UN Doc. A/51/306). New York. 2. For a detailed examination of the impact of armed conflict on women, see, for example: United Nations. (2002). Report of the Secretary-General on Women, Peace and Security (UN Doc. S/2002/1154). New York. 3. Geneva Declaration on Armed Violence and Development. (2008). Global Burden of Armed Violence (Executive Summary). Geneva. 4. For a detailed examination of the impact of armed conflict on youth, see, for example: UNICEF, UN Population Fund, et. al. (2007). “Will You Listen?”—Young Voices from Conflict Zones. New York. 5. For sources of demographic information on Timor-Leste as referenced in this paragraph, see chapter 1. 6. Modvig, J., Pagaduan-Lopez, J., et al. (2000). Torture and Trauma in Post-Conflict East Timor. In Lancet (Vol. 356, Issue 9243, p. 1763). London: Elsevier Ltd. 7. Statistics on child health in Timor-Leste before and in the aftermath of the Popular Consultation as provided in this section are quoted, unless otherwise noted, from: World Bank. (2000). Improving Child Health in Post-Conflict Countries—Can the World Bank Contribute? Washington, D.C. 8. UNESCO. (2008). Timor-Leste-UNESCO Country Programming Document 2009–2013 (UHJAK/2009/PI/H/5). Jakarta. 9. Other human rights treaties to which Timor-Leste has acceded since the Restoration of Independence include: the International Covenant on Economic, Social and Cultural Rights; the International Covenant on Civil and Political Rights; the International Convention on the Elimination of All Forms of Racial Discrimination; the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment; and the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families. 10. Statistics on the condition of Timorese children as provided in this paragraph are quoted from: UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili. 11. Stunting is defined as below minus two standard deviations, and severe stunting as below minus three standard deviations, from the median height for a given age, according to the

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World Health Organization’s Child Growth Standards. Similarly, underweight is defined as below minus two standard deviations, and severe underweight as below minus three standard deviations, from the median weight for a given age, also according to the World Health Organization’s Child Growth Standards. For details, see: World Health Organization (WHO). (2006). WHO Child Growth Standards - Methods and Development. Geneva. 12. Information on the condition of Timorese women as provided in this section is based, unless otherwise noted, on: UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili. 13. World Health Organization (WHO), UNICEF, et al. (2010). Trends in Maternal Mortality: 1990 to 2008. Geneva: World Health Organization. 14. Domestic violence is not the only type of gender-based violence that Timorese women have faced over the course of the country’s history. According to a study by the UN Population Fund, the abuses that women endured during the Indonesian era included violations of reproductive rights (forced or coerced contraception), rape, sexual harassment, enforced slavery, and forced or coerced prostitution servicing Indonesian troops. Women were at particular risk of state-sanctioned sexual abuse if they or their partners were thought to have a relationship with the pro-independence armed forces. During the occupation, some women were active resisters, taking part in a clandestine resistance movement. For details, see: UN Population Fund. (2005). Gender-Based Violence in Timor-Leste—A Case Study. New York. 15. According to a labor force survey conducted by the Timorese government, the country’s overall unemployment rate for 2010 was 3.6 percent, with a wide gap in the rates for urban (6.9 percent) and rural (2.2 percent) areas. While these figures are comparable to those of other Southeast Asian countries, it is important to bear in mind the definition of employment used in this survey: “a person doing as little as one hour of paid or unpaid work during the reference week” was considered employed. The survey used additional indicators such as “under-employment rate” and “vulnerable employment rate” to describe prevailing trends in TimorLeste’s labor market. It indicated that those in vulnerable employment numbered 176,000, or about 70 percent of the total employed population across all sectors. The survey also concluded that there were over half a million “inactive” people in Timor-Leste, including about 50 percent of young people under the age of 20. Falling outside the survey’s “inactive” category were those enrolled in school or in training and others carrying out family duties such as work on family farms, for which a total of 292,000 Timorese were enumerated. It should be noted that, due to the shortage of employment opportunities in urban areas, urban migration will likely put many of those previously “employed” in family duties in rural areas into the unemployed or under-employed category and push the national unemployment rate even higher, with other things remaining the same. For details, see: UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili. 16. Information on the condition of Timorese youth as provided in this and preceding paragraphs is drawn from two World Bank studies: World Bank. (2007). Timor-Leste’s Youth in Crisis: Situational Analysis and Policy Options. Washington, D.C.; and World Bank. (2007). Timor-Leste Youth Development and the Labor Market: Summary of Findings and Options. Washington, D.C. 17. Ibid. 18. Quoted from the Education Management Information System of Timor-Leste’s Ministry of Education, as cited in: Timor-Leste. MDG Secretariat. (2010). Progress of Timor-Leste towards the Millennium Development Goals. Dili. 19. Statistics on the Peace Dividend Marketplace projects in Timor-Leste as provided in this paragraph are quoted from: Peace Dividend Trust. (n.d.). Peace Dividend Trust in Timor-Leste. Available at http://www.peacedividendtrust.org/index.php?sv=&category=Timor_leste. 20. For a detailed examination of the Human Capital Development Fund, see chapter 9.

Chapter Six

Mitigating and Adapting to Climate Change

Climate change is an unprecedented, fast-evolving global crisis that carries grave consequences across all segments of human society. First, climate change threatens food production by inducing shifts in weather patterns and intensifying the unpredictability of precipitation, which is likely to cause wild fluctuations in food prices. Unstable food prices pose an enormous challenge for those who make their living from farming, as well as for a vast majority of the world’s poor who spend a large share of their income on food. Second, climate change, which is known to trigger extreme weather events such as cyclones and tropical storms interspersed with heat waves accompanying droughts, tends to create disruptions in a wide range of human activities, to the substantial detriment to public welfare and business performance. A rapid, largely pole-ward spread of pests and vector-borne diseases in plant and animal species in the tropics is the third factor often cited as a consequence of climate change, which probably introduced major changes in these organisms’ natural habitats. For instance, according to the 2008 report The Sting of Climate Change published by the Lowy Institute, Sydney, mosquito-borne diseases, notably malaria and dengue fever, could spread as far south as the mid-Queensland region of eastern Australia due to the climateinduced rising temperatures, although the country has been free of malaria since 1962. 1 Last but not least, climate change is likely to have unleashed a significant rise in the sea level by elevating sea surface temperatures and accelerating ice losses. Since a group of climate change experts issued a warning in 2009 that the sea level was rising twice as fast as had been predicted in 2007 by the Intergovernmental Panel on Climate Change, a United Nations (UN) highlevel body responsible for the assessment of climate change, 2 there has been 99

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heightened concern for the hundreds of millions of people living on small islands as well as in coastal areas, deltas, and other low-lying lands, all of which are particularly susceptible to sea-level rises due to their fragile topographical conditions. 3 Small island nations take the brunt of climate change, although not one of them contributes extensively to a principal agent in the crisis: emission of greenhouse gases. According to the Intergovernmental Panel on Climate Change, small island nations account for less than 1 percent of global emissions of greenhouse gases. Yet, they are extremely vulnerable to almost all known adverse effects of climate change, including sea-level rises, which is a leading cause of a number of irreversible damages to the geophysical structures of small islands, such as permanent inundation, coastal erosion, and saline intrusion. 4 Since the adoption of the Kyoto Protocol at the Third Conference of the Parties to the UN Framework Convention on Climate Change in 1997, a number of global measures have been implemented to deal with the impacts of climate change, central among them the establishment of carbon trading instruments and the promotion of renewable energy and green technologies. 5 Still, all too often action at the global level is not translated into activities in individual communities that stand at the front line of the combat against climate change. 6 Communities in vulnerable developing countries, above all, are among the most critically tested by the strains of climate change. In addition to the multifarious effects of climate change, they are faced with a variety of developmental issues, including poor infrastructure, and lack of resources and capacities to tackle environmental, socioeconomic and other adversities besides their daily struggle to secure provisions as basic as food, water, and shelter. 7 For the Small Island Developing States (SIDS), dealing with the strains of climate change is an even more daunting task. Over and above the stressors common to all developing nations, the SIDS are further handicapped with intrinsic topographical obstacles such as spatial remoteness and isolation and a narrow resource base in the face of relatively high population growth. As climate change looms as a more formidable challenge than ever, there is an urgent need for the SIDS to enhance capacities for identifying, assessing, and monitoring climate risks and vulnerabilities, as well as to build systems of safety and resilience in preparation for disaster before it strikes. At the same time, the SIDS have to sustain and expand their current efforts in containing their own carbon footprint by promoting renewable energy and energy-efficient technologies, while preserving “blue carbon sinks”—mangroves, sea grass beds, salt marshes, and other inter-tidal plant cover—and inland vegetation in the delicate insular ecosystem. In the following, we briefly examine how Timor-Leste, as one of the SIDS, has responded to the growing menace of climate change.

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IMPACTS OF CLIMATE CHANGE ON TIMOR-LESTE To date, there has been minimal data collection and analysis of the impacts of climate change on Timor-Leste. Nevertheless, even without formally gathered information on hand, the country has been observed in recent years falling victim to torrential rains that have become not only so frequent but also more intense as a possible consequence of climate change. Two thirds of Timor-Leste’s territory consists of rugged terrain with varying degrees of elevation, two fifths of which is sloped with a grade of 40 percent or greater, and is covered by a overlying layer of topsoil with underlying Karst rocks that do not retain much water. As a result, flash floods and landslides accompanying heavy rainfalls can swiftly wash away plant cover as rendered by forests and crops, which is important not only in preserving the country’s agricultural productivity, but also in preventing flooding and landslide damage to its infrastructure and buildings. Indeed, flooding is now recognized as a serious year-round problem in Timor-Leste, as shorter dry seasons lasting for one to two months have become common in certain parts of the country. For example, from the beginning of January to mid-February in 2008, two active phases of extreme monsoonal storm activity produced severe localized winds, floods, and landslides, causing devastation to farms, roads, bridges, and homes in all thirteen districts across Timor-Leste. Relatively at the same time, three western districts in the country experienced locust infestations that led to a major crop failure in the region. This shifting climatic pattern is considered to be linked to climate change, which has presumably brought violent fluctuations in temperatures at sea surface surrounding this half-island nation, with the El Niño, an unusually warm current, and the La Niña, an unusually cool current, alternately dominating. There are yet additional concerns arising from the shifting weather pattern in Timor-Leste, including a possibility of worsening food security due to greater volatility in agricultural output; the expected rise in the incidence of flash floods and landslides, precipitated by the ongoing deforestation and land degradation; and chance of epidemic outbreaks of vector-, food-, and water-borne infectious diseases that are sensitive to climatic changes. Sea-level rises are another impact of climate change that is bearing down heavily on this small island state. Scientists from the Pacific Climate Change Science Program released a finding in 2011 that the sea level surrounding Timor-Leste has risen about 9 millimeters per year since 1993, much greater than the global average of 2.3 to 3.8 millimeters as cited in 2007 by the Intergovernmental Panel on Climate Change. They have concluded the study with a projection that if the intergovernmental panel’s medium emission scenario holds true, the sea level around Timor-Leste will likely rise between

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21 and 59 centimeters by 2090, which may cause coastal erosion and saline intrusion, if not permanent inundation, in coastal areas of the country. 8 Despite being at great risk from the multifarious impacts of climate change, Timor-Leste, like its fellow small island nations, is a minor emitter of greenhouse gases. The World Bank has estimated the country’s emissions for 2005 to be 176,000 tons, or 0.2 tons per capita, of carbon dioxide. This ranks low even among the Southeast Asian and Pacific nations. For instance, Timor-Leste releases much fewer greenhouse gases than neighboring Indonesia, whose per capita emissions of carbon dioxide measured 1.4 tons for the same year, and as much as Lao People’s Democratic Republic, one of the less developed nations in the region. 9 TIMOR-LESTE’S RESPONSE TO CLIMATE CHANGE In the process of reconstruction and state-building since the Restoration of Independence in 2002, Timor-Leste set the issue of environmental protection and sustainable development high on its policy agenda pursuant to its constitutional mandate. The national constitution, promulgated soon after independence was restored, upholds the fundamental right of citizens to a humane, healthy, and ecologically balanced life and declares the protection of the environment and promotion of sustainable development as one of the primary responsibilities of the state. 10 In a show of commitment to making a lasting and tangible contribution to the environment, Timor-Leste acceded by 2007 to all three conventions that resulted from the UN Conference on Environment and Development, held in Rio de Janeiro, Brazil, in 1992. Referred to collectively as the Rio Conventions, these are the UN Framework Convention on Climate Change, the UN Convention on Biodiversity, and the UN Convention to Combat Desertification. Following its accession to the Rio Conventions, the Timorese government conducted in 2005 the National Capacity Self-Assessment, a comprehensive stocktaking review of the country’s existing capacities and areas of concern for implementing the conventions. The assessment culminated with the proposal of six project concepts, with the overall goal of preparing the country to comply with all requirements of the Rio Conventions: (1) to develop a national education curriculum that incorporates lessons on key environmental issues as well as an introduction to the conventions; (2) to design national public awareness campaigns on the environment and the conventions; (3) to organize international conferences with the objectives to discuss major issues on the environment, and to consider important questions on environmental policy-making and management; (4) to secure access to financing mechanisms for environmental projects; (5) to build the capacities of government

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officials for environmental project planning and management; and (6) to strengthen national capacities for planning, monitoring, and evaluating activities implemented under the conventions. Upon the ratification of the Kyoto Protocol to the UN Framework Convention on Climate Change by the National Parliament in 2008, Timor-Leste obtained eligibility for access to the clean development mechanism funds for activities that can reduce greenhouse gas emissions. 11 The Timorese government is currently in the process of establishing procedures and building capacities in order to take advantage of this new opportunity. 12 At the same time, in its effort to meet all conditions for the full implementation of the convention, the government began drafting the Initial National Communication, which would not only indicate the level of inventory of the country’s greenhouse gas emissions and the extent of its risks and vulnerabilities to climate change, but also present a set of proposed measures to alleviate its impacts. The Timorese government also undertook preparation for the National Adaptation Programme of Action, 13 with support from the UN Development Programme and the Global Environment Facility. 14 The program provides opportunities for the least developed among developing nations to prioritize urgent and immediate adaptation needs for the purpose of mobilizing domestic resources and external assistance in the context of the UN Framework Convention on Climate Change, though it is not the requirement of the convention. Timor-Leste’s National Adaption Programme of Action lists the following as priority activities: (1) to strengthen the resilience of rural livelihoods in order to enhance national food security; (2) to improve the efficiency of water resource management to ensure people’s access to water against climate risks; (3) to enhance capacities in the health sector to protect the population from climate-induced diseases; (4) to preserve coastal ecosystems in the face of sea-level rises; (5) to reinforce institutional and human resource capacities to prepare for and respond to climate-induced disasters at national, district, and community levels; (6) to streamline legislative and regulatory frameworks for infrastructure projects, including in the petroleum sector, for boosting their structural integrity against climate change; and (7) to mainstream climate concerns in national strategic planning for sustainable development and poverty reduction. While working toward the full implementation of the Rio Conventions at home Timor-Leste has actively participated in intergovernmental negotiations on major environmental issues, most notably at the UN Climate Change Conferences. The 2009 conference in Copenhagen, Denmark, saw intense debate over the Bali Road Map, 15 with participants struggling to adopt a global plan for full, effective, and sustained implementation of the UN Framework Convention on Climate Change up to and beyond 2012, when the first commitment period of the Kyoto Protocol is set to end. Timor-Leste

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joined the group of developing countries and China to strongly advocate the position that industrialized countries should reduce their greenhouse gas emissions in aggregate by 45 percent below their 1990 levels by 2020 and by 80 to 95 percent by 2050; and that they should, in addition, take historical responsibility for emissions before the Kyoto Protocol by allocating 1.5 percent of their Gross Domestic Products (GDPs) to assist developing countries in taking measures to combat climate change. 16 At the 2010 UN Climate Change Conference, held in Cancun, Mexico, Timor-Leste, while expressing its frustration over the “failure” in Copenhagen to reach a consensus on the Bali Road Map, urged all parties to keep the Kyoto Protocol alive by instituting a second commitment period of legallybinding emissions targets for industrialized countries beyond 2012. TimorLeste also acted in concert with the group of small island states and African nations to support the position that the emission peak year should be reached by 2015 in order to ensure that the global average temperature will not rise over 1.5 degrees Celsius above pre-industrial levels. 17 Further, at the 2011 UN Climate Change Conference in Durban, South Africa, Timor-Leste formed alliance again with other small island states and underdeveloped nations and proposed, with a certain success, that the participating countries conclude new binding agreements on the reduction of emissions after the Kyoto Protocol and establish more ambitious emissions reduction targets for major developing as well as developed countries; many elements of the proposal were incorporated into the basis for the Durban Platform, which was adopted at the close of the conference. 18 The highlight of Timor-Leste’s intergovernmental negotiations on the environment in 2012 will be its participation in the Rio+20 Conference to commemorate the twentieth anniversary of the original 1992 United Nations Conference on Environment and Development in Rio de Janeiro. Ahead of this conference, an extensive stocktaking exercise was undertaken on what has been achieved and what remains to be achieved on environmental protection and sustainable development in Timor-Leste, encompassing a variety of domains, ranging from legal and administrative policy frameworks and institutional capacities to actions on the ground. Based on this exercise, report on the country’s progress toward the Rio goals was prepared by the Timorese government in collaboration with the United Nations, which will be presented to the conference. 19 TIMOR-LESTE’S CLIMATE CHANGE CHALLENGES Since the Restoration of Independence, Timor-Leste has been steadfast in its commitment to implementing the principles enshrined in the Rio Conventions while executing the mandate on the environment ascribed in the consti-

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tution. Still, substantial gaps remain between its efforts and the fulfillment of these requirements, including in the area of climate change. First, the Timorese government is faced by a major challenge in enforcing environmental protection due to an array of institutional bottlenecks, particularly in the areas of legal and administrative policy frameworks on environmental protection as well as of capacities for environmental policy administration and enforcement. It is nonetheless important to note that the development of a comprehensive national environmental policy and the consolidation of environmental legislation are on Timor-Leste’s priority policy agenda, particularly in the early stages of the Strategic Development Plan 2011–2030. Administrative regulations have been in place for some time in TimorLeste for protecting natural reserves and prohibiting logging and timber exports, most of which were introduced by the UN Transitional Administration for East Timor before the Restoration of Independence. Since independence was restored, the Timorese government has introduced a few additional regulations governing environmental protection. One was to designate the eastern end of the territory as the country’s first national park in its effort to preserve its unique marine and terrestrial ecology; another set forth the first national forestry policy that underscores, among others, the importance of community-based private forestry and participatory forest management. The latter regulation is intended in part to strengthen Tara Bandu, a set of customary laws on the community use of natural resources. In essence, Tara Bandu is an agreement made amongst the residents in a community on the protection of a certain kind of natural resources found within the community for a certain period of time, whether it be a variety of plant, crop, animal, or marine catch, or an area for harvesting, hunting, or fishing, in order to prevent overexploitation and the resulting damage to the ecosystem. Still, as Timor-Leste embarks on the large-scale infrastructural development under the Strategic Development Plan, which will likely leave a wide range of negative impacts on the environment, the current body of environmental laws and regulations in effect in the country is found to be far from being adequate. For example, the licensing system and its enforcement mechanisms for limiting pollution from an industrial project and safeguarding its surrounding environment did not exist in Timor-Leste until recently. Just as the country began its preparations for the multibillion-dollar construction of the Tasi Mane hydrocarbon supply base and refinery complex along its southern coast, the Council of Ministers issued in 2010 decree-law on the environmental licensing regime. The decree-law is designed to regulate awarding of the environmental license by making the environmental impact assessment a requirement for approval of any project involving extraction and processing of natural resources, infrastructural development, manufacturing, or agricultural exploitation.

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Further, the draft Basic Environmental Law is under review by the National Parliament, which is expected to provide a basis for Timor-Leste’s first national environmental legislation, with the objectives of establishing principles for conservation and sustainable use of natural resources and the environment, as well as of setting forth measures to preserve the value of natural assets and protect the quality of life of Timorese citizens. The draft law delineates the roles and responsibilities of state agencies and local authorities in enforcing the law, lays out environmental quality standards and procedures for upholding these standards through licensing and other enforcement mechanisms, and describes the means available for the resolution of environmental disputes and rectification of cases of violation. 20 Second, a dearth of environmental and meteorological data and lack of professional and technical resources for collecting, processing, and analyzing them are proving serious impediments to the Timorese government’s efforts in protecting the environment and coping with climate change. These include but are not limited to: the absence of greenhouse gas inventory and other climate-related data; a shortage of data collection tools and equipment; insufficient administrative capacity for routine data collection, monitoring, and reporting activities; and a scarcity of expertise in assessment of climate change impacts and research on adaptation options. Proposals are being prepared for accelerating the collection of baseline and other important data on the environment and expanding environmental training programs for public service personnel. This is an important start, but it must go much further in order to ensure adequate coverage and effectiveness in the delivery of environmental programs. The Timorese government hopes to draw on external donor assistance to build capacities for data collection, monitoring, and assessment as well as for management of project activities this sector. Third, Timor-Leste’s existing administrative coordination mechanisms have not sufficiently ensured the concerted engagement of its government ministries and departments in planning and implementing environmental policies and programs, including in the area of climate change. Within the government, the Ministry of Economy and Development is a focal point for climate change and is responsible for the development of coordinated national and sectoral policies for addressing climate variability and adaptation and mitigation issues. 21 It also works closely with other units of the government to cover subjects of common concern, such as conservation and sustainable use of natural resources, renewable energy development, and disaster preparedness and management. 22 However, administrative arrangements on climate change have been established only recently and are thus far centered on the ministerial level; they have not significantly involved district-, sub-district-, and village-level administrations. As a result, although there appears to be an understanding of climate change at the district level and below, neither the human resources assigned nor the funds allocated adequately reflect the

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scope and implications of controlling the hazards associated with climate change and other environmental problems as part of normal administrative functions. Timor-Leste’s work on climate change has just reached the initial phase of building legal foundations and institutional frameworks. The country has strived and will continue to do so to harness every opportunity to promote environmental protection and sustainable development in pursuit of its overarching goals of economic growth and poverty reduction. Presented below are some of the elements in Timor-Leste’s development efforts that have mainstreamed its concerns for mitigating and adapting to the adverse effects of climate change. Renewable energy Development Greenhouse gas emissions resulting from energy services are identified as one of the major contributors to the significant rise over years in atmospheric concentrations of greenhouse gases, one of the main causes of climate change. Even so, all societies require energy to meet basic human needs and service productive sectors. For developing countries, energy services play a crucial part in catching up with the other half of the world with higher incomes, more advanced technologies, and more favorable health and socioeconomic outcomes. The Intergovernmental Panel on Climate Change, in its 2011 special report on renewable energy, has pointed out that there are multiple options for lowering greenhouse gas emissions from energy services, even with all basic energy needs fully satisfied, including energy conservation and efficiency promotion, fossil fuel switching, adoption of renewable energy sources, nuclear power generation, and carbon capture and storage. Among these options, renewable energy has great potential not only for mitigating climate change, but also for providing much larger benefits, such as to cut air pollution and improve public health; to avoid polluting extractive activities by relying on easily available, inexhaustible raw input materials; and to protect and preserve the environment and non-renewable natural resources. 23 According to the World Bank, over 90 percent of the Timorese population continues to turn to firewood for cooking, even though its extensive use poses hazards to the environment; there is still relative abundance of firewood at low cost to consumers, compared with other energy sources such as kerosene, while options to substitute away from firewood are very limited. For instance, 68 percent of households in Timor-Leste do not have access to electricity, as they are not connected to the electrical power grid. Even where there is access, the high cost and low quality of electricity supply in the country have proved a disincentive not only for the households to use it to meet more of their energy needs, but also for the businesses to start or expand

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their operations by relying on it. As nearly all of Timor-Leste’s electricity is generated from imported diesel fuel, Timorese are obliged to pay among the highest electricity prices in Asia, at 18 to 20 cents per kilowatt per hour. What is more, there is a large urban-rural gap in the availability of electricity supply across the country. While the household electrification rate in the national capital Dili is about 85 percent, the rate falls to 18 percent and 5 percent in district capitals and rural areas, respectively. Even if there is access to electricity at all, the quality of supply is uneven, particularly outside Dili, where its availability is typically restricted to six hours per day. 24 Since 2008, when Prime Minister Kay Rala Xanana Gusmão announced his goal of bringing electricity to every district in the country by the end of 2009, the Timorese government has been working on the construction of a nationwide electrical power grid and three power plants in Hera, Comoro, and Betano. 25 However, for an estimated 50,000 households, or a quarter of the country’s population, most of whom live in dispersed rural settlements tucked in mountainous terrain, it may not be possible to significantly increase access to electricity for at least the next decade with only the conventional method of rural electrification via grid extensions. In this context, the development of renewable energy supply through solar and wind power, biogas, and small-scale hydroelectric power will emerge as a competitive strategy for delivering basic electricity services to off-grid communities in TimorLeste. 26 From 2007 to 2010, the Timorese government provided more than 2,000 solar photovoltaic (PV) systems to households and community centers in hard-to-reach areas of the country, at no cost to recipients. The government has since proposed to increase coverage of small-scale solar-based electrification through the application of the Millennium Development Goals Suco (village) Fund, which forms part of the Infrastructure Fund, 27 one of the major implementation mechanisms for capital development under the Strategic Development Plan 2011–2030. The proposal entails the installation of solar photovoltaic systems in 55,000 rural households by 2015, as part of the government’s effort to provide decent housing with basic amenities to the rural poor and equip rural communities with the small-scale sustainable infrastructure. In addition, the government is considering introducing biogas systems to the estimated 4,600 Timorese households that own at least one to two heads of cattle. One of the ultimate objectives for the energy sector under the Strategic Development Plan is to achieve energy access for all in Timor-Leste. Taking into account the needs of the fast-growing population and economy, the country’s power supply needs to be increased by five times from the current capacity to about 800 gigawatt hours by 2020 toward the attainment of this objective. Furthermore, the plan envisages meeting at least half of the energy needs in 2020 with renewable energy, which will help the country curtail its

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usage of expensive imported diesel oil, while contributing to reducing its greenhouse gas emissions. Assessments undertaken in preparation for the Strategic Development Plan have identified more than 450 megawatts of potential renewable energy sources for rural electrification, including smallscale hydroelectric power (252 megawatts), hydroelectric power with pumped storage (100 megawatts), solar power (22 megawatts), and biomass or solid waste energy (6 megawatts). 28 The sale of Timor-Leste’s carbon credits is also expected in the near future for financing some of these renewable energy projects, and the country’s new planning body, the National Development Agency, 29 will be responsible for ensuring timely and appropriate distribution of carbon credits, once received, among various projects. Still, non-renewable energy will continue to dominate as a means for fulfilling a majority of Timor-Leste’s energy needs into the foreseeable future. However, a switchover to cleaner fuels such as natural gas, which is abundantly available within its territory and territorial sea, is anticipated when the country will be able to extract, process, and transport on its own its natural gas as input for power generation as well as for direct consumption at home and in businesses. Improvement in Land Management The rate of build-up of carbon dioxide in the atmosphere can be reduced by taking advantage of the fact that carbon can accumulate in vegetation and soil in terrestrial ecosystems. Forests, for example, hold, in trees and the fertile soil under them, a large share of the carbon found on Earth. The role of human activities in the mitigation of climate change has long been recognized not only in forest-related exercises such as afforestation and reforestation, but also in land maintenance and improvement activities. The activities such as land use and land-use change can influence the level of carbon stocks on Earth by catalyzing interaction between the carbon pools of the terrestrial ecosystem and the atmosphere. The land’s capacity for carbon sequestration can be enhanced through improved agronomic practices with respect to nutrient use, tillage, and residue management, as well as through an effort to boost soil fertility by way of, among many others, composting and fallowing, or to prevent the unsustainable land use such as shifting cultivation. Timor-Leste acceded to the UN Convention to Combat Desertification in 2003, which was followed by its ratification by the country’s National Parliament in 2006. Under the convention, the Timorese government is required to submit a report periodically to the convention’s secretariat of the progress on the implementation of its principles. In order to facilitate this reporting process, the National Action Plan for Sustainable Land Management has been drafted by the government with the overall goal to ensure that agricultural, forest, and other terrestrial land use in Timor-Leste is viable enough to sus-

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tain the integrity of its ecosystem, even while supporting the country’s productive, social, and cultural activities. However, Timor-Leste, as it stands at present, has limited prospects for success in implementing the convention due to various institutional impediments, including a lack of scientific and technical capacities to conduct data collection, monitoring, and analysis on land use; inadequate legal and administrative policy frameworks governing land utilization, land tenure arrangements, and farm investment regimes and incentives; and the under-equipped authorities enforcing laws, regulations, and policies on land use and carrying out public land and forest management. For example, the data collected so far on land and forest use and management in Timor-Leste are not sufficient enough for the planning and administrative purposes. Yet, a pioneering study on land utilization was undertaken in cooperation with the World Bank in 2009. The study indicated that deforestation due to firewood gathering and logging is not currently of major concern on a national scale, but that anthropogenic factors such as slash-andburn farming, which is still practiced in upland areas, as well as the population growth and urban migration, which are occuring at highest rates in Southeast Asia, are expected to put strong pressure on land and forest in Timor-Leste. 30 Furthermore, the Timorese government recently led a nationwide assessment of forest resources using satellite imagery, with support from the European Union, the Food and Agriculture Organization, and bilateral aid agencies from Germany and Portugal. A number of pilot reforestation projects have also been initiated. Notable amongst them is the Dili City of Peace project, which will plant 80,000 trees on ten hillsides near the capital where deforestation is advancing at an astonishing speed. This project is being carried out by the government in cooperation with the International Organization for Migration. In order to reverse the depletion of forest resources while at the same time developing a sustainable industry in logging, a new forest management policy will be prepared under the Strategic Development Plan 2011–2030. The policy will also address the need for promoting sustainable, small-scale commercial tree-farming, which will cater to export markets, including those for high-value tropical hardwoods. 31 The development of forest resources will be undertaken in a manner that maintains a healthy balance between competing priorities for rural development, notably the need for the conservation of nature versus the urgency to bolster rural livelihoods. Rural livelihoods are another important goal for rural development the Strategic Development Plan, as well as in the context of the National Adaptation Programme of Action for implementing the UN Framework Convention on Climate Change. Timor-Leste recently received an allocation of US$ 4.6 million from the Global Environment Facility for rural water infrastructure, one of the

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activities identified for strengthening rural livelihoods under the National Adaptation Programme of Action. Disaster Risk Management Extreme weather events as triggered by climate change have become a major threat not only to the immediate survival but also the long-term livelihoods of communities around the world, to which Timor-Leste is no exception. The impacts of climate volatility in Timor-Leste have further been exacerbated by deforestation, which is occurring at an estimated annual rate of 1.2 percent forest cover lost. Coupled with torrential rains that the country has been increasingly experiencing, deforestation is identified as one of the main causes of soil erosion and landslides in upland areas, of which not only a greater number of events, but also more extensive damage per event, have been reported in recent years; deforestation is on the otherhand thought to be a principal contributing factor for repeated flash flooding and rapid accumulation of gravel in downstream rivers. 32 Hence, climate variability increases the risks of climate-related disasters. The risks become more imminent for countries and regions that are already disaster-prone, including small island nations such as Timor-Leste. If disaster risks are not adequately prepared for and reigned in for these vulnerable countries ahead of actual outbreak, climate-related catastrophes could result in great loss of human life and the devastation of livelihoods in many communities, while causing serious damage to homes, buildings, and infrastructural facilities. In 2008, the Timorese government adopted the National Disaster Risk Management Policy, which represents a shift from the traditional crisis response to more comprehensive management of disaster and climate change risks. It provides a general framework for the government’s efforts to reduce risks and vulnerabilities through the consolidation of activities across sectors of the nation and strengthening of both national and local capacities. Prepared with support notably from the United Nations, the policy aims to achieve the following objectives: to promote the integration of disaster management in different ministries and departments within the government; to improve the coordination of disaster risk management amongst all relevant segments of the civil society, at organizational as well as operational levels; and to achieve a higher level of operational and financial sustainability in disaster preparedness and relief operations through the elimination of duplication and overlap in activities. Furthermore, the National Disaster Risk Management Policy calls for increased coordination below the national level, in districts, sub-districts, and villages. District disaster management committees as established under the policy are given full decision-making authority in times of disaster, with

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senior district administrators designated as district coordinators for disaster response. However, a significant amount of work remains before TimorLeste can implement the policy effectively, due to the lack of technical and administrative capacities at the local level. The government has sought to fill these gaps, in a way, with support from external donors and non-governmental organizations. For example, the UN Development Programme has been assisting in setting up disaster operation centers at the national and district levels within the context of this disaster management policy. SMALL ISLAND NATION AND SUSTAINABLE DEVELOPMENT The small island nations are under enormous strain from the myriad of environmental, economic, social, and other kinds of threats and susceptibilities arising from inherent geographical and geophysical conditions. Such strain is likely to manifest itself as issues such as low resilience to natural disasters; heavy pressure on delicate ecosystems from growing populations; limited prospects for expansion in domestic markets and resource bases; and high costs for energy, transportation, communications, and other vital services. For the small island nations, the impacts of climate change are added to these prima facie bottlenecks. In negotiating these bottlenecks while coping with climate change, the small island nations must be creative in devising strategies for their survival and prosperity; the most ideal among them would involve promoting energy-efficient measures and renewable energy sources that are affordable and readily adaptable; instituting systems of protected natural areas in order to preserve biodiversity in a confined geographic space; and enhancing connectivity with the rest of the world with the use of information and communication technologies in order to overcome their remoteness, isolation, and other inherent handicaps. As a small island nation that successfully regained the path to reconstruction and then to development after years of conflict, Timor-Leste must now confront climate change and its impacts as a burden additional to the historical hardships and socioeconomic obstacles that the country has long endured. This is notwithstanding the fact that climate change as affecting this island nation is part of a global-scale phenomenon, triggered primarily by human activities carried out outside of its own territory. Any single nation, even if it stands together as one powerful force, cannot alone tackle this seemingly insurmountable challenge. Timor-Leste needs to muster closer cooperation with the international community, so that it can draw on wide-ranging expertise and resources for addressing the multifarious impacts of climate change, which is inflicting increasing damage to the country’s fragile insular ecology. The international community should in turn be well aware that climate change is unique among the host of predicaments that

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we as a human society face today, as it is a consequence of living together as part of a progressively interdependent world. The international community must accept this truth and act in concert, upon the principles of shared vulnerability and mutual responsibility, to support Timor-Leste in implementing all relevant initiatives and actions to combat climate change and assist the nation to the full extent of its ability, as it pursues its developmental goals without compromising the integrity of its delicate ecosystem. NOTES 1. Potter, S. (2008). The Sting of Climate Change—Malaria and Dengue Fever in Maritime Southeast Asia and the Pacific Islands (Lowy Institute Policy Brief). Sydney: Lowy Institute for International Policy. 2. Richardson, K., Steffen, W., et al. (2009). Climate Change: Global Risks, Challenges & Decisions (Synthesis Report). Copenhagen: University of Copenhagen. 3. The Intergovernmental Panel on Climate Change estimated that 600 million people would occupy coastal floodplain land below the 1,000-year flood level by 2100. For details, see: McCarthy, J., Canziani, O., et al. (Eds.). (2001). Climate Change 2001—Impacts, Adaptation, and Vulnerability (Contribution of Working Group II to the Third Assessment Report of the Intergovernmental Panel on Climate Change). Cambridge: Cambridge University Press. 4. Ibid. 5. As one of its main features, the Kyoto Protocol prescribes legally binding targets for thirty-seven industrialized countries and the European community for reducing greenhouse gas emissions by an average of 5 percent of 1990 levels over the five-year period 2008 to 2012. These countries have worked to reduce their emissions with the help of three implementation mechanisms provided for by the protocol, namely, emission trading, which allows countries that are below their emission targets to sell these excess capacities to countries that are overtarget; a clean development mechanism, through which a signatory country may finance emission reduction projects in developing countries and receive credits toward its own emission target; and joint implementation projects, through which a signatory country can earn credits toward its emission target from emission reduction activities in another country. For details, see: UN Framework Convention on Climate Change. (n.d.). Kyoto Protocol. Available at http:// unfccc.int/kyoto_protocol/items/2830.php. 6. For example, the executive director of the UN Human Settlements Programme remarked during the UN Climate Change Conference in Bali, Indonesia, in 2007—and made similar remarks on many other occasions—that “to date, the measures we envisage at the global and national levels have yet to be accompanied by concerted measures at the city and local levels.” See: UN Human Settlements Programme (UNHABITAT). (2007). Statement Made by the Executive Director During United Nations Climate Change Conference in Bali. Available at http://www.unhabitat.org/content.asp?cid=5502&catid=14&typeid=8. 7. A host of programs and funding mechanisms are in place for assisting developing countries in coping with climate change within the framework of the Kyoto Protocol. For example, the Cancun Adaptation Framework adopted at the 2010 UN Climate Change Conference in Cancun, Mexico, identifies adaptation as one of the key building blocks for a strengthened future response to climate change for the rest of the Kyoto Protocol period and beyond and calls for enhanced action on adaptation, including through international cooperation, taking into account each recipient country’s development needs and circumstances as well as its specific national priorities and objectives. The National Adaptation Programmes of Action (NAPAs) provide opportunities for the least developed among developing countries to prioritize urgent and immediate adaptation needs for the purpose of mobilizing domestic resources and seeking external assistance. Available funding mechanisms cover a range of areas and include the Adaptation Fund, which supports adaptation activities with proceeds from clean development mechanism operations; the Global Environment Facility Trust Fund, which fi-

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nances impact, vulnerability, and feasibility assessments as well as the preparation and implementation of adaptation and mitigation measures; and the Least Developed Countries Fund, which facilitates the preparation and implementation of NAPAs. For details, see: UN Framework Convention on Climate Change. (n.d.). Adaptation. Available at http://unfccc.int/adaptation/items/4159.php. 8. Timor-Leste National Directorate of Meteorology and Geophysics, Australian Bureau of Meteorology, et. al. (2011). Current and Future Climate of Timor-Leste (Pacific Climate Change Science Program series). Available at http://www.cawcr.gov.au/projects/PCCSP/pdf/ 5_PCCSP_East_Timor_8pp.pdf. 9. Statistics on greenhouse gas emissions of Timor-Leste and other nations as provided in this paragraph are quoted from: World Bank. (2009). Timor-Leste Country Environmental Analysis. Available at http://siteresources.worldbank.org/INTTIMORLESTE/Resources/ TL_CEA_18Aug09_Tetum.pdf . 10. Timor-Leste. Office of the President. (2002). The Constitution of the Democratic Republic of Timor-Leste, Section 56 (Social Security and Assistance), Articles 6 and 61. Dili. 11. Under the clean development mechanism, emission reduction (or emission removal) projects in developing countries permit project-executing industrialized countries to earn certified emission reduction credits, which can be used to meet a part of their emission reduction targets under the Kyoto Protocol. For details, see: UN Framework Convention on Climate Change. (n.d.). About CDM. Available at http://cdm.unfccc.int/about/index.html. 12. As of early 2012, the newly established National Development Agency, which is designated as a national focal point for administering the clean development mechanism funds, was not yet in a position to utilize this eligibility and access the funds. 13. The Timorese government submitted its National Adaptation Programme of Action to the secretariat of the UN Framework Convention on Climate Change in 2011. The document is publically available at http://unfccc.int/resource/docs/napa/tls01.pdf. In addition, the government prepared the National Biodiversity Strategy and Action Plan and the National Action Plan for Sustainable Land Management for implementing the other two Rio conventions. Both are awaiting approval of the Council of Ministers. 14. The Global Environment Facility, an independent financial organization, provides grants to developing countries and transitional economies for projects relating to biodiversity, climate change, international waters, land degradation, the ozone layer, and persistent organic pollutants. Established in 1991, the facility is today the largest funder of projects for improving the global environment. It has allocated US$ 9.5 billion to date, supplemented by more than US$ 42 billion in co-financing, for over 2,700 projects in more than 165 countries. Through its Small Grants Programme, the Global Environment Facility has also made more than 12,000 small grants directly to non-governmental and community organizations, totaling US$ 495 million. Financing for the facility comes from the United Nations and regional banks such as the European Bank for Reconstruction and Development, the Inter-American Development Bank, the African Development Bank, and the Asian Development Bank. 15. At the UN Climate Change Conference held in Bali, Indonesia, in 2007, governments around the world agreed to step up their efforts to combat climate change and adopted the Bali Road Map, consisting of a number of forward-looking actions for realizing a climate-resilient future. As an important component of the Bali Road Map, the Bali Action Plan prescribed a new negotiating process under the UN Framework Convention on Climate Change and made specific reference to the ongoing debate at that time over the Kyoto Protocol, especially with regard to the 2009 deadline for deciding whether to institute another set of emission reduction targets beyond the end of the protocol’s first commitment period in 2012. Negotiations over the protocol also touched on other key issues such as the transfer of low-carbon technologies, enhanced mitigation and adaptation measures, and response strategies for deforestation. For details, see: UN Framework Convention on Climate Change. (n.d.). The United Nations Climate Change Conference in Bali. Available at http://unfccc.int/meetings/cop_13/items/ 4049.php. 16. For a full report on the 2009 UN Climate Change Conference in Copenhagen, Denmark, see: UN Framework Convention on Climate Change. (n.d.). The United Nations Climate

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Change Conference in Copenhagen. Available at http://unfccc.int/meetings/cop_15/items/ 5257.php. 17. For a full report on the 2010 UN Climate Change Conference in Cancun, Mexico, see: UN Framework Convention on Climate Change. (n.d.). The United Nations Climate Change Conference in Cancun. Available at http://unfccc.int/meetings/cop_16/items/5571.php. 18. For a full report on the 2011 UN Climate Change Conference in Durban, South Africa, see: UN Framework Convention on Climate Change. (n.d.). The United Nations Climate Change Conference in Durban. Available at http://unfccc.int/meetings/durban_nov_2011/ meeting/6245.php. 19. Timor-Leste. Ministry of Economy and Development. (2012). Sustainable Development in Timor-Leste—National Report to the United Nations Conference on Sustainable Development on the Run-up to Rio+20. Dili. 20. For the unofficial English translation of the draft Basic Environmental Law, see: TimorLeste. Secretariat of State for Environment. (2011). Draft Basic Law on Environment. Available at http://www.laohamutuk.org/Agri/EnvLaw/LeiAmbientalEsboso27Jan2011En.pdf. 21. The Timorese Secretariat of State for Environment in the Ministry of Economy and Development has as a primary responsibility environmental monitoring, control, and protection as well as management of international environmental affairs. To address climate change adaptation and mitigation issues specifically, the ministry has established two specializing agencies, the National Directorate for Environmental Services and the National Directorate for International Environment Affairs, and has designated the latter as a national focal point for climate change. For details, see: World Bank, Global Facility for Disaster Reduction and Recovery, et al. (2010). Reducing the Risk of Disasters and Climate Change Variability in the Pacific Islands - Timor-Leste Country Assessment. Available at http://siteresources.worldbank.org/INTTIMORLESTE/Resources/TIMORLESTEASSESSMENT.pdf. 22. Timor-Leste’s Ministry of Economy and Development collaborates with the Ministry of Agriculture and Fisheries for matters of the climate adaptation of crops and farming techniques, forest conservation, and marine resource preservation. The ministry also works with the Ministry of Infrastructure on water resource management and waste disposal; with the Secretariat of State for Energy Policy on the development of renewable energy; and with the National Disaster Management Office on disaster prevention and control. For details, see: World Bank. (2009). Timor-Leste Country Environmental Analysis. Available at http://siteresources.worldbank.org/INTTIMORLESTE/Resources/TL_CEA_18Aug09_Tetum.pdf. 23. For a detailed examination of the development of renewable energy in the context of climate change, see: Edenhofer, O., Madruga, R., et al. (Eds.). (2011). Renewable Energy Sources and Climate Change Mitigation: Special Report of the Intergovernmental Panel on Climate Change (Contribution of the Technical Support Unit, Working Group III). Cambridge: Cambridge University Press. 24. Statistics on Timor-Leste’s energy situation as provided in this paragraph are quoted from: World Bank. (n.d.). Timor-Leste: Energy Brief. Available at http://web.worldbank.org/ WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/TIMORLESTEEXTN/ 0,,contentMDK:20876458~pagePK:141137~piPK:141127~theSitePK:294022,00.html. 25. The project, entitled “Construction of the Nation-wide Electrical Power Grid and the Power Plant and its Facilities,” included in its original form the erection of two heavy fuel oil power plants with a total electricity generation capacity of 180 megawatts. It was initially estimated to cost close to US$ 400 million over the period 2008 to 2011. A Chinese company proposed a design for the plants involving the installation of engines and generators that had been in use in China for more than two decades and eventually secured its adoption with the Timorese government. The government held a groundbreaking ceremony for the project in 2009, but over the course of the year, it faced growing criticism for its expense, possible environmental impacts, and procurement procedures. The government ultimately suspended the project, substantially revising its design and contractual arrangements. In 2011, a part of the contract relating to the construction of power plants was awarded to an Indonesian concern that has since retained a subcontracting agreement with Finnish energy giant Wärtsilä. The cost of the project was reassessed significantly upward to a total of US$ 818 million for the period 2011 to 2013. For details, see: La’o Hamutuk. (n.d.). Power Plant and National Electrical

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Grid: Mega-Project or Mega-Problem? Available at http://www.laohamutuk.org/Oil/Power/ HeavyOilPowerPlant.htm. 26. In addition, the Timorese government also plans to develop decentralized mini-grids where small-scale hydrocarbon resources such as oil and gas seeps are available. For details, see: World Bank. (2010). Timor-Leste: Key Issues in Rural Energy Policy. Washington, D.C. 27. For a detailed examination of the Infrastructure Fund, see chapter 9. 28. For a detailed examination of the development of renewable energy in Timor-Leste, see: World Bank. (2010). Timor-Leste: Key Issues in Rural Energy Policy. Washington, D.C. 29. For details on the National Development Agency, see Chapter 9. 30. World Bank. (2009). Timor-Leste Country Environmental Analysis. Available at http:// siteresources.worldbank.org/INTTIMORLESTE/Resources/TL_CEA_18Aug09_Tetum.pdf. 31. The Strategic Development Plan envisages the creation of a number of communitybased nurseries to grow one million seedlings annually for replanting. In addition, a strategy for the planting and marketing of bamboo will be prepared to promote cultivation of this plant for reforestation and erosion-control purposes. 32. Timor-Leste. (2008). State of the Nation Report 2008. Dili.

Chapter Seven

Implementing Millennium Development Goals

In September 2000, world leaders gathered at the United Nations (UN) Millennium Summit in New York and adopted the UN Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and deprivation and setting out a series of time-bound targets toward this end, which have become known as the Millennium Development Goals (MDGs). The eight MDGs, ranging from halving extreme poverty to providing universal primary education and halting the spread of HIV/AIDS, all to be achieved by the target date of 2015, form a blueprint agreed to by all nations around the globe and leading international institutions to meet the needs of the world’s poorest and weakest. The MDGs are: • • • • • • • •

Goal 1: Eradicate extreme poverty and hunger Goal 2: Achieve universal primary education Goal 3: Promote gender equality and empower women Goal 4: Reduce child mortality Goal 5: Improve maternal health Goal 6: Combat HIV/AIDS, malaria, and other diseases Goal 7: Ensure environmental sustainability Goal 8: Develop a global partnership for development

The eight goals are disaggregated into twenty-one quantifiable targets that are measured by sixty indicators. 1 2

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MDG ARCHITECTURE IN TIMOR-LESTE When world leaders pledged their commitment to the MDGs in 2000, TimorLeste was governed by a transitional administration under the tutelage of the United Nations and would not see independence restored for almost another two years. It was only upon its admission to the United Nations following the Restoration of Independence in 2002 that Timor-Leste entered the global partnership for achieving the MDGs and began its journey of fulfilling its share of the global commitment, when other nations were already well into this process. On the policy agenda for post-conflict reconstruction in Timor-Leste, top priorities were given to the rehabilitation of those Timorese who had been battered by the long, drawn-out turmoil and a marked improvement in their living conditions. The MDGs have provided the nation with a useful framework for planning its recovery and rebuilding, as they concern the needs of the poorest and most vulnerable, whose welfare has always been one of the constant preoccupations of its decision maker and policymakers. Given the importance of fully integrating the MDGs into Timor-Leste’s national planning structure, 3 and in order to promote a Timorese-owned and driven process toward achievement of their MDG targets in a more systematic and coherent manner, the following mechanisms have been instituted: • • • •

National MDG Steering Committee MDG Secretariat MDG Joint Programs MDG Focus Country Initiative

The National MDG Steering Committee is the Timorese government’s primary policy coordination mechanism for promoting national progress toward achievement of the MDGs. Members of the committee include the Ministers of Finance (Chair); Agriculture and Fisheries; Education; Health; Infrastructure; and State Administration and Territorial Planning; as well as the Secretaries of State for Professional Training and Employment and the Promotion of Equality. The office of MDG Secretariat, which is part of the Ministry of Finance, assists the National MDG Steering Committee in guiding the nation toward the MDGs. The basic functions of the MDG Secretariat include (1) to sensitize the Council of Ministers to what each ministry can contribute to the achievement of specific MDGs and their national targets; (2) to facilitate the Council of Ministers in re-examining and re-defining, when necessary, current national MDG targets, taking into account the context specific to TimorLeste; (3) to assist the government in identifying areas where resources can

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be further invested to achieve the MDGs; and (4) to analyze and present solutions to bottlenecks that hinder full achievement of the MDGs by 2015. The MDG Joint Programs are designed by the United Nations to bolster efforts in meeting the millennium goals country-by-country, in most cases, through strengthening the coordination among various UN organizations that support a particular country. The programs are often delivered in the form of enhanced assistance in specific areas or sub-areas of the MDGs. There are currently two MDG Joint Programs in operation in Timor-Leste. The MDG Joint Program on Nutrition is intended to address chronic and acute undernutrition among the Timorese and is carried out jointly by four UN agencies. The MDG Joint Program on Gender Equality aims to collaborate with the Timorese government in protecting women from violence, sexual abuse, and economic and other types of hardships by ensuring their access to relevant resources and services. This second joint program mobilizes a broad-front collaboration for implementation, involving twelve government ministries and departments, five UN agencies, and a number of non-governmental organizations. Finally, Timor-Leste receives special support from the MDG Achievement Fund, 4 an international cooperation mechanism whose objective is to accelerate progress on the MDGs worldwide by working with national governments, local authorities, and non-governmental organizations. The fund provides financial and technical aid to implement advocacy, monitoring, and evaluation strategies in national and local campaigns against poverty and inequality that are proven effective. Timor-Leste is one of the nine countries that were selected in 2010 to receive assistance from the MDG Achievement Fund. PROGRESS TOWARD ACHIEVEMENT OF THE MDGS: A SUMMARY Despite the deep-seated problems inherent to a post-conflict society, such as wide-spread deprivations and a paucity of resources to rectify them, in a backdrop of occasionally recurring security breaches, Timor-Leste has made steady progress, even as a late entrant to the MDG process, toward achieving the eight goals by the target date of 2015. It has already secured Goal 4, to reduce child mortality, and is on track for full attainment of Goal 2, for primary education, and Goal 7, for environmental sustainability, to the extent of ensuring safe drinking water to a majority of the population by 2015. Yet, formidable challenges stand firm, in particular to Goal 1, for poverty eradication; Goal 5, for maternal health; Goal 6, for combatting HIV/AIDS, malaria, and other preventable diseases; and Goal 7 to the extent of access to sanita-

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tion. In the following, a brief review of Timor-Leste’s progress toward the MDGs is presented. Statistics are cited from 2009, unless otherwise noted. 5 Goal 1: To Eradicate Extreme Poverty and Hunger Recent years have seen little improvement in poverty across Timor-Leste. Forty-one percent of the population lives under the poverty line as of 2009, defined for Timor-Leste as living on an income of less than US$ 0.88 per day. About 80 percent of the population depends on agriculture as a primary source of income. However, due to the fact that low-productivity subsistence farming dominates this sector, the contribution of agriculture to the Timorese national economy is limited to one sixth of its non-oil Gross Domestic Product (GDP). Neither does the rest of the economy perform much better in this respect, as the country’s effort to reform its economy has not gone far enough to generate substantial employment outside of the agriculture sector. With the highest population growth in Southeast Asia, at an annual rate of 2.4 percent, Timor-Leste is home to a populace 53 percent of which is below the age of 19. This high proportion of youth funnels about 15,000 new job seekers into the country’s labor market annually, but jobs growth has not kept pace with the fast-growing demand for employment opportunities. Timor-Leste’s unemployment rate currently stands at 33 percent for those aged 25 to 34, according to a 2010 government survey. 6 Under such circumstances, the country faces a particularly daunting challenge in the national MDG target on poverty: to reduce the percentage of the population living under the poverty line to 14 percent by 2015. Food insecurity and under-nutrition pose another impediment to TimorLeste’s achievement of Goal 1. In 2001, 45 percent of children under the age of five were underweight, which by 2007 had risen to 49 percent, reflecting the deterioration in living conditions that Timorese children endured during and following the 2006 crisis; the proportion of underweight children reduced slightly to 45 percent by 2009. The national MDG target for this measure is set at 31 percent prevalence of being underweight among children by 2015, which is widely considered achievable on Timor-Leste’s current track of investment and commitment. Yet, looking beyond the MDG deadline, Timor-Leste will be required to further expand domestic food production in its struggle against food insecurity and under-nutrition. Timor-Leste currently imports more than half of its food requirements. This heavy dependence on imported food has left its domestic food prices susceptible to fluctuation-inducing exogenous factors such as global market trends and internal security situations, which affect primarily the poor, as they spend a larger proportion of their income on food than those in higher income brackets. At present, the achievement of Goal 1 to eradicate poverty and hunger in Timor-Leste calls for a range of urgent actions, including:

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• To increase the yield and production especially of staple foods in order to attain national self-sufficiency in basic foods; • To control inflation and maintain purchasing power among the poor; • To promote investment in commerce and manufacturing in order to foster employment growth outside of the agriculture sector; and • To advance sustained food and nutrition security for children under the age of five and pregnant and lactating mothers. Goal 2: To Achieve Universal Primary Education One of Timor-Leste’s most urgent needs is to nurture the dominant youthful segment of its population with quality education services with the aim to ensure their productive and creative contribution to the country’s future. The Timorese government has devoted a considerable amount of effort toward the MDG achievement on education, and to a fruitful end: Timor-Leste is on track to secure the national MDG target of 100 percent net enrollment at the primary school level by 2015. The net enrollment ratio, or the proportion of children of official primary school age who are confirmed enrolled in a school program, measured 65 percent at the time of the Popular Consultation in 1999. It rose steadily until 2004, but then slid over the next three years to 66 percent in 2007, taking a particularly steep dip after the 2006 crisis triggered a fallout from education, among other sectors. Eager to reverse its path back toward fulfillment of this MDG target, the Timorese government fortified its campaign to enroll children of school age and attained 83 percent net enrollment by 2009. Timor-Leste is nevertheless struggling to increase graduation rates of those who do successfully enroll in a school program. In 2009, only 65 percent of students who entered the second grade reached the fifth grade. While the national MDG target for primary school enrollment will likely be reached in Timor-Leste by 2012, the national retention target of 100 percent through the fifth grade by 2015 may prove a much greater hurdle. TimorLeste’s Base Law for Education, promulgated in 2008, ensures all children under the age of 17 access to free basic education, but the country’s overwhelmingly young population will strain the available resources for education, including teaching staff, school facilities, and instructional materials, in upcoming years. The country has set an additional national target under Goal 2, to achieve universal literacy in the 15- to 24-year-old segment of the population by 2015, which will not likely be attained without additional effort and investment. The following issues, among others, require attention for Timor-Leste to achieve the national MDG targets for education:

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• To expand primary school facilities and resources, including teaching staff and instructional materials in order to accommodate Timor-Leste’s fastgrowing child population; • To improve access to quality basic education in remote areas and hard-toreach communities in order to address regional and socioeconomic disparities; and • To increase access to informal training in reading and writing for youth and adults. Goal 3: To Promote Gender Equality and Empower Women The Timorese constitution guarantees equity in opportunity and access to all rights, but vulnerable segments of the population, including women and girls, do not always enjoy equal treatment. Although Timor-Leste has seen progressive gender policies adopted since the Restoration of Independence, most Timorese women are still restrained by traditional patriarchal values and a strictly domestic role. In the area of education, for instance, although more girls attended the primary level than boys in 2008, at a ratio of 102 to 100, the ratio decreases in higher levels of education. At the pre-secondary level, female and male students attended school at a ratio of 84 to 100 in 2008, which further declined at the secondary level to 72 to 100 for the same year. To see the gender disparity in school attendance overcome and to offer the same educational opportunities through primary, secondary, and post-secondary education among females and males by 2015, it is important that Timor-Leste remove the bottlenecks to information, economic opportunity, and autonomy that girls and young women face today. Still, Timorese women have made remarkable headway in their economic and political participation, considering the gender bias that continues to prevail in these domains. Women constitute a substantial portion of TimorLeste’s agriculture workforce, with approximately 88 percent of women in the country engaged in this sector in 2007, primarily in the form of subsistence farming. Women are also active in non-formal sector trading, often in the form of selling produce in open markets and managing kiosks, and are estimated to own more than 40 percent of Timor-Leste’s micro-size businesses, although they are largely absent from the formal sector. Women’s expanding role in Timor-Leste’s political landscape is seen, in a way, in the proportion of seats they hold in the National Parliament, which rose from 27 percent in 2001 to 29 percent in 2011. For the purpose of further enhancing women’s role in national politics, a 2011 amendment to the country’s 2006 election law requires that at least one woman be fielded per three candidates in the contest for any parliamentary seat. Timor-Leste’s national MDG target of 35 percent parliamentary seats held by women by

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2015 will be within reach as the forthcoming parliamentary elections in mid2012 will more likely result in their favor, especially in view of this amendment. To achieve this third MDG goal, Timor-Leste must promote gender equality and the empowerment of women by introducing further reform across sectors of its society. The following strategies might be considered: • To re-focus educational policies to better encourage girls to continue education into the higher grades, while promoting public awareness about the value of education for girls and boys alike; • To motivate women to enter the wider labor market by increasing work opportunities outside of the agriculture sector, while facilitating increased investment in industries and businesses that encourage women’s employment; • To re-examine current tax laws and labor regulations in order to identify the barriers to women’s participation in the labor market, while strengthening the anti-discrimination enforcement in hiring and workplace practices; and • To empower women and inspire them to engage in politics nationally, regionally, and locally, so that they are heard in the decision-making process at all levels. Goal 4: To Reduce Child Mortality Timor-Leste has hit important milestones in reducing child mortality in recent years. In 2002, 125 out of every 1,000 children died before reaching the age of five, which was almost halved to 64 out of every 1,000 children by 2009. Similarly, in 2002, 88 out of every 1,000 children died before reaching the age of one, which was nearly halved to 45 out of every 1,000 children by 2009. These numbers are a shining victory for Timor-Leste, as the nation has met its MDG targets for reduced child mortality for 2015—96 deaths per 1,000 live births for infants under the age of one and 53 deaths per 1,000 live births for children under the age of five—six years ahead of deadline. Still, a vast regional disparity in access to child health care remains. For example, the proportion of children immunized against measles totaled 68 percent nationwide in 2009. However, while districts such as Aileu and Lautém attained greater than 80 percent immunization against measles for children, in the Ainaro district only a little more half of them were administered the immunization. The 2015 national MDG target of 100 percent immunization against measles will be met only if such regional disparities are addressed in earnest. Timor-Leste faces a number of other challenges to child health, including limited availability of health care facilities and capacities for case manage-

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ment, lack of effective health monitoring and disease surveillance systems, a shortage of skilled health care providers, and a poor knowledge base in child health among the public. The following interventions, among others, appear to be critical for further reducing infant and child mortality in Timor-Leste: • To enhance coverage and effectiveness of essential maternal, infant, and child health care by building on the efforts thus far of the Timorese Ministry of Health (1) to strengthen long- and medium-term strategic planning for the health sector and annual planning and budgeting exercises for public health administration; (2) to further promote the integrated community approach and decentralized administrative structure for the delivery of primary health care; and (3) to reinforce capacity-building among healthcare providers as well as training in epidemiological monitoring and surveillance for public health staff; • To place greater emphasis on policies and strategies that contribute to the reduction of infant and child mortality, such as delayed marriage and birth spacing, access to essential obstetric care and treatment of preventable childhood diseases, and empowerment of mothers and caregivers for improved caring and care-seeking practices; and • To promote public communication and awareness about child health issues by increasing availability of relevant information materials and services. Goal 5: To Improve Maternal Health Because maternal deaths in Timor-Leste were not assessed with on-theground surveys and data collection until recently, the country’s maternal mortality ratio of 660 deaths per 100,000 live births, which the United Nations estimated for 2000, has been adopted as the baseline for establishing the national MDG target for this measure. However, according to a study released in 2010 by the United Nations and the World Bank, maternal deaths in Timor-Leste for 2000 actually averaged 520 per 100,00 live births. The same study indicates that the maternal mortality ratio was reduced considerably thereafter, down by 37 percent to 370 deaths per 100,000 live births in 2008; this drastic cut in the ratio has gained Timor-Leste recognition as one of forty-eight countries in the world to be making steady progress in reducing maternal mortality. 7 It may yet be possible for Timor-Leste to meet the national MDG target for a maternal mortality ratio of 252 deaths per 100,000 live births by 2015. The substantial reduction in maternal mortality to date reflects TimorLeste’s strong commitment to improving maternal health. The Timorese government has not only adopted a series of measures on maternal and repro-

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ductive health such as the Reproductive Health Strategy and the National Family Planning Policy, but has also launched programs in safe and clean deliveries and emergency obstetric care (EmOC), in its attempt to better manage obstetrics cases and the delivery of reproductive health care. As a result, while 55 percent of Timorese women who gave birth in 2007 received at least one antenatal care appointment that year, 86 percent of pregnant women were provided at least one appointment in 2009. As these numbers indicate, Timor-Leste has met and surpassed, well ahead of schedule, the MDG target of 75 percent provision of at least one antenatal care appointment to pregnant women by 2015. Furthermore, while 19 percent of births in Timor-Leste were attended by skilled personnel, whether they be doctors, nurses, or midwives, in 2007, this percentage rose to 30 percent by 2009. If progress continues at this pace, the country is expected to hit the national MDG target of 60 percent of births attended by skilled personnel by 2015. The following, among other, actions, may be considered to ensure that Timor-Leste reaches its national MDG targets on maternal health: • To expand and improve maternal and reproductive health facilities and services, especially in remote areas and hard-to-reach communities; • To increase the number of skilled health personnel through enhancing the reach and quality of professional education and training, as well as by retraining traditional midwives and birth attendants; and • To promote public communication and awareness about maternal and reproductive health issues, in particular by capitalizing on the ongoing work of fostering desirable changes in reproductive behavior under the Reproductive Health Strategy. Goal 6: To Combat HIV/AIDS, Malaria, and Other Diseases Timor-Leste has not seen high prevalence of HIV/AIDS, with only 151 cases confirmed to date. Clinics for HIV/AIDS counseling and voluntary testing have opened across the country only recently as the first step in strengthening its capacities for diagnosis, treatment, and surveillance of the disease. Only 37 percent of Timorese aged 15 to 24 are sufficiently informed on HIV/AIDS to protect themselves from infection. The national MDG target of equipping 80 percent of this young segment of the population with such knowledge by 2015 will require significant additional effort. Malaria is a major public health issue in Timor-Leste. Incidence of malaria in 2000 measured 113 cases per 1,000 people, which jumped to over 200 cases per 1,000 people in the aftermath of the 2006 crisis, when hygiene conditions and medical services deteriorated. While the rate of incidence has today returned to 113 cases per 1,000 people, it will take a great deal of

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expertise and resources to further bring this down to the national MDG target for 2015, 45 cases per 1,000 people. Tuberculosis poses another significant threat to public health in TimorLeste, although the country has been able to make noticeable progress on this front of late through the implementation of the National Tuberculosis Program. Incidence of tuberculosis declined from 250 cases per 100,000 people in 2007 to 145 cases per 100,000 people by 2009. Timor-Leste’s national MDG target of 138 cases of tuberculosis per 100,000 people by 2015 is considered attainable with its current track of investment and commitment. The following issues, among others, must see resolution for Timor-Leste to reach by the deadline of 2015 its national MDG targets for major diseases, including HIV/AIDS, malaria, and tuberculosis: • To expand HIV/AIDS-related public communication and awareness programs as initiated with support from the Global Fund to Fight AIDS, Tuberculosis and Malaria, to better reach a larger proportion of Timorese, with a special focus on youth; • To assist the people living with HIV/AIDS with a multipronged strategy, comprising laboratory testing, medical treatment, and nutritional support, among other options; • To improve the effectiveness of the National Malaria Control Program with respect to coverage and quality in diagnosis, case management, vector control and personal protection, and community awareness; • To maintain the momentum of progress in tuberculosis prevention and care under the National Tuberculosis Control Program by sustaining uninterrupted delivery of quality diagnostic and treatment services; and • To cultivate a continuous political and administrative commitment to fighting these diseases and to take every opportunity to mobilize additional resources from domestic and international sources. Goal 7: To Ensure Environmental Sustainability The MDG for environmental sustainability is expected to be achieved through (1) increasing sustainable access to safe drinking water (piped tap water, protected wells, hand pumps, tanker, or bottled water) and basic sanitation (pit latrines with slabs, ventilated improved pit latrines, pour/flush septic tanks, or pits); (2) improving the lives of slum dwellers, in terms of the quality of housing, security of residential status, and access to basic services such as safe drinking water, basic sanitation, and electricity; (3) integrating the principles of sustainable development into national policies and programs; and (4) reducing loss of biodiversity. Across Timor-Leste, urban areas are supplied drinking water primarily from household taps (42 percent), while rural areas access water from wells

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or springs (25 percent) besides other minor sources. Access to safe drinking water in Timor-Leste has increased steadily in recent years. In 2001, only 48 percent of Timorese used a safe source for drinking water, but by 2009, the proportion with access to a safe source increased to 66 percent. The national MDG target for use of a safe drinking water source, 78 percent of the population by 2015, is achievable if progress continues at this pace, although a significant level of disparity remains among the country’s various regions. Prospects are not as promising for reaching the national MDG target for access to an improved sanitation facility, 60 percent of the population by 2015. Between 2001 and 2009, the proportion of Timorese using basic sanitation increased from 31 percent to only 49 percent. This suggests that sanitation promotion programs in place in the country must be strengthened. To increase access to safe drinking water and basic sanitation requires a visionary strategy that cannot only accommodate local systems and conditions, but can also catalyze coordination among the stakeholders at the community, regional, and national levels, accompanied by increased public investment in these sectors. The access will also be influenced by environmental factors such as the size of water reserves and amount of rainfall. Recent surveys conducted on deforestation and land use indicate a constant decline in the quality and quantity of water sources in Timor-Leste over the years, which stands to threaten the country with water scarcity in the medium and long term. To attain the national MDG targets for environmental sustainability, Timor-Leste might consider the following actions, among many others: • To enact and enforce minimum standards for supplying and operating service providers of safe drinking water; • To develop a range of sanitation strategies to address, with equal measure, issues specific to urban, peri-urban, and rural areas, including the “total sanitation” strategy for rural sanitation, which follows a demand-driven, participatory process to eliminate open defecation, and the water supply user group approach for the community-based management of water supplies and sanitation; • To develop and implement environmental conservation programs in order to encourage sustainable use of water and land; and • To promote among the public a healthy and hygienic lifestyle through communication and information exchange. Goal 8: To Develop a Global Partnership for Development Official development assistance, which is financial assistance provided to developing countries by the international community, is one of the most important financial means available to Timor-Leste, besides its domestic

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budgetary resources, for pursuing the MDGs. Recognized as one of the Least Developed Countries and Small Island Developing States by the United Nations, Timor-Leste is entitled to special funds in the form of “enhanced” development assistance from both bilateral government donors and multilateral aid organizations; the country is also eligible for other support specifically meant for states with various severe handicaps, such as preferential treatment in bilateral, regional, and multilateral trade arrangements; debt relief; and bilateral and multilateral technical assistance in strategic sectors. 8 Despite the unfolding crisis in global financial markets and fiscal meltdowns in parts of the industrialized world, official development assistance has proved a formidable benefactor to Timor-Leste. For example, the international community altogether provided Timor-Leste a net of US$ 255 per capita in 2010 at current prices in official development assistance, more than 13 times the average assistance that all developing countries in the world received that same year. 9 Timor-Leste is working toward achievement of Goal 8, to develop a global partnership for development by 2015, by pursuing the following specific national targets: • To create wide-ranging opportunities for decent work and productive engagement for youth in cooperation with the international community; and • To make available the benefits of new technologies, especially information and communication technologies, to as many Timorese as possible, in collaboration with the private sector. Over the past decade following the Restoration of Independence, TimorLeste has strived to encourage its young people to engage themselves productively, whether in professional or vocational activities, or in educational, social, or cultural pursuits. Still, in face of Southeast Asia’s fastest growth in population with an overwhelmingly large proportion of youth, Timor-Leste’s supply of job openings is far outstripped by its demand. While an estimated 15,000 young people enter the labor market annually, as recently as 2007, only several hundred jobs were offered in the private sector. As a short-term measure to alleviate the country’s grave unemployment situation, the Timorese government generated openings equivalent to more than 66,000 fulltime positions in 2010, in connection with public infrastructure projects scheduled for that year and under the Strategic Development Plan 2011–2030. Furthermore, the government set out to invest extensively in human capital development upon the launch of the Strategic Development Plan, in anticipation that the country’s current base of skilled and semi-skilled manpower is not likely to match the high rates of economic growth that the plan envisions. The Human Capital Development Fund 10 has been established as one

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of the major implementation mechanisms for human capital development activities, with a total allocation of US$ 220 million over the six-year period 2011 to 2016. The fund is intended to support the Secretariat of State for Professional Training and Employment in organizing vocational programs for youth, as well as to provide scholarships and training grants in critical areas of public services, such as administration, public finance, natural resource management, health care, justice, law enforcement, and defense, from which a large number of youth are likely to benefit. With regard to the national target on technological development, TimorLeste’s progress thus far is totally inadequate, and it today remains one of the least virtually connected nations in the world. At the end of 2009, out of a population of one million, only about 2,900 Timorese had fixed-line phone subscriptions, while just 1,100 had Internet subscriptions, including 474 with broadband connections. Although the number of mobile phone subscriptions has reached about half a million by 2011, many in the rural areas do not have any access to telecommunication facilities at all, and where there is access, the quality of service is extremely poor. Availability of telecommunication services is nevertheless expected to expand in Timor-Leste, as the government decided in 2012 to liberalize the monopoly privileges held by Timor Telecom, the sole operator in this sector until then, in the expectation that the introduction of competition would improve the coverage and quality of the services and bring down the prices. In order to reach the national MDG targets on a partnership for development, Timor-Leste might consider further work in the following, among other, areas: • To strengthen the capacity of Timorese youth through education, skillbuilding, and vocational training; • To prioritize sectors to which official development assistance can be most effectively applied, especially toward the objectives to generate youth employment and to provide vocational training and professional development opportunities for young people; and • To boost access—and equality therein—to information and communication technologies across different regions, genders, and socioeconomic groups. PROSPECTS THROUGH THE MDG DEADLINE IN 2015 Although the 2006 crisis and its aftermath temporarily set back its developmental progress, Timor-Leste has covered much ground in its advance toward the MDGs. Results have been particularly remarkable in child health and nutrition, maternal health, primary education, containment and preven-

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tion of infectious diseases such as tuberculosis, and access to safe drinking water, for which the national MDG targets have already been met or the path to their achievement by 2015 has been secured. Especially noteworthy is that Timor-Leste has attained the national MDG targets for both infant and underfive mortality six years ahead of schedule. These impressive records reflect the extent of commitment that the nation has made to improving the lives of its people and to building a brighter future for themselves and future generations. Timor-Leste’s Strategic Development Plan 2011–2030 incorporates the MDGs as part of its strategic priorities. Within the framework of the Strategic Development Plan, the MDG Suco (village) Fund has been established with the objective to promote the achievement of the MDGs from grassroots level upward. The MDG Suco Fund is designed to support innovative approaches that empower people at the community level and motivate them to take direct ownership of the MDG attainment process. The fund additionally aims to ensure equitable development in rural versus urban areas where investment of resources is concentrated, resulting in much faster economic growth. The Timorese government has earmarked a total of US$ 325 million for the MDG Suco Fund over the five-year period until 2015. The government has begun implementation of activities through this fund with the annual construction of 11,000 houses equipped with a household solar energy system, and water supply and sanitation facilities across all 2,228 of the country’s aldeias (small villages). As a post-conflict nation still burdened with a legacy of wartime destruction in physical and social infrastructure, Timor-Leste is struggling to improve in quite a few respects on the socioeconomic front, despite the substantial gains it has made in other areas as explored above. Progress is dire in poverty reduction, retention in school enrollment and sustained enrollment beyond the primary level, certain aspects of gender equality, control of preventable illnesses such as malaria, access to improved sanitation, youth employment, and diffusion of advanced technologies. There is an urgent need to mobilize additional resources, as well as to formulate specific strategies for overcoming the remaining impediments, in order for Timor-Leste to attain those MDGs that are still proving to be challenges. NOTES 1. The eight MDGs are to be achieved by the deadline of 2015, unless otherwise indicated. They are broken down into twenty-one targets, for which sixty indicators are used to track progress toward the targets over 1990 baseline levels, as follows: 1. Goal 1—Eradicate extreme poverty and hunger, consisting of: (1a) Target 1a—Reduce by half the proportion of people living on less than a dollar a day (measured by indicators such as proportion of population with income below

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US$ 1 per day; poverty gap ratio; and share of the poorest quintile in national consumption); (1b) Target 1b—Achieve full and productive employment and decent work for all (measured by indicators such as growth rate of Gross Domestic Product (GDP) per person employed; employment-to-population ratio; proportion of employed people with income below $ 1 per day; and proportion of own-account and contributing family workers in total employment); (1c) Target 1c—Reduce by half the proportion of people who suffer from hunger (measured by indicators such as prevalence of underweight children under the age of five; and proportion of population below the minimum level of dietary energy consumption). Goal 2—Achieve universal primary education, consisting of: (2a) Target 2a—Ensure that all boys and girls complete a full course of primary schooling (measured by indicators such as net enrollment ratio in primary education; proportion of pupils starting the first grade who reach the last grade of primary education; and literacy rates of 15–to 24–year-olds, women and men). Goal 3—Promote gender equality and empower women, consisting of: (3a) Target 3a—Eliminate gender disparity in primary and secondary education preferably by 2005, and at all levels by 2015 (measured by indicators such as ratios of girls to boys in primary, secondary, and tertiary education; share of women in wage employment in the non-agricultural sector; and proportion of seats held by women in the national parliament). Goal 4—Reduce child mortality, consisting of: (4a) Target 4a—Reduce by two thirds the mortality rate among children under the age of five (measured by indicators such as under-five mortality rate; infant mortality rate; and proportion of one-year-olds immunized against measles). Goal 5—Improve maternal health, consisting of: (5a) Target 5a—Reduce by three quarters the maternal mortality ratio (measured by indicators such as maternal mortality ratio; and proportion of births attended by skilled health personnel); (5b) Target 5b—Achieve universal access to reproductive health (measured by indicators such as contraceptive prevalence rate, adolescent birth rate, antenatal care coverage, and unmet need for family planning). Goal 6—Combat HIV/AIDS, malaria and other diseases, consisting of: (6a) Target 6a—Halt and begin to reverse the spread of HIV/AIDS (measured by indicators such as HIV prevalence among population aged 15 to 24; condom use at last high-risk sex; proportion of population aged 15 to 24 with comprehensive correct knowledge of HIV/AIDS; and ratio of school attendance of AIDS orphans to school attendance of non-orphans aged 10 to 14); (6b) Target 6b—Achieve by 2010 universal access to treatment for HIV/AIDS for all those who need it (measured by the proportion of population with advanced HIV infection with access to antiretroviral drugs); (6c) Target 6c—Halt and begin to reverse the incidence of malaria and other major diseases (measured by indicators such as incidence and death rate associated with malaria; proportion of children under the age of five sleeping under insecticide-treated bed nets; proportion of children under the age of five with fever who are treated with anti-malarial drugs; incidence and death rate associated with tuberculosis; and proportion of tuberculosis cases detected and cured under directly observed treatment). Goal 7—Ensure environmental sustainability, consisting of: (7a) Target 7a—Integrate the principles of sustainable development into country policies and programs and reverse loss of environmental resources; and (7b) Target b—Reduce biodiversity loss, achieving by 2010 a significant reduction in the rate of loss (measured by indicators such as proportion of land area covered by forest; total/per capita/per $ 1 Gross Domestic Product (GDP) CO2 emissions; consumption of ozone-depleting substances; proportion of fish stocks within safe biologi-

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2. A wealth of both print and online resources details the background, achievement to date, and future prospects for the MDGs. Three key online resources include: United Nations. (n.d.). A Gateway to the UN System Work on the MDGs. Available at http://www.un.org/millenniumgoals/bkgd.shtml; United Nations. (n.d.). The Official United Nations Site for the MDG Indicators. Available at http://mdgs.un.org/unsd/mdg/Host.aspx?Content=Indicators/OfficialList.htm; and UN Development Programme (UNDP). (n.d.). The Millennium Development Goals—Eight Goals for 2015. Available at http://www.beta.undp.org/undp/en/home/mdgoverview.html. 3. The Timorese government adopted the National Priorities Programs in 2008 as the nation’s interim planning mechanism to address, through ambitious priority-setting exercises and streamlining of resource allocations both internally and with external donors, pressing challenges such as infrastructure (especially water management facilities and roads), food security, human resource development, access to justice, delivery of social services and decentralization, governance, and public security. Many priority issues identified in the National Priorities Programs are also targeted by the MDGs. With the launch of the Strategic Development Plan 2011–2030, Timor-Leste phased out the National Priorities Programs. 4. The MDG Achievement Fund is an international cooperation mechanism whose aim is to accelerate progress on the MDGs worldwide. Established in 2006 with a contribution of 528

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million euro from the Spanish government, the MDG Achievement Fund supports national governments, local authorities, and civil society organizations in their efforts to tackle poverty and inequality. Assistance from the fund reaches over 3.5 million people, with another 20 million people impacted indirectly, through 128 active programs in 49 countries spread across five regions of the world. At the UN high-level meeting on the MDGs in 2008, Spain committed an additional 90 million euro to the MDG Achievement Fund. 5. This section draws on the data and analysis of Timor-Leste’s progress toward the MDGs as reported in the following publications: Timor-Leste and United Nations. (2009). The Millennium Development Goals, Timor-Leste. Dili; Timor-Leste. MDG Secretariat. (2010). Progress of Timor-Leste Towards the Millennium Development Goals. Dili; UN Development Programme (UNDP). (2011). Timor-Leste Human Development Report 2011. Dili; and UN Integrated Mission in Timor-Leste. (2011). Timor-Leste Recovery to Development: A Statistical Profile. Dili. 6. For a detailed examination of the employment situation in Timor-Leste, including that of youth, see chapter 5. 7. Statistics on maternal mortality as provided in this paragraph are quoted from: World Health Organization (WHO), UNICEF, et. al. (2010). Trends in Maternal Mortality—1990 to 2008. Geneva: World Health Organization. 8. For a detailed examination of the assistance programs for the Least Developed Countries and Small Island Developing States, see chapter 8. 9. Statistics on foreign aid as provided in this paragraph are extracted from the Organisation for Economic Co-operation and Development’s Query Wizard for International Development Statistics, available online at http://stats.oecd.org/qwids. 10. For a detailed examination of the Human Capital Development Fund, see chapter 9.

Chapter Eight

Partnering with the World Community

Upon Timor-Leste’s Restoration of Independence in 2002, the new nation faced as one of its immediate challenges building a foreign policy that would ensure peaceful coexistence with its neighbors, the surrounding region, and the world, which task fell to the then Minister of Foreign Affairs and Cooperation, José Ramos-Horta. Peaceful coexistence has been not only an imperative for Timor-Leste’s foreign policy, as much of its modern history evolved in the shadow of foreign occupiers, but also a requisite for the survival of this small nation sandwiched between Indonesia, the fourth most populous country in the world and one of the G-20 nations, and Australia, another G-20. When it first emerged as a sovereign state, Timor-Leste’s principal partners in external relations were identified in Indonesia and Australia, besides Portugal, which although it had once been Timor-Leste’s colonial ruler, has since repositioned itself as an ardent supporter of the country’s self-determination. Accordingly, the Timorese embassies in the capitals Jakarta, Canberra, and Lisbon, respectively, were among Timor-Leste’s first diplomatic posts in operation. As early as the wake of the Popular Consultation in 1999, perfecting relations with Indonesia became the foremost priority in Timor-Leste’s foreign policy, as it was with Jakarta that the Timorese government had to settle various issues arising from the nation’s newly drawn borders—just as much as with Australia over sea column and seabed boundaries in the Timor Sea. Indonesia continues to act today as Timor-Leste’s chief partner in external relations, recently stepping up as an usher for its regional integration, including in its application for membership to the Association of Southeast Asian Nations (ASEAN). Beyond these immediate concerns, Timor-Leste has strived to strike a healthy balance in its diplomacy. It has engaged both its developed allies, Australia and Portugal, in investing in its future, while 135

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retaining sustained interest and flow of assistance from other global powers in its peace-building and state-building efforts bilaterally as well as on a multilateral basis through the United Nations and international aid agencies. Many of these countries and institutions have maintained close working relations and a physical presence in Timor-Leste. Bilateral government donors to Timor-Leste secondary to Australia and Portugal include the United States, Japan, Norway, Spain, Ireland, Germany, New Zealand, and China, all of which have made important contributions to the nation’s peace and development process. Aid from the United States, a principal source of official development assistance to Timor-Leste after Australia and Portugal, has been directed largely toward catalyzing reform of the security sector, promoting good governance, accelerating agricultural growth, and energizing the private sector. Japan is another key benefactor of Timor-Leste, providing support in the areas of capacity-building, governance, infrastructural development, and agricultural and rural revitalization. Norway’s assistance, though not as monetarily significant as that of other donors, has proved crucial to strengthening capacities in Timor-Leste’s petroleum sector and its management of the Petroleum Fund. Other European nations such as Spain, Ireland, and Germany have provided major support on a variety of fronts, for instance, in governance by fostering democratic participation and facilitating public service reform, as well as in poverty reduction through stimulating job growth and entrepreneurship in the rural and private sectors. New Zealand, in addition to being a long-standing regional ally of Timor-Leste in the maintenance of peace and security, has engaged in various forms of assistance to the country, ranging from reform of the security sector and capacity-building in public services, to basic education, community development, and empowerment of women. China has gained prominence as a valuable partner to Timor-Leste in recent years by donating the construction of key federal buildings, including the Presidential Place, the offices of the Ministry of Foreign Affairs and Cooperation, and the headquarters of the national defense force. Among multilateral institutions, the European Union leads as a donor of official development assistance to Timor-Leste. Its aid has so far focused on capacity- and institution-building in public services, poverty reduction, social integration of the vulnerable, and empowerment of women. Yet, it is the United Nations that has played a most critical role throughout the new history of Timor-Leste, which may not have come to exist in its present form without its support. The United Nations has fielded two political and three peacekeeping missions in the country, including the current operation, the United Nations (UN) Integrated Mission in Timor-Leste, to usher the new nation through the processes of asserting self-determination, transitioning to independence, building institutions while rehabilitating conflict-stricken people, and finally securing the path to peace and development.

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Indeed, Timor-Leste has pursued a broad range of approaches to its external relations, which has also included efforts to join regional or thematic groups of countries. Soon after regaining independence, the new nation successfully obtained membership to the Community of Portuguese-Speaking Countries to deepen its Lusophone ties; at the same time, it undertook first steps toward admission to ASEAN. President Ramos-Horta wrote in 2011 for the East Asia Forum, a respected Australia-based platform for commentaries on East Asia and the Pacific, “Our desire to join ASEAN is a long-standing one, and in the last 10 years, we have shown unequivocal determination to join the organization.” He added, “Geographically, we are very much part of Southeast Asia.” 1 In the following, Timor-Leste’s efforts to integrate itself into the world beyond its borders are reviewed at three levels: 1) integration with its neighbors, 2) integration with the surrounding region and thematic groupings, and 3) integration at the international level. INTEGRATION WITH ITS NEIGHBORS Timor-Leste’s two immediate neighbors, Indonesia and Australia, have held the key to the new nation’s stability and economic prosperity, despite their sometimes strained relations. Timor-Leste’s successful attempt in cultivating positive engagement with these close allies will not only ensure its long-term survival, but will also likely produce an enduring wholesome impact on peace and security throughout the Southeast Asia and South Pacific regions. It is noteworthy that, in addition to nurturing bilateral partnerships based on its traditional alliances, Timor-Leste has ventured to diversify its diplomacy by reaching out to non-traditional partners such as China, another powerful neighbor in eastern Asia. For six years following the Restoration of Independence, Australia repeatedly invited Timor-Leste to join its patrol boat program that provides its southern Pacific neighbors with patrol boats and opportunities to conduct sea boarder surveillance under the mentorship of Royal Australian Navy advisors. Timor-Leste declined the offer and instead opted to upgrade its own naval force capacity by purchasing two boats from China. However, this move does not indicate that Timor-Leste will abandon its traditional allies; it will likely continue close cooperation with its two immediate neighbors. Indonesia The twenty-four years of occupation by Indonesia, as well as the disturbance that it reportedly inspired in the aftermath of the Popular Consultation of 1999, were set aside when Timorese and Indonesian officials met in Bali, Indonesia, a few months before independence was restored in Timor-Leste.

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The meeting saw an agreement reached by both sides to establish full diplomatic relations, which was followed soon thereafter by a symbolic exchange of visits by each head of state to the other’s homeland. The then Indonesian president, Megawati Sukarnoputri, was received by the new nation as a state guest to the ceremony of the Restoration of Independence, while the president of Timor-Leste at that time, Kay Rala Xanana Gusmão, was accorded an enthusiastic welcome during his first state visit to its new neighbor state that same year. Still, questions of past abuses and accountability have caused a few ripples between the two nations. In 2005, Timor-Leste and Indonesia created a Truth and Friendship Commission in order “to establish the conclusive truth in regard to the events prior to and immediately after the Popular Consultation of 1999, with a view to promoting reconciliation and friendship, and ensuring the non-recurrence of similar events.” The final report submitted by the commission at the end of its investigation in 2008 acknowledged that abuses had indeed been committed by persons on both sides of the conflict and assigned “institutional responsibility” to Indonesian armed forces for human rights violations. While some critics fault the report for failing to press for accountability on the part of individual Indonesian civilian and military leaders, both governments accepted the report’s findings as well as its conclusions and pledged full implementation of the measures that it recommended for furthering peace and amity between their nations. 2 Land and sea border issues had presented another set of challenges to bilateral relations between Timor-Leste and Indonesia, but the two nations have succeeded of late in making a firm commitment to settling them permanently. In 2011, Indonesia agreed to complete the process on drawing definitive land boundaries with Timor-Leste, so that the two could move on to the matter of determining the maritime baseline between them. The nations’ shared resolve to bring border questions to a conclusion is reflected in part in their enhanced defense cooperation in recent years. The respective armed forces of Timor-Leste and Indonesia, Falintil-Forças de Defesa de TimorLeste (F-FDTL) and Tentara Nasional Indonesia, have increasingly collaborated on land and sea border security and control operations. They are also in discussion about providing opportunities for the staff of Timorese armed forces to participate in training programs offered at Indonesia’s defense institute and military academies. Furthermore, Timor-Leste is considering the purchase of high-speed patrol boats from an Indonesian shipbuilder and has requested the Indonesia government to make an export credit available for this purpose. Indonesia has proved to be one of Timor-Leste’s valued partners as well in the area of economic cooperation. Imports from Indonesia comprised 39 percent of the total merchandise imports to Timor-Leste in 2010, 3 which are expected to continue on a steady rise into the foreseeable future. Additional-

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ly, Indonesia’s private sector is heavily involved in building industrial and commercial infrastructure in Timor-Leste. Indonesia is one of just three countries permitted to operate in Timor-Leste’s commercial banking sector where national capacities are still in a formative stage of development. In fact, the Rakyat Indonesian Bank is the only foreign financial institution invited to participate in the capitalization of the soon-to-be-established first national bank in Timor-Leste and to provide technical support for its management once banking operations commence. Another Indonesian concern Puri Akraya Engineering is a principal contractor in Timor-Leste’s largest public works project to date, which entails the construction of the first nationwide electrical power grid and three power plants, with a total financial outlay of US$ 818 million for the period 2011 to 2013. Timor-Leste’s ties with Indonesia run deepest in the area of social and cultural exchange. Although interaction between the two in general accompanied much sorrow and anguish for most of their collective history, Indonesia made a valuable contribution when it expanded basic education across its occupied territory in East Timor where classroom instruction was conducted in the Indonesian language. This stood in stark contrast to the previous Portuguese administration under which basic education was not on the public policy agenda for its Timorese colony. Indonesia continues to play a critical role in Timor-Leste’s education sector even after the independence was restored in the country; today, about 8,000 Timorese students are studying in Indonesia where they receive preferential treatment in being assessed tuition fees at the same rate as Indonesian students. Australia Timor-Leste’s relations with Australia, although acrimonious at times, particularly in the debate over sharing the oil and gas resources that lie beneath the Timor Sea, 4 have nevertheless proved vital to the stability and development of the new nation since its inception. The Timorese-Australian partnership has covered three main areas: peace and security, development cooperation, and trade and investment. Australia has participated in all peacekeeping operations ever fielded in Timor-Leste. Australia has deployed its troops and military liaison and staff officers, as well as civilian police personnel, to the successive UN peacekeeping operations in the country. It has also led a multinational peacekeeping force under UN auspices on two occasions: first to restore order and security in the wake of the Popular Consultation of 1999 with the deployment of 5,500 personnel; and again, to assist the Timorese government in containing the 2006 crisis with the deployment of almost 3,000 personnel at its peak. The multinational force that was constituted during the 2006 crisis has remained in Timor-Leste and is expected to do so at least until 2012,

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when the UN peacekeeping operations are scheduled to conclude. The Australian contribution to this force has been followed through to date with about 400 personnel on the ground. Although Timor-Leste’s acquisition of naval patrol boats from China came as a shock to some Australian figures, who termed the event as “the sage of the Chinese boats,” the Timorese will likely continue to view Australia as a strategic partner in peace and security issues and maintain close working relations on these fronts in upcoming years. In the area of development cooperation, Australia is the largest single provider of official development assistance to Timor-Leste, which totaled US$ 118 million, or 36 percent of total foreign aid flow to the country, in 2010. Australia has responded to a variety of needs for peace-building and state-building in the new nation, such as capacity-building for policymaking and public administration; reform of the security sector; election support including voter education and ballot monitoring; basic education and vocational training; the creation of job opportunities in particular for youth; the rehabilitation of the health sector, especially in the areas of maternal and child health care and surgical services; and the betterment of rural livelihoods and well-being of the rural poor. The Australian Agency for International Development, which is responsible for managing its government’s foreign aid programs, delivers about 65 percent of Australia’s official development assistance to Timor-Leste. Some of the agency’s achievements so far in Timor-Leste include: the restoration of eyesight to about 1,350 people through cataract surgeries; the contribution to a more than 25 percent rise in the child immunization rate against measles as well as to a two-thirds increase in the proportion of professionally assisted births; the provision of safe drinking water and basic sanitation to about 100,000 rural residents; and support to the increase in food crop yields by up to 80 percent for 12,000 family farms. Additionally, the Australian Agency for International Development has assisted the Timorese authorities in building capacities in their security sector. For example, the agency collaborates with the Australian Federal Police in undertaking professional development exercises for Timor-Leste’s national police force, Policia Nacional de TimorLeste (PNTL), in partnership with the United Nations. Australia has played a crucial role in sustaining vitality of the Timorese economy. Besides being the second largest exporter to Timor-Leste, Australia is its leading partner in exploitation of oil and gas resources in the Timor Sea, notwithstanding the nations’ heated exchanges from time to time over how to share these resources and the resulting profits. Although Australia and its businesses currently retain the major share of profits from downstream operations, which include processing and distribution of gas and oil as well as the products therefrom, Timor-Leste collects more than US$ 2.5 billion annually, and will likely receive an additional US$ 10 billion over the next ten years, from upstream operations in the area of the Timor Sea under

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the two nations’ joint development. Furthermore, Australia will collaborate with Timor-Leste in developing the Greater Sunrise gas field, an as-yet unexploited giant field partially located in the joint development area, which is estimated to bring Timor-Leste as much as US$ 13 billion in revenue over the life of the project. 5 Along with Indonesia, Australia is also one of just three countries that participate in Timor-Leste’s commercial banking sector. INTEGRATION WITH REGIONAL AND THEMATIC GROUPINGS Following the Restoration of Independence, Timor-Leste supplemented its foremost effort in multilateral diplomacy to join the United Nations as a new member state, by reaching out to a number of smaller, more localized groups. While the new nation began exploring admittance to ASEAN, it also sought to be part of the Lusophone community and was subsequently welcomed to the Community of Portuguese-Speaking Countries. Additionally, Timor-Leste has recently revived its interest in another important regional connection, its association with the Pacific Island nations, since the country put it to rest more than a decade ago by deciding against affiliating with the Australian-led South Pacific Forum. In 2011, Timor-Leste sought and then was accorded observer membership to the Melanesian Spearhead Group, a policy forum made up of five nations and regions in the southwestern Pacific. There has been an equal level of enthusiasm for and commitment to Timor-Leste from the Pacific Island developing nations; this is evidenced in part by the fact that a Pacific contingent, comprising uniformed personnel from Fiji, Palau, Samoa, and Vanuatu, has consistently participated in the UN peacekeeping operations in Timor-Leste since its inception. Association of Southeast Asian Nations (ASEAN) The Association of Southeast Asian Nations, or ASEAN, consists of ten countries in Southeast Asia: Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. It represents an economically vibrant region of nearly 620 million people with a combined Gross Domestic Product (GDP) of US$ 2.3 trillion and a total merchandise trade value of over US$ 2.5 trillion. ASEAN states its principal aims as follows: • To accelerate economic growth, social progress, and cultural promotion in the region; • To enhance peace and stability in the region by upholding respect for justice and the rule of law, as well as by adhering to the principles of the UN Charter; and

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• To promote active collaboration and mutual assistance on matters of common interest in agricultural, industrial, and infrastructural development, trade promotion, social progress, cultural promotion, advancement of science and technology, and public administration. The association has evolved in its time into a close-knit group of nations that hold more than one thousand meetings each year on a wide range of themes, spanning economic and commercial affairs, culture, education, science and technology, and regional peace and security; and at a variety of levels, ranging from summit meetings attended by heads of state and ministerial consultations, to working-level sessions and gatherings of civil society, business organizations, and academic institutions. Through a vast array of initiatives and programs and by active participation of member states in all areas, ASEAN has succeeded in forming a unique identity and projecting itself effectively, both regionally and internationally. Three notable features have emerged since ASEAN’s inception in 1967. First, ASEAN represents a group of nations with rich diversity in political system, economic power, and cultural and historical background. Political structures among the member states vary from communist states (Lao People’s Democratic Republic and Vietnam) and a sultanate (Brunei Darussalam), to a constitutional democracy with monarchy (Thailand), multi-party democracies (Cambodia, Indonesia, and the Philippines), and democracies with one party in dominance (Malaysia, Myanmar, and Singapore). In economic terms, ASEAN includes a very wealthy nation (Singapore) alongside some of the world’s poorest. The per capita income of Singapore, the richest ASEAN member, is about eighty times that of the poorest (Myanmar). Second, many of the ASEAN nations have attained rapid economic growth in recent years. Four of them, Indonesia, Malaysia, Singapore, and Thailand, were classified by the World Bank in 1993 as “miracle” economies. Furthermore, since the late 1980s, a few latecomer members, including Cambodia, Lao People’s Democratic Republic, and Vietnam, have made the successful transition from the planned to market economy, which has produced accelerated growth and reduced poverty in these nations. The ASEAN members’ economic dynamism and their expanding trade and investment linkages within and with the outside world seem to have impacted the entire region positively, with improved regional security providing an enabling and conducive environment for further economic growth and poverty reduction. Third, ASEAN conducts its business in a so-called “ASEAN way,” which is characterized by principles such as pragmatism, consensus-based decisionmaking, and non-interference in others’ internal affairs. This presents a sharp contrast to the European Union, which governs itself with a single set of laws and a highly integrated executive branch.

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Some of these features of ASEAN seem to have the effect of neutralizing Timor-Leste’s efforts to join the group. Even before the Popular Consultation of 1999, the then-exiled resistance leader and 1996 Nobel Peace laureate, President Ramos-Horta, saw that Timor-Leste’s future lay in cooperation with the Southeast Asian nations. He declared, during his acceptance speech at the Nobel Prize award ceremony, “We are conscious of our geography, which compels us to coexist with our neighbors in that part of the world. We will seek membership in ASEAN and APEC 6 within days of our independence.” In giving grounds for Timor-Leste’s pursuit of membership to ASEAN in 2000, President Ramos-Horta explained that the association was “important for the future of East Timor, not so much as an economic umbrella, because we know that there are economic difficulties within the ASEAN countries, but as a means to attain security.” 7 In the years that ensued, Timor-Leste embarked on an intensive campaign for a seat in ASEAN. In its attempt to garner sufficient support for its membership to the association, the new nation focused efforts on strengthening bilateral relations with its individual member states. To this end, it opened embassies in Manila, the capital of the Philippines; in Singapore, which concurrently represents the country in Brunei Darussalam; in Bangkok, Thailand, which also covers the country’s relations with Cambodia and Laos; and in Kuala Lumpur, Malaysia, which is also responsible for its liaison with Myanmar and Vietnam. These are in addition to Timor-Leste’s embassy in Jakarta, Indonesia, that had been inaugurated soon after the Restoration of Independence. In 2005, Timor-Leste became a member of ASEAN’s regional forum, a wider Southeast Asian mechanism for fostering dialogue across the Asia-Pacific region. Further, in 2007, it signed the Treaty of Amity and Cooperation in Southeast Asia, thereby renouncing the use of force against ASEAN members; signing this treaty is an important precondition to joining ASEAN. In 2009, Timor-Leste fortified its campaign to join ASEAN by establishing its national secretariat for the association, which is modeled after the national secretariats that the ASEAN member states maintain in their capitals. In parallel with this move, Timorese leaders began paying repeated visits to the member states’ capitals and appealed for their support in its favor. This series of diplomatic thrusts toward ASEAN and its members culminated in Timor-Leste’s submission of a formal application for membership to the association in 2011. Timorese Minister of Foreign Affairs and Cooperation Zacarias Albano da Costa delivered the letter of application in person to Marty Natalegawa, his counterpart in Indonesia, which held the rotating chairmanship of ASEAN that year. Despite having ruled Timor-Leste for almost a quarter century, Indonesia sounded, upon receipt of the letter, strong support for its admittance to the association, while promptly circulating it for review to other member states.

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In the ASEAN summit meeting held later that year, there was an expression of “welcoming positively over Timor’s application of joining ASEAN,” but according to Natalegawa, they decided to continue discussion on technicalities of Timor-Leste’s actual adherence to the association. One of the main technical issues that need to be resolved before Timor-Leste can be officially on board is to bring the county into line with the existing member states, in particular in terms of its readiness to facilitate the achievement of ASEAN’s current overarching goal of unifying the member economies into a single market and production base by 2015. 8 In early 2012, the member states established a ministerial-level working group to continue the review on Timor-Leste’s application. Community of Portuguese-Speaking Countries (CPLP) The Community of Portuguese-Speaking Countries, or Comunidade dos Países de Língua Portuguesa, is an intergovernmental organization in which Timor-Leste participates with seven other member states: Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, Portugal, and São Tomé and Príncipe. When the CPLP was established in 1996, it was envisioned as a community of countries that share a historical legacy, a common language, and a unique vision of development and democracy. It has today grown into a privileged space for multilateral consultation and cooperation, with a legal body and an executive secretariat based in Lisbon. The primary objectives of the organization are: • Political and diplomatic coordination among the member states in order to establish a unique presence in the international arena as a cohesive, unified entity with common goals and objectives; • Cooperation among the member states in diverse areas of activities, spanning education, culture, sports, science and technology, agriculture, communications, peace and security, and public administration; and • Promotion of the Portuguese language. In recent years, the CPLP has seen attempts made within the organization in a soul-searching manner to enhance its relevance and viability beyond the scope of the Portuguese language. It is in Portugal, which acted as ruler to each other CPLP member state in the past and is currently the only member representing the developed world, that the need for transforming the organization into a more meaningful entity has been most acutely felt. In this process, fundamental questions about the organization’s purpose and mission are raised, such as the structure and dynamics of links within the Lusophone community and between Lusophone and non-Lusophone countries and communities; as well as the multifarious roles that the Lusophone community can

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play and the importance that the commonwealth of nations in the world may ascribe to the community. Timor-Leste joined the CPLP in the wake of the Restoration of Independence, at which occasion the Portuguese language became “an instrument of identity” for the new nation. 9 Timor-Leste is in fact the newest member of the CPLP and, since joining the organization, has seized the opportunity to mobilize support from other members for its wide-ranging undertakings on peace-building and state-building agenda. Among the CPLP member states, Portugal has distinguished itself as an outstanding provider of assistance to Timor-Leste, particularly in its security and education sectors. Portugal has contributed the second-largest number of personnel so far to the UN Police, which forms the core of the UN peacekeeping operations in Timor-Leste, including to its UN Formed Police Units that are tasked with special operations and rapid responses to support the emergent Timorese national police force. Portugal has also fielded troops and military liaison and staff officers for the peacekeeping operations, while at the same time making available to the Timorese defense force services of its military advisors as well as opportunities for training at its military academies. Furthermore, Portugal has proved instrumental to the institution-building in Timor-Leste’s judicial branch. As Portuguese is the official language of the Timorese court system, Portugal’s contribution in translating legal instruments and documents and supplying Portuguese-speaking legal and paralegal personnel has been extremely helpful not only in filling the present gap in manpower and resources in the Timorese courts, but also in meeting training and mentoring needs of the national judicial staff. Portugal has brought an equally valuable contribution in the Portuguese language to Timor-Leste’s education system. According to the 2010 national census, only 24 percent of Timorese spoke Portuguese, although it is one of the country’s two official languages. Portugal has provided financial and technical assistance not only for curriculum development and dissemination and training of teaching staff, but also for the expansion of national capacities to train its own staff and conduct monitoring and evaluation of ongoing education programs. The dynamics of partnership between Timor-Leste and Portugal has taken a new turn in 2011, when Portugal was confronted with a public debt of 93 percent of its GDP in the previous year and struggled to implement a demanding 78 billion euro bailout program with the International Monetary Fund. Timor-Leste has announced that it plans to purchase five- to ten-year bonds issued by its ex-ruler-turned-ally in order to facilitate its effort in coping with its fiscal crisis. The coming years will likely see even greater economic cooperation between Timor-Leste and Portugal, with the former increasingly playing the role of investor and creditor to the latter. Arrangements such as the agreement on avoidance of double taxation signed between

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Timor-Leste and Portugal in 2011 will further promote a favorable climate for the two nations’ exchanges in investment and trade. Beyond its strong ties with Portugal, Timor-Leste has nurtured cordial relations with other Lusophone countries. For example, with Brazil, the country maintains excellent rapport even at the very top level. President Ramos-Horta once referred to former Brazilian President Luiz Inácio Lula da Silva as an “older brother.” President Lula was himself the first head of state to visit Timor-Leste after the assassination attempt on President RamosHorta in 2008. Both countries have collaborated closely especially in the area of culture and sports, and have welcomed each other’s artists, athletes, teachers, and students under various exchange programs. Brazil has also provided to Timor-Leste support for the development of educational materials for schools and brought in legal and paralegal personnel to Timorese courts for reinforcement, besides catering to the training needs of healthcare professionals in the country. The two nations, in addition, signed an agreement in 2010 to expand cooperation into the field of defense. INTEGRATION AT THE MULTILATERAL LEVEL Following the Restoration of Independence in 2002, Timor-Leste and gained admission to the United Nations, debuted in the international arena as a new nation. Despite being new to the scenes of global negotiations, while concerns over stability and development at home often overshadowed their external missions, Timor-Leste has been successful in making its presence felt and carving out a niche as a champion for the causes of the fellow disadvantaged nations in the world. In addition to its active diplomacy in the United Nations, Timor-Leste has become deeply involved in other multilateral forums, including the g7+ in which it leads a group of fragile and conflictaffected countries in advocating policy reform for international engagement with them. United Nations Timor-Leste’s working relationship with the United States began long before the Restoration of Independence. The United Nations had mediated the talks between the governments of Indonesia and Portugal for sixteen years before the Popular Consultation of 1999, through offices of its Secretary-General, in order to find a just, comprehensive, and internationally acceptable solution to the question concerning Timor-Leste. In 1999, the negotiations culminated in a signed agreement between the two in which the United Nations was entrusted with organizing the historic secret and universal ballot directly by the people of Timor-Leste over whether they should accept a measure of autonomy within Indonesia. Since then, the United Nations has maintained its on-

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the-ground cooperation with Timor-Leste through two political and three peacekeeping missions to assist the country during the transitional periods of reconstructing institutions, revitalizing the war-affected economy and warweary society, and gaining and regaining the path to peace and development. Its current peacekeeping mission, the UN Integrated Mission in Timor-Leste, is likely to be concluded in 2012, but other UN agencies will remain in the country to continue its support in development and governance issues. 10 Recognized as one of the Least Developed Countries (LDCs) and Small Island Developing States (SIDS), Timor-Leste stands to benefit from special attention and support from the United Nations. The LDCs are often referred to by the United Nations as the “poorest and weakest segment” of the international community. Currently totaling forty-eight, 11 these countries are affected by developmental handicaps such as low income, lack of human capital to drive growth, and absence of diversification in export or industrial structures, which are often found to be exacerbated by exogenous risks and vulnerabilities that they face, including natural resource scarcity, geographical adversity, susceptibility to natural hazards, and unstable national and regional political dynamics. The LDCs are highly disadvantaged in the development process, as the risk and vulnerability factors peculiar to them render them even more predisposed than other developing countries to poverty, hunger, disease, illiteracy, and other types of socioeconomic malaise. The United Nations has responded accordingly by mobilizing resources from the international community over the years to assist these challenged countries. Currently, the LDCs are eligible for special funding support measures, largely in the form of official development assistance, from bilateral government donors and international organizations, including the United Nations. In addition, the LDCs are accorded special and preferential treatments in certain bilateral, regional, and multilateral trade arrangements. Trade preferences are also granted to the LDCs under general schemes such as the Generalized System of Preferences and the Global System of Trade Preferences. 12 Further, under the “Aid for Trade” program supported by a couple of dozen donors that include several UN organizations such as the UN Development Programme, the International Monetary Fund, and the World Bank, the LDCs can receive assistance for capacity-building in the trade sector in order to improve their response to trade opportunities and better integrate themselves into the multilateral trading system. Other, non-trade support measures for the LDCs comprise debt relief, bilateral and multilateral technical assistance in strategic industrial and service sectors, and concessions on costs related to membership activities in the United Nations and other international organizations. 13 As one of the SIDS, 14 Timor-Leste can avail itself of another vehicle of specialized attention and support from the international community. At the UN Conference on Environment and Development, also known as the Earth

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Summit, held in Rio de Janeiro, Brazil, in 1992, the SIDS were recognized as a special group of developing countries with distinct social, economic, and environmental risk and vulnerability factors, which place them at an even greater disadvantage than other developing nations. These factors unique to the SIDS include: a growing population living in a confined geographic space with a narrow resource base; a fragile ecosystem susceptible to natural and environmental disasters; growth constraints on domestic markets causing heavy reliance on faraway external markets; and high costs on energy, transportation, communications, and other vital services. The United Nations has advocated comprehensive application of the Mauritius Strategy for Implementation of the Programme of Action for the Sustainable Development of Small Island Developing States, adopted at a high-level meeting held at Port Louis, Mauritius, in 2005. 15 The strategy calls for, among others, a focused allocation of financial resources, including through existing funding mechanisms such as the Global Environment Facility, for the following activities: • To enhance access to energy-efficient and green technologies as well as renewable energy sources that are affordable and readily adaptable to the SIDS’ circumstances; • To build representative systems of terrestrial and marine protected areas and advance implementation of the UN Convention on Biodiversity, including its clauses relating to island biodiversity; • To preserve genetic resources unique to the islands and ensure fair and equitable sharing of benefits arising from their utilization; and • To promote technology transfer and technical assistance in those sectors crucial to the SIDS’ connectivity with the rest of the world, such as transport, telecommunications, and information and communication technologies. As a member of the LDCs and SIDS, Timor-Leste has tirelessly advocated the international community’s renewed commitment to and strengthened partnership with these categories of countries during the first decade of its diplomacy at the United Nations. The new nation participated in the UN Conference on the Least Developed Countries for the first time at its fourth decennial session held in Istanbul, Turkey, in 2011. Timorese Foreign Minister da Costa, who led his country’s delegation, shared Timor-Leste’s experience as a new post-conflict nation and underscored the urgency of work to build institutions and capacities in-country, an essential precondition to realizing the goal of sustained economic growth and poverty reduction. To this end, da Costa called on the international community to assist the LDCs not only by providing financial resources but also by imparting the technologies and expertise that are most appropriate for their developmental needs.

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Timor-Leste has championed the cause of small island nations as well, particularly in their fight against the effects of global environmental degradation such as climate change, which is posing an imminent threat to the survival and livelihoods of this group of counties. At the 2011 UN Climate Change Conference in Durban, South Africa, Timor-Leste joined other small island nations and mobilized support, with a certain success, for a proposal for concluding a new binding agreement on the reduction of greenhouse gas emissions after the expiration of the Kyoto Protocol’s first commitment period in 2012 and establishing more ambitious emissions reduction targets for industrialized countries as well as major developing countries. g7+ The g7+ is an independent and autonomous forum of fragile and conflictaffected countries, united to speak in one collective voice about their concerns on the global stage. 16 The forum was established in response to the repeated lesson from history that conflict not only costs the international community hundreds of billions of dollars annually, but also causes the conflict-affected countries an incalculable amount of human suffering and extreme poverty and deprivations. Fragile and conflict-affected countries, which represent more than one fifth of the world’s population, are faced with a 54 percent greater incidence of under-nutrition, a 20 percent higher rate of child mortality, and an 18 percent lower rate of completion of the primary level of education compared to other developing states. 17 The objectives of the g7+ forum are: • To facilitate the exchange of experience and knowledge on peace-building and state-building among fragile and conflict-affected countries in order to halt ongoing conflict, or to promote the rule of law, good governance, and sustainable development as a means to prevent its recurrence after the end of conflict; and • To promote across the international community enhanced engagement and partnership with fragile and conflict-affected countries and advocate urgent reform of global policy for assistance and support in peace-building and state-building for these countries. The g7+ states, along with donor countries, international aid agencies, and civil society organizations, maintain a continuous dialogue on peace-building and state-building. The inaugural meeting of this crucial discourse, the International Dialogue on Peace-building and State-building, was held in Dili in 2010. The meeting held an interactive session for information-sharing and mutual learning on peace-building and state-building practices as well as deliberations on the Dili Declaration to lay out a future vision for the g7+

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forum, which was adopted at the close of the meeting. The Dili Declaration 18 explores the challenges to the achievement of peace-building and state-building goals for fragile and conflict-affected countries and puts forth further action plans for their attainment, both within the countries concerned and in the wider international context. In the follow-up to the Dili Declaration, five peace-building and state-building goals, consisting of inclusive political process, robust security, increased access to justice, greater employment and livelihood, and accountable and fair service delivery, have been identified and incorporated, along with the strategies to focus on the country-led and owned initiative and to ensure foreign aid to be effective and result-oriented, into a “New Deal” proposal for engagement in fragile and conflict-affected states. The New Deal has garnered endorsement from major donor governments and international organizations, including the United Nations. TimorLeste is leading the effort of the g7+ states to mobilize support from the greater international community by presenting the New Deal for discussion during the 2012 regular session of the United Nations General Assembly. 19 The chair of the g7+ forum is currently held by Timor-Leste’s Minister of Finance Emilia Pires, and the secretariat for the forum, which is responsible for coordination among participating countries and organizations, is located within the Timorese finance ministry. As host country to the forum chair, Timor-Leste has carried out active diplomacy on behalf of the group. President Ramos-Horta presided over the g7+ Heads of State Summit meeting in 2010, which was held in parallel to the UN Summit on the Millennium Development Goals, and concluded the session with the adoption of the g7+’s future program of work. Timorese Vice Prime Minister José Luis Guterres represented the g7+ group in the open debate on post-conflict peace-building at the UN Security Council in 2011, where he provided a unique perspective from a country that has actually undergone this process and underscored the importance of reconstructing institutions in the aftermath of conflict as a means for the further consolidation of peace and security. SURVIVAL OF A “SMALL” NATION In his acceptance speech for an honorary Doctorate of Laws degree from the University College Dublin in Ireland in 2010, President Ramos-Horta spoke about how a small, war-torn nation such as Timor-Leste must struggle to integrate itself economically, diplomatically, and strategically in the world community after the securement of peace and independence. This has been a great challenge for Timor-Leste’s foreign policy ever since it entered the global arena after the Restoration of Independence. The nation’s earnest effort to relate itself with its neighbors, with regional partners, and with the

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world in a collaborative, yet equal and mutually respectful, manner have yielded many positive results. With its powerful immediate neighbors, Indonesia and Australia, TimorLeste has developed largely productive relations despite occasional differences. London-based magazine The Economist describes the Timorese as “remarkably forgiving of Indonesia for its brutal 24-year occupation of their country,” but notes that “Timor-Leste’s leaders seem less tolerant of Australia.” It quotes José Belo, a leading Timorese commentator, in saying “We [Timorese] don’t like being pushed around. Even if we think we might lose the fight, we will still fight it.” 20 Still, as the magazine observes, Australia is an important nation upon which Timor-Leste will eventually have to rely for matters of national importance, such as the maintenance of peace and security and development of strategic industries, including the petroleum sector. Beyond its immediate neighborhood, Timor-Leste has extended goodwill and cooperation to nations near and far, irrespective of their political influence or economic status, notwithstanding being one of the world’s most disadvantaged nations. Remarkably, it has provided humanitarian aid to those stricken by natural calamities or in societal trauma and distress. As indicated in Table 8.1, fifteen countries have received financial aid from Timor-Leste as of 2011, totaling US$ 6.3 million and representing a wide spectrum of development and wealth, including Australia, Brazil, Chile, Cuba, Guinea-Bissau, Haiti, Indonesia, Japan, the Philippines, Portugal, Samoa, Sri Lanka, Tonga, Vietnam, and the United States. Timor-Leste has also planned to expand the scope of its international humanitarian missions with dispatch of its disaster relief personnel, the most recent example being its offer to field a rescue team to Japan in the wake of the massive earthquakes and tsunamis of 2011. In addition, the country has contributed a dozen members of its uniformed forces to the UN peacekeeping and peacebuilding missions in Kosovo and Guinea-Bissau and will deploy additional uniformed members shortly to the UN peace operations in Lebanon and South Sudan. Despite its multi-level, multifaceted diplomatic effort in pursuit of peace and friendship in all corners of the globe, Timor-Leste has yet to obtain conclusive results in one area: its integration to the surrounding Southeast Asia. Although the member states of ASEAN have agreed to Timor-Leste’s admission as its newest member in principle, its application for membership is still under review on the ground of technicalities. President Ramos-Horta has assured ASEAN and its members that “when we join ASEAN, I am certain that we will be an asset, and not a burden.” 21 Timorese Foreign Minister da Costa also conveyed to Kasiviswanathan Shanmugam, his interlocutor in Singapore, during his visit to the nation in 2011, his country’s firm determination to contribute “positively and meaningfully” toward the association and its member states.

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Table 8.1. Humanitarian aid provided by the Government of Timor-Leste, as of December 2011 Year

Country/region (Issues)

Amount (US$ ‘000)

2011

United States (Tornadoes in Alabama, Tennessee, Mississippi, and Missouri)

500

Japan (Earthquake and tsunami)

500

Australia (Floods)

500

Brazil (Floods)

500

Sri Lanka (Floods)

500

Haiti (Earthquake)

500

Chile (Earthquake)

350

Portugal/Madeira Island (Floods)

750

Indonesia/Java and Sumatra (Earthquake, tsunami and volcano eruption)

1,000

Philippines (Typhoon and floods)

200

Indonesia/West Sumatra (Earthquake)

200

Vietnam (Typhoon and floods)

100

Samoa (Earthquake and tsunami)

50

Tonga (Earthquake and tsunami)

50

Guinea-Bissau (Election)*

100

Cuba (Hurricane)

500

2010

2009

2008 Total

6,300

* Total of assistance provided in 2008 and 2009. Timor-Leste endured centuries of occupation by successive foreign powers that came to the island in search of its riches; this is all the more reason for the nation to strengthen its resolve to build mutually supportive relationships with all other nations in the world and settle differences with them, if any, only through peaceful means. Furthermore, there seems to be no other way to attain peace and development for a small island state found in an economically and strategically dynamic region but by engaging in the broadfront diplomacy to forge robust alliances with its counterparts in the regional and world communities. Indeed, to establish amiable coexistence, while sharing a keen interest in long-term peace and security, with its neighbors and partners around the world is an important precondition for Timor-Leste’s smooth progression to the long-term national prosperity; history has shown time and again that fragile and conflict-affected nations do not succeed in attaining their economic and developmental goals if they fail to adequately

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address the challenges of internal and external security, which are interdependent in many of these nations. With its ample resources and determination to succeed, and by working assiduously toward the thriving partnership for greater harmony and solidarity with the international community, no doubt Timor-Leste will ultimately triumph in its endeavor in peace and development, as has been expounded in the preceding chapters. We now turn, in closing, to an overview of the promise that the future holds for this Asia’s newest nation. NOTES 1. Ramos-Horta, J. (2011, May 16). Why Timor-Leste Should Join ASEAN Now. In East Asia Forum. Available at http://www.eastasiaforum.org/2011/05/16/why-timor-leste-shouldjoin-asean-now/. 2. The final report of the Truth and Friendship Commission is available online at http:// www.laohamutuk.org/Justice/Reparations/CTFReportEn.pdf. 3. Statistics on Timor-Leste’s trading partners as provided in this chapter are quoted from: Timor-Leste. National Directorate of Statistics. (2011). External Trade Statistics Annual Report 2010. Available at http://dne.mof.gov.tl/trade/annualreports/Annual%20Reports/Annual%20Report%202009.pdf. 4. Timor-Leste and Australia have found another contentious issue in their shared peace and security in asylum-seekers arriving on Australian shores. Asylum-seekers to Australia reached an all-time high in 2010, surpassing 7,000 in number. The controversy between TimorLeste and Australia began when Australian Prime Minister Julia Gillard, then leading the ruling party’s campaign in the run-up to the 2010 national parliamentary elections, aired a proposal to absorb asylum-seekers in Timor-Leste temporarily, for processing. After the elections, Prime Minister Gillard’s proposal drifted aimlessly for some months until both Timorese and Indonesian officials dismissed the idea. Timor-Leste’s parliament subsequently passed a unanimous resolution against playing host to any such processing center. 5. For a detailed examination of oil and gas exploitation in the Timor Sea, see chapter 3. 6. APEC is the acronym for the Asia-Pacific Economic Cooperation. This forum was established in 1989 to support sustainable economic growth and prosperity in the Asia-Pacific region. It consists of twenty-one countries and regions in the Asia-Pacific, including seven members of ASEAN. At present, Timor-Leste neither is a member of APEC nor has an observer status with the cooperation. 7. Tommy Koh, Ambassador-At-Large of Singapore’s Ministry of Foreign Affairs, listed the maintenance of regional peace as ASEAN’s foremost achievement during its more than forty years of existence. The association was created in 1967, at the height of the Cold War and the Vietnam War. Today, Southeast Asia is free of widespread conflict, despite occasional instabilities within the region or between member states and their neighbors. For details, see: Koh, T. (2008). ASEAN at 40. IPS Terraviva: South-South Executive Brief (Vol. 1, Issue 1, pp. 1, 3). Rome: Inter Press Service. 8. By 2015, as it is planned, the ten member states of ASEAN will not only be integrated into a single market and production base, with free flow of goods, services, investment, and skilled labor, but they will also be linked to the markets of China, Japan, South Korea, India, Australia, New Zealand, and the European Union through free trade agreements and comprehensive economic partnership agreements, and to the United States through a trade and investment framework agreement. For details on the ASEAN Economic Community, see: Association of Southeast Asian Nations (ASEAN). (n.d.). ASEAN Economic Community. Available at http://www.asean.org/18757.htm. 9. In an interview conducted by the UN Radio in 2011, Prime Minister Gusmão remarked, “We are Timor-Leste because of the Portuguese presence. If the Portuguese had left 400 years

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ago, as happened in Flores, we would be an Indonesian province. Thus, ironically, the Portuguese presence gave us an identity, gave us the right to be a people.” For details, see: TimorLeste. Office of Prime Minister. (2011, March 25). Prime Minister Interviewed by the United Nations Radio. In News. Available at http://timor-leste.gov.tl/?p=4798&lang=en&lang=en. 10. The UN Country Team in Timor-Leste, consisting of UN funds and programs and specialized agencies, as well as international and regional financial institutions, has been supporting the work of the UN Integrated Mission in Timor-Leste in the areas of security sector reform, democratic governance, human rights protection, and socioeconomic development. Members of the country team in Timor-Leste include: Asian Development Bank, Food and Agriculture Organization (FAO), International Labour Organization (ILO), International Organization for Migration (IOM), Office of the UN High Commissioner for Human Rights (OHCHR) (represented by its regional office in Bangkok), Office of the UN High Commissioner for Refugees (UNHCR), UN Capital Development Fund (UNCDF), UNESCO (represented by its office in Jakarta), UNICEF, UN Development Programme (UNDP), UN Industrial Development Organization (UNIDO), UN Office for Project Services (UNOPS), UN Population Fund (UNFPA), UN Volunteers (UNV), UN Women, World Bank, World Food Programme (WFP), and World Health Organization (WHO). For details, see: UN Integrated Mission in Timor-Leste (UNMIT). (n.d.). Members of the UN Country Team. Available at http://unmit.unmissions.org/Default.aspx?tabid=2049. 11. Presently, forty-eight countries are classified as the LDCs. They are (listed by geographic region): Africa (33 countries)—Angola, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Somalia, Sudan, Togo, Uganda, Tanzania, and Zambia; Asia and the Pacific (14 countries)— Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s Democratic Republic, Myanmar, Nepal, Samoa, Solomon Islands, Timor-Leste, Tuvalu, Vanuatu, and Yemen; and Latin America and the Caribbean (one country)—Haiti. For details, see: United Nations. Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS). (n.d.). Least Developed Countries: About LDCs. Available at http://www.unohrlls.org/en/ldc/25/. 12. Market access preferences entitle exporters from developing countries to pay lower tariffs or to have duty- and quota-free access to third-country markets. These trade preferences are granted under two general preferential schemes: the Generalized System of Preferences (GSP) and the Global System of Trade Preferences (GSTP). Under the GSP, selected products originating in developing countries are granted zero or reduced tariff rates at the ports of developed countries. In addition, under this scheme, wider product coverage and deeper tariff cuts are available for products from the LDCs. The GSTP is an agreement between forty-three participating countries mostly from the developing world—seven out of which are the LDCs— on cooperation on tariffs, para-tariffs, non-tariff measures, trade concessions, and sectoral agreements. Although the GSTP in principle recognizes the special needs of the participating LDCs, only a limited number of offers of non-reciprocal trade concessions have been extended to them to date. For a detailed examination of the GSP, see: UN Conference on Trade and Development (UNCTAD). (n.d.). Generalized System of Preferences. Available at http:// www.unctad.org/Templates/Page.asp?intItemID=1418&lang=1. For details on the GSTP, see: Global System of Trade Preferences Among Developing Countries. (n.d.). Welcome to the Global System of Trade Preferences. Available at http://www.unctadxi.org/templates/ Page____1879.aspx. 13. In addition, those LDCs that are members of the World Trade Organization—that is not the case of Timor-Leste—may benefit from additional considerations, such as increased market access; greater flexibility in the application of agreements, rules, and disciplines governing trade measures; and other measures to safeguard their trade interests. For a detailed examination of support mechanisms for the LDCs, see: United Nations. Committee for Development Policy. (2008). Handbook on the Least Developed Country Category: Inclusion, Graduation and Special Support Measures. New York.

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14. The United Nations recognizes the 38 UN member states belonging to the Alliance of Small Island States, an ad hoc negotiating body established at the United Nations in 1991, although the alliance also includes fourteen non-UN-member island entities. The thirty-eight member states are (with those that are also categorized by the United Nations as one of the LDCs marked with an asterisk): Antigua and Barbuda, Bahamas, Bahrain, Barbados, Belize, Cape Verde, Comoros,* Cuba, Dominica, Dominican Republic, Fiji, Grenada, Guinea-Bissau,* Guyana, Haiti,* Jamaica, Kiribati,* Maldives, Marshall Islands, Federated States of Micronesia, Mauritius, Nauru, Palau, Papua New Guinea, Samoa,* São Tomé and Príncipe,* Singapore, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Seychelles, Solomon Islands,* Suriname, Timor-Leste,* Tonga, Trinidad and Tobago, Tuvalu,* and Vanuatu.* For details, see: United Nations. Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS). (n.d.). Small Island Developing States—About SIDS. Available at http://www.unohrlls.org/en/sids/43/. 15. For details on the Mauritius Strategy, see: United Nations. (2005). Report of the International Meeting to Review the Implementation of the Programme of Action for the Sustainable Development of Small Island Developing States (UN Doc. A/CONF.207/11). New York. 16. Fragile and conflict-affected countries participating in the g7+ forum include: Afghanistan, Burundi, Central African Republic, Chad, Cote d’Ivoire, Democratic Republic of Congo, Guinea, Guinea-Bissau, Haiti, Liberia, Papua New Guinea, Sierra Leone, Somalia, Solomon Islands, South Sudan, Togo, and Timor-Leste. The g7+ forum maintains a continuous dialogue on peace-building and state-building with the International Network on Conflict and Fragility, which is an alliance of major donor nations, international organizations such as the United Nations, and regional institutions such as the European Commission and regional development banks. In addition, countries that provide South-South cooperation including Brazil and China, as well as non-governmental organizations also participate in the dialogue. For details, see: g7+. (n.d.). The g7+ of Fragile and Conflict-Affected States. Available at http:// www.g7plus.org/. 17. Statistics on fragile and conflict-affected states as provided in this paragraph are quoted from: g7+. (n.d.). About the g7+. Available at http://www.g7plus.org/about. 18. For the full text of the Dili Declaration, see: g7+. (n.d.). Dili Declaration. Available at http://www.g7plus.org/news-articles/2010/4/10/dili-declaration.html. 19. For the full text of A New Deal for Engagement in Fragile States, see: g7+. (n.d.). Fourth High-Level Forum on Aid Effectiveness: A New Deal for Engagement in Fragile States. Available at http://www.g7plus.org/new-deal-document/. 20. Timor-Leste and Australia: A Widening Gap. (2010, June 17). In Economist. London. 21. Timor-Leste: On the Way up But Still a Long Way to Go. (2011, June 16). In Integrated Regional Information Networks (IRIN) News. Available at http://www.irinnews.org/report.aspx?ReportID=92984.

Chapter Nine

From Tragedy to Triumph—Building the Foundation of Modern Timor-Leste

Timor-Leste’s economic growth has continued to accelerate since the recovery from the 2006 crisis, despite the presence of intervening factors such as the ongoing global financial crisis and worldwide economic downturn, exacerbating climate extremes, and occasional lapses in security, including the 2008 attempt on the country’s leaders’ lives. This growth has been driven, for the most part, by an upsurge in government spending, as supported by receipts from oil and gas exploitation, that more than tripled to US$ 760 million in the three years from 2007 to 2010. The Timorese economy attained an average annual double-digit percentage growth from 2007 to 2010 in real terms in its non-oil Gross Domestic Product (GDP) and is estimated to have maintained the pace in expansion for 2011, raising an expectation that a similar upward momentum in growth will prevail on average in the short to medium term. 1 Barring unforeseen external shocks such as natural calamities or another wave of the financial catastrophe, besides the anticipated major drawdown in the United Nations’ operations in Timor-Leste in 2012, which has contributed about 5 to 10 percent to the country’s non-oil GDP in recent years, there are few factors that could threaten a dampening effect on its strong economic growth; even if they do occur, the spending spur by the government will likely stay its course and would more than offset their negative impacts. Moreover, since oil prices hit bottom in 2009 amidst the worldwide economic downturn, they have risen once again and are boosting Timorese public savings. Additionally, as the production of the Bayu-Undan oil and gas field has remained at its peak level of the lifetime of the project of late, while the new Kitan field became operational in 2011, the financial position of TimorLeste’s Petroleum Fund is further strengthened to over US$ 10 billion as of 157

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March 2012, providing yet more backing for the continued expansion in government spending. Although larger budgetary withdrawals from the Petroleum Fund are planned in upcoming years, the balance of the fund is projected to rise steadily in the medium term. Timor-Leste’s unfaltering economic growth projected for the short to medium term is anticipated to produce positive outcomes on its socioeconomic front and make greater inroads into the most vulnerable segment of its population. According to the Asian Development Bank, the average household income in Timor-Leste rose by about 20 percent between 2007 and 2009, contributing to a reduction in the incidence of poverty from 50 percent to 41 percent, which is considered substantial although the rate remains unacceptably high. The pace of poverty reduction is likely to hold with the expansion of social security and safety nets and investment in human capital development, to which the government has firmly committed itself for the foreseeable future. TIMOR-LESTE’S STRATEGIC DEVELOPMENT PLAN In 2009, ten years after the Popular Consultation, the Timorese government unveiled the new slogan “Goodbye Conflict, Welcome Development” and declared a new beginning for Timor-Leste as a politically matured nation that maintains stability and operates fully functional democratic governance. Having mastered the issues underlying past conflict and turmoil, TimorLeste may now focus on achieving ambitious developmental goals for the future. The government identified a new national vision that reflects the aspirations of all Timorese for a brighter and safer future and began the drafting process for the Strategic Development Plan 2011–2030, an action program for bringing affluence and strength to the nation in the next twenty years. 2 The plan addresses the challenges that have held Timor-Leste back from reaching the next frontier of development and aims to elevate its status from a low-income to an upper-middle income nation by the end of the plan’s lifetime. Prior to drafting the plan in 2008, the Timorese government adopted the National Priorities Programs as an interim planning mechanism to address pressing issues through priority-setting exercises and streamlining of resource allocations. The programs addressed the following areas as priorities: infrastructural development, food security, human capital formation, governance and public administration, the rule of law, and safety and security. The National Priorities Programs served to pave the way to the eventual launch of the Strategic Development Plan in July 2011. Preparation of the Strategic Development Plan was undertaken in a highly participatory manner. Prime Minister Kay Rala Xanana Gusmão personally

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led a series of public consultations on the draft plan in all thirteen districts and sixty-five sub-districts across the country in order to obtain feedback directly from the Timorese of all walks of life. During the course of the consultations, many expressed an earnest desire to make their conflict-torn motherland a better and safer place for them and their future generations, which made a strong case for a “big push” for development through the implementation of the Strategic Development Plan. With petroleum revenues enabling aggressive investment in infrastructural development and human capital formation, the Strategic Development Plan is expected to afford an opportunity to Timor-Leste to significantly improve the lives of its people, two-fifths of whom live under the poverty line, while leaping in rank in the world economy. The Strategic Development Plan was rolled out at the time when the world economy was still under the heightened volatilities from global financial markets. And then world food and commodity prices started to soar, while a wave of the sovereign debt crisis swept parts of the eurozone, undermining the attempts of many countries to revive the economy and tackle poverty and hunger issues. Timor-Leste is not immune to this international context of utmost uncertainty, and the success of the Strategic Development Plan depends in large part on the country’s ability to adapt to these challenges of the current global economy. The Strategic Development Plan envisions the following future for Timor-Leste by 2030: • A nation with an upper-middle income, with strong institutions and productive industries that are self-reliant and well diversified, shifting away from the dominance of the petroleum sector in the economy; • Citizens receiving greater benefits from development in the form of higher disposable incomes and improved access to health care, education, and other basic services, with no one living in extreme poverty or deprivation; • An economy with quality employment opportunities that make use of a diverse set of skills and guarantee at least the minimum wages and due respect for workers’ rights; and • A law-abiding society with an accessible, fair, and efficient system of justice. The Strategic Development Plan operates on the assumption that, as a result of major public investment in infrastructure, human capital, and strategic sectors of the economy, Timor-Leste’s non-oil economy can grow at an average rate of 12 percent per year from 2011 to 2020 and 10 percent per year from 2020 to 2030, from the base of US$ 1 billion in non-oil GDP and US$ 4.5 billion in GDP inclusive of the petrolem sector, which would not only ensure its ranking among upper-middle-income countries, but would

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also eliminate extreme poverty with greater equity in the distribution of growth benefits. Under the Strategic Development Plan, the final year 2030 would see a well-diversified economy with a thoroughly developed infrastructural base and close-knit networks of air, freight, and road transport links, power grids, and telecommunication lines. The current low-productivity subsistence farming would be replaced by commercial, smallholder agriculture turning out a respectable quantity of high-value, high-quality output, which would account for a substantial portion of the increased national income. In other words, Timor-Leste would not only be self-sufficient in food production, but would also produce a wide range of agricultural commodities for international markets, including food crops and cash crops such as fruits, vegetables, nuts, spices, as well as livestock and forestry and fishery products. The petroleum sector, having operated as an enclave with only the most minimal employment and income linkages with the rest of the economy, will undergo diversification as well by 2030 with the establishment of the national oil company, which is expected to launch mid-stream and downstream operations in addition to oil and gas exploration and exploitation. 3 These post-extraction operations would generate higher value-added output and create more jobs in the petroleum and ancillary industries, which would bring a number of secondary benefits to the wider economy. The development of light industries, such as food processing, apparel and handloom manufacturing, handicraft- and furniture-making, and printing, among many others, is also projected to aid further diversification in the Timorese economy. The tertiary sector, which at present provides employment for close to 30 percent of the Timorese labor force, primarily in the domains of wholesale and retail trade, education, and public administration, would similarly undergo diversification and branch out to a number of new areas, notably banking and finance, health care, tourism, and entertainment. Due to the radical restructuring of the Timorese economy envisaged under the Strategic Development Plan, Timor-Leste’s traditionally rural profile will likely be fundamentally altered. Seventy percent of Timorese live in rural areas today, but urban residents are expected to outnumber rural counterparts by mid-twenty-first century, reversing the distribution of the country’s population between urban and rural areas and eventually reaching almost twice the size of the current national population before the growth will come to a stationary point. The capital Dili will transform into a large agglomeration, home to as much as one fifth to one fourth of the Timorese population, with a nucleus of commerce, transportation, and communication networks linked to the country’s regional hubs as well as to global industrial and business centers. Other urban centers will likely follow suit, including Baucau and Maliana, Timor-Leste’s second and third largest cities, respectively.

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The Strategic Development Plan details the steps necessary for TimorLeste’s envisioned future as follows: • Investment of petroleum revenues for building a viable, modern non-oil economy that can generate higher income while reducing overwhelming dependence on the petroleum sector; • Diversification in the economic base, export structure, and government revenue, in order to hedge against risks from unexpected negative events such as food and commodity price fluctuations and natural disasters, as well as to generate more jobs in a range of sectors; • Development of private sector businesses by seizing opportunities opened up by massive public investment in strategic industries and infrastructure, especially during the first half of the plan’s life; • Refinement of trade and investment regimes, not only so to entice foreign buyers and investors, but also to steer their activities toward priority areas such as petroleum, tourism, fisheries, banking and finance, and telecommunications; • Strong commitment to the development of human capital, the ultimate source of national wealth; • Closer integration with regional and international economies, including the Lusophone community and the Southeast Asia region, and active engagement in dialogue and exchange throughout the world; • Maintenance of macroeconomic stability through phases of heavy public investments and a commitment to the dollarization policy into the foreseeable future; and • Gradual development of the commercial banking and financial sector alongside the phased introduction of appropriate legislative and regulatory frameworks. The Strategic Development Plan will be implemented in two phases. During the first phase, 2011 to 2020, priority will be given to creating the conditions vital to development, such as building infrastructure; enhancing food production and agricultural productivity; promoting sustainable urbanization; improving access to and quality of health care, education, and other basic services; and encouraging the growth of strategic industries and businesses. During the second phase, 2020 to 2030, the focus will shift to building on these foundations and ensuring that Timor-Leste is not only a competitive, knowledge-intensive economy in full integration with the global markets, but also a sustainable society with present and future generations of Timorese enjoying complete freedom from want and deprivations and a quality of life. Under the Strategic Development Plan, two “special” funds, the Infrastructure Fund and the Human Capital Development Fund, have been established as a principal instrument for implementing Timor-Leste’s short- and

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medium-term developmental goals. The special funds finance capital development projects that call for a large amount and diverse set of resources in the form of time, money, manpower, equipment, facilities, and services over a period of time. In general, a highly structured style of management is pursued in these projects not only to ensure efficiency in the utilization of resources, but also to control the risks emanating from the complex way of deploying them. The special funds are designed to facilitate structured management in the implementation process of the Strategic Development Plan and incorporate in its application strategies such as joint target-setting, intensive prioritization in resource use, and vertical as well as horizontal integration of line responsibilities. Administratively, Timor-Leste’s special funds are made available in yearly installments and disbursed through its state budget over the life of the Strategic Development Plan. The special funds are set aside from the regular budget portion of the state budget that is usually distributed among government ministries and departments, as well as between the government at the central level and local government bodies, for use in their respective programs and activities. The special funds, in contrast to the regular budget, are allocated and managed across ministries and departments in order to catalyze synergy among different parts of the government in achieving the country’s overarching goals. In addition, the special funds are monitored centrally by Timor-Leste’s prime minister’s office, not by the respective implementing offices, to ensure the utmost transparency and accountability in use according to their intended purposes. For the period 2011 through 2016, a total of US$ 4.3 billion has been allocated to the two special funds, comprising US$ 4.1 billion for the Infrastructure Fund and US$ 220 million for the Human Capital Development Fund. For the year 2011, a total of US$ 624 million of the state budget was earmarked for disbursements under the two funds, representing more than one third of the total budgetary outlay of US$ 1.5 billion. 4 These figures clearly reflect the Timorese government’s emphasis on capital development in its spending priorities. Major projects to be financed by the Infrastructure Fund include: 1. Construction of new electricity generation plants and transmission grid systems (US$ 818 million); 2. Development of the Tasi Mane complex (US$ 901 million) along the southern coast scheduled over the next twenty years and consisting of: The Suai supply base cluster, a logistics station for the petroleum industry, comprising, among others, a seaport, an airport, a heavy metals workshop, and shipbuilding and repair docks;

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The Betano refinery and petrochemical cluster, the future home of Timor-Leste’s national oil company, with an initial refining capacity of 30,000 barrels per day, which is to be increased to 100,000 barrels per day by completion; The Beaço liquid natural gas plant cluster, with an initial production capacity of five million metric tons per annum, or one train, which is to be expanded to 20 million metric tons per annum, or four trains, by completion; Road transport links connecting the Suai, Betano, and Beaço clusters; 3. Construction of schools and hospitals (US$ 85 million); and 4. Construction and rehabilitation of transport infrastructure such as roads, bridges, seaports, and airports (US$ 714 million). In addition, the Infrastructure Fund encompasses the Millennium Development Goals Suco (village) Fund, 5 for which a total of US$ 325 million has been set aside for the period 2011 to 2015. The MDG Suco Fund will facilitate the annual construction of more than 11,000 houses equipped with a household solar energy system and water and sanitation facilities in all 2,228 aldeias (small villages) across Timor-Leste, beginning in 2011. The Human Capital Development Fund is designed to build the technical and professional capacities required for attaining high levels of self-sufficiency in knowledge base and competitiveness in the Timorese economy. An enhanced human capital pool would be a driving force in the development of a wide range of strategic sectors, including health care, education, agriculture, tourism, banking and finance, infrastructure, and natural resource management, as well as policing and defense. By acquiring essential knowledge, skills, and expertise for its economic growth, human development, governance, and national security within its own population, Timor-Leste can not only reduce its reliance on foreign experts, but can also provide manifold opportunities for its citizens to take a more proactive, self-supporting role in the country’s development process. 6 The Human Capital Development Fund will finance the following programs: • Provision of scholarships and training grants in critical areas of public services, such as administration, financial management, natural resource management, health care, and legal and paralegal services; • Support to the Secretariat of State for Professional Training and Employment for organizing various youth development and vocational programs; • Human capital development in geology, petroleum, and petrochemical engineering, and related fields, in order to build national capacities and

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achieve technical and professional self-sufficiency in the most vital part of its economy; and • Assistance in overseas training for national defense and police personnel. As Timor-Leste embarks on the pursuit of its medium- and long-term developmental goals, it has become an overriding concern for the government to deploy the limited resources in a more strategic manner, so as to be able to respond effectively to the competing priorities of stimulating economic growth while expanding basic services to the most vulnerable Timorese. Equally important as the country strives to ensure inclusiveness and participation of all partners in development, mechanisms must be in place by which all stakeholders can interact and make meaningful contributions to energize the process of national development. The stakeholders in this case will certainly include government ministries and departments and other state authorities that are involved in implementing development programs. In addition, they may encompass not only the international community and civil society, which bring valuable financial, technical, and material support for development, but also ordinary Timorese, who are in fact no less important as the principal agents for catalyzing this process at grassroots level than as the eventual recipients of the benefits therefrom. The Strategic Development Plan incorporates the following elements to address these emerging issues: • • • • • •

Medium-term expenditure framework Decentralization National Planning Framework Petroleum Fund Aid effectiveness Institutional capacities

In the following, we conduct a brief examination of each of these elements. Medium-Term Expenditure Framework The medium-term expenditure framework is a tool for budget planning in the intermediate period of the several years immediately after the forthcoming fiscal year. In the medium-term expenditure framework, the budget for the current financial year is presented along with planned budgetary allocations and revenues at least for the next few years. There are a number of advantages to adopting this framework for state budget exercises. First, the medium-term expenditure framework can serve as an instrument for mobilizing collaboration across government ministries and departments for planning, implementing, and monitoring activities over a longer time frame, as op-

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posed to other types of budgeting that tend to result in more piecemeal, reactive, short-term decisions. Second, the medium-term expenditure framework has great potential for improving transparency and accountability in state budgeting and control. Within this framework, a medium-term budget policy statement is issued customarily in advance of the primary budget documents. The statement clarifies not only what the country’s medium-term policy goals and strategies are, but also how much the government is expected to receive and expend for upcoming years, including for achieving the goals. While the statement provides a basis for measuring the progress being made toward the goals, it may further be used for making mid-course corrections with regard to strategies or resource allocations, among others, if the progress is found unsatisfactory, thereby enhancing accountability in budget implementation. Additionally, the medium-term budget policy statement may motivate the public at large to discuss issues of public budgeting and financial management, which will further likely boost transparency and accountability in these processes. Finally, the medium-term budget policy statement usually contains a description of the macroeconomic context that underlies the goals and the projections on future revenues and expenses, including national policies on taxation, interest rates, and fiscal incentives and subsidies for the current and future years. This macroeconomic account, by providing critical information relating to the business climate in the short and medium run, will likely influence the investors’ decisions and affect the overall level of saving and financing in the economy. Timor-Leste’s Strategic Development Plan 2011–2030 includes the country’s medium-term budget policy statement, in which its medium- and longrange developmental goals and the corresponding strategies are presented to the public. Furthermore, due to the highly participatory approach adopted for its preparation, the plan documents have provided a natural entry point, not only for the government authorities at various levels, but also for the general public, to take part in the process of building consensus on the country’s developmental priorities and strategies; the participatory approach has afforded all participants a greater sense of ownership of the plan and commitment to its implementation. As discussed in the previous section, TimorLeste’s state budget incorporates the proposed resource allocations for the Strategic Development Plan and encompasses the two multi-year special funds, the Infrastructure Fund and the Human Capital Development Fund, as its components, to facilitate the implementation of the proposed plan actions. In accordance with the medium-term expenditure framework, the current year allotment of the special funds is presented along with the planned allocations for the following years, at the moment through 2016. The Timorese government has instituted a few major institutional reinforcements in its economic governance in order to ensure the successful

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introduction of the medium-term expenditure framework. It has established the National Development Agency 7 for designing, monitoring, and appraising multi-year projects, as well as the National Procurement Commission 8 for ensuring greater quality control and efficiency in its large-scale procurement operations, both of which report directly to the prime minister’s office. Decentralization Besides catalyzing collaboration across governmental ministries and departments, the medium-term expenditure framework facilitates national, district, and sub-district government bodies to consult each other and work together on a comprehensive plan for spending government funds in the upcoming year and beyond. Budget documents in the medium-term expenditure framework clearly delineate how revenue raised by the national government will be shared between national and sub-national levels in the current and future fiscal years, which will allow entities at each level to set their own short- and medium-term priorities and corresponding action plans. Since 2003, Timor-Leste has been working to develop a framework for local governance based on decentralization. The Timorese government believes that a strong, open, and efficient local governance system can promote opportunities for democratic participation at grassroots level and ensure more effective and equitable public service delivery and social investment, which will help accelerate human development across the nation with fewer regional disparities. In order to implement decentralization, the government has drafted three proposals for legislation: a law on administrative and territorial division, which was already enacted by the National Parliament in 2009, and a local government act and a municipal election law, both of which are under consideration by the parliament as of early 2012. Furthermore, the national government has begun transferring to district and sub-district government bodies the responsibility of delivering public services and implementing smaller-scale public investment projects, which until recently was exclusively reserved for ministries and departments at the central level. To encourage local communities’ involvement in rural infrastructure undertakings that are prepared for the Strategic Development Plan 2011–2030, the Program for Decentralized Development was introduced in 2010 with its financing coming from the regular budget portion of the state budget. The program has two components: the Program for Decentralized Development I, for projects with a maximum outlay of US$ 150,000; and the Program for Decentralized Development II, for projects valued between US$ 150,000 and US$ 500,000. In 2011, 225 Program for Decentralized Development I projects, totaling US$ 15 million in value, were scheduled at the subdistrict level; while 103 Program for Decentralized Development II projects were planned for districts in the same year at a combined cost of US$ 28

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million. The Program for Decentralized Development is expected to strengthen the economic performance at the district and sub-district levels as local businesses are urged to participate as contractors, subcontractors, and suppliers. The rural infrastructure undertakings supported by these programs span the construction of community schools and health centers, installation of community service facilities such as drinking water and basic sanitation systems, and extension of small-scale irrigation and transport networks, among many others. National Planning Framework Significant regional disparities persist in Timor-Leste today, despite the nation’s economic growth rates into the double digits in recent years as well as its government’s efforts to decentralize its administration to respond to specific local needs. There are valid concerns that the country’s economic growth is increasingly driven by a select group of entities with higher productivities that are concentrated around the capital Dili and a small number of regional poles. Under the Strategic Development Plan 2011–2030, regional disparities will be addressed by drawing on the capacities of each region more efficiently and holistically, based on what it can offer to promote national development given its geographic, demographic, economic, and other comparative advantages. Timor-Leste aims to implement the National Planning Framework by 2015 to guide its development efforts in a way in which equal opportunities for participation and contribution are created in all regions and sub-regions in the country without jeopardizing the land’s rich biodiversity diverse ecosystem. The National Planning Framework envisions four national strategic zones, including two regional development corridors: the northern corridor, centering on Dili and extending westward through Liquiçá district to the border with Indonesia and eastward through Manatuto to Baucau district; and the southern corridor, from Suai in Cova Lima district in the west to Beaço in Viqueue district in the east, encompassing bases for petroleum and petrochemical operations to be launched under the Strategic Development Plan. The remaining strategic zones within the National Planning Framework are the region that borders the Indonesian West Timor and the Oecussi Enclave, targeted for the geopolitical significance as well as the comparatively disadvantaged economic and developmental status among Timorese regions. Together, the national strategic zones are expected to lead the nation as growth engines and stimulate development in the rest of the country through transport, utility, and telecommunication links and with trade and investment connections.

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Petroleum Fund 9 In the medium-term expenditure framework, it is critical to produce reliable projections of the country’s revenue streams for the next several years, on which the realization of medium- and long-term goals is heavily dependent. In Timor-Leste’s case, the fiscal policy has been highly expansionary in response to requirements for building infrastructure and nurturing strategic industrial sectors, while meeting the basic needs of the vulnerable Timorese. In fact, the own-funded portion of government spending, which excludes the budgetary contributions from external donors, had increased dramatically by more than twelve times in eight years since the Restoration of Independence. Such an accelerated pace of state budgetary expansion would doubtless not have been possible without the petroleum revenues providing financial fodder. Withdrawals from the Petroleum Fund are guided by the estimated sustainable income, the amount that Timor-Leste can spend without depleting its long-term balance in the fund, which is calculated as 3 percent of the sum of the fund balance and the present value of expected future petroleum receipts. In 2010, the Timorese government undertook a substantial revision of the formula for computing the estimated sustainable income. Previously, the estimate was determined by using the “low” case oil price from the US Energy Information Administration’s Annual Energy Outlook, which lies materially below market and other respected forecasters’ expected prices. Instead, the government now uses the average of the low and reference cases, which in effect has increased the estimated sustainable income considerably. In addition, the government has begun diversifying the investment universe of the Petroleum Fund beyond the original mandate under the Petroleum Fund Law of 2005 to maintain at least 90 percent of assets in US dollar denominated fixed income instruments. In 2011, the National Parliament adopted an amendment to the Petroleum Fund Law to officially incorporate changes that had already been taking place in practice, as well as updates that the government had hoped to introduce in order to improve the fund’s functionality. The amendment provides a legal basis for (1) enforcing the enhanced governance framework for the Petroleum Fund by streamlining reporting and monitoring mechanisms and raising technical standards for fund management; and (2) promoting greater diversification of the portfolio, under which up to 50 percent of assets may be invested in global equities. Yet, despite various efforts to strengthen the Petroleum Fund’s balance sheet, the long-term financial stability and viability of the fund may be threatened as withdrawals considerably in excess of the estimated sustainable income are expected especially in the early stages of the Strategic Development Plan for front-loading investment in capital formation. The outlay of

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the own-funded portion of the state budget, excluding the contributions from external donors, is projected to rise from US$ 1.3 billion in 2011 to US$ 1.8 billion in 2013, after which it is likely to register a gradual fall to US$ 1.5 billion by 2016. In the meantime, while non-oil tax revenue is projected to increase from US$ 110 million in 2011 to US$ 256 million in 2016, the estimated sustainable income from the Petroleum Fund will likely decrease from US$ 734 million to US$ 577 million during the same period. As a result, excess withdrawal from the Petroleum Fund over the estimated sustainable income is set to triple from US$ 321 million in 2011 to US$ 971 million in 2014, although it will probably decline thereafter to about US$ 550 million by 2016. 10 Thus, it is vital that the Petroleum Fund attain respectable rates of return on investments in order to compensate for continued excessive withdrawals and reverse a possible reduction in future income. Aid Effectiveness From a global perspective, the purpose of development assistance is to contribute to tangible improvement in the lives of the world’s poorest. The aid effectiveness agenda, enshrined in the Paris Declaration on Aid Effectiveness 11 of 2005 and invigorated more recently through the Accra Agenda for Action 12 of 2008, aims to maintain quality and reliability in delivery, management, and use of official development assistance for the purpose of maximizing its impact. As per the requirements of a law on state budget and financial management, Timor-Leste’s state budget is prepared on a combined sources basis, including the government’s own funding and the contribution from external partners, mostly in the form of official development assistance from government donors and multilateral aid organizations. Official development assistance provided to Timor-Leste has shown signs of strengthening in recent years despite the fiscal debt distress that many donor governments are experiencing amid the global financial crisis and worldwide economic downturn. In 2010, Timor-Leste received a net official development assistance of US$ 255 per capita, more than 13 times the world average. From the Popular Consultation of 1999 to 2010, Timor-Leste received a total of over US$ 2.5 billion, or US$ 232 million per year, in official development assistance, 13 which is sizable when compared not only to the state budget outlay, but also to its non-oil national product. For example, in 2010, foreign aid comprised 37 percent of total government spending and amounted to 42 percent of TimorLeste’s non-oil GDP. As receipts from oil and gas exploitation increase and larger amounts from the Petroleum Fund are apportioned to the successive budgets, the relative content of foreign aid is expected to fall in the state budget as well as in the national economy. 14

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There have been concerns about the role of foreign aid in Timor-Leste after a decade of its deployment for promoting peace and development in the country. Some of them pertain to the future of the aid; there will likely be less availability of funds from external donors in upcoming years due to the restructuring of public finance that many donor countries are and will be undertaking to alleviate their fiscal debt burdens. Furthermore, there is a growing need for information on the value-for-money of development assistance as a result of the increasing scrutiny of donor governments by their taxpayers. In response to these concerns, the National Directorate for Aid Effectiveness was established in 2008 with the objective to optimize the use of contributions from external donors by avoiding overlap between different foreign aid programs and better aligning them to national development priorities. The specific responsibilities of the directorate, which form part of Timor-Leste’s Ministry of Finance, are to collect data on all official development assistance to Timor-Leste, support other ministries and departments in decision making on the use of foreign aid, and serve as the government’s primary entity for coordination with external donors. Although the Timorese government did not originally participate in the Paris Declaration process, it has piloted since 2009 the implementation of the Principles for Good International Engagement in Fragile States and Situations, which are endorsed by the Organization for Economic Co-operation and Development. 15 Institutional Capacities As the history of Timor-Leste has amply exemplified, to renew a feeling of safety in people and (re)build their confidence in the state when stability returns is vital for peace and development to hold in a sustainable manner in fragile and conflict-affected states. Achieving this goal will require establishing transparent, accountable, and competent institutions across the security sector, the justice system, and the public administration. The Strategic Development Plan 2011–2030 aims to complete the ongoing work of instituting a professional, respected security apparatus that cannot only operate in accordance with the principles of the rule of law and democratic governance, but can also respond in a proactive but prudent and effective manner to various threats to the safety of the citizens. To this end, the implementation of reform of the security sector, which was initiated around the time of the Restoration of Independence and has been placed on an accelerated track since the 2006 crisis, will be followed through and completed during the plan period. Besides attempting to enforce with rigor the application of standards of discipline across the service, the Timorese government will continue upgrading security infrastructure and fine-tuning legal and operational frameworks for security activities. In addition, the government will foster closer coordination and cooperation between defense

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and police forces, with their respective roles and responsibilities clearly defined, in order to build the seamless security environment internally and externally and eliminate any chance of dispute breaking out between the two uniformed forces, as happened in the 2006 crisis. Collaborative relationships will be also strengthened between TimorLeste’s security sector and its stakeholder entities that are involved in preserving security in the country, including traditional village institutions and rural and urban community organizations. This participatory approach to the national security, in which all citizens across the country are invited to take part in creating the secure environment, entails, among others, promoting early warning and firsthand response to security disruptions through enhanced community policing and encouraging communities to develop informal mechanisms for finding solutions to divisive issues. As for Timor-Leste’s judicial sector, the Strategic Development Plan intends to capitalize on the progress already achieved in upholding the rule of law and maintaining the independence and integrity of the courts, while continuing its work on increasing access to justice by all citizens. TimorLeste’s justice system today is as yet not sufficiently developed to adequately serve the entire population, and rural areas in particular are often underserved. A substantial proportion of disputes there are currently addressed by traditional courts, which, though readily available, do not always pay due regard to modern legal and human rights principles. Furthermore, parts of the Timorese legal framework, including vast areas of the civil and administrative codes, as well as the laws on the country’s judicial organization, have not been either drafted or enacted. One of the important goals for Timor-Leste’s judiciary under the Strategic Development Plan is to ensure that every citizen obtains a swift, effective, and fair response to safeguard basic rights and resolve cases of conflicts of interest in a transparent and affordable fashion. To this end, the consolidation of judicial procedures and the legal system, as well as the justice personnel development and certification, will be on the country’s priority agenda for action over the next decade. The recruitment and training of court professionals, for instance, is expected to be accelerated in order to replace the international staff that currently provides backup and mentoring services in the Timorese courts. In the area of public administration, Timor-Leste will strive to adhere to the basic tenets of good governance, namely transparency, accountability, integrity, and leadership, in the delivery of public services, including in the context of the Strategic Development Plan. Professional development of public service personnel and capacity-building in state institutions are some of the key actions that the country will need to sustain in order to provide quality services to its people that are easily accessible and responsive to their needs in an efficient and reliable manner. Several state authorities have been

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established to facilitate the government’s efforts in this regard, including the Anti-Corruption Commission, an independent body responsible for the prevention and investigation of corruption cases; the Civil Service Commission, an autonomous authority on hiring and standards of discipline in public services; and the Chamber of Accounts, which exercises control over public finance. Finally, in order to enhance transparency and accountability in the government’s performance through increased public scrutiny, the Transparency Portal was launched in 2011 as an Internet-based gateway, which provides public access to real-time data on the state budget execution and procurement operation, as well as to the current status of government programs and projects. 16 CONCLUDING REMARKS As we have seen, under the Strategic Development Plan 2011–2030, TimorLeste embarked on a historic move to address in earnest its profound technical, infrastructural, and institutional bottlenecks that had been left behind by protracted conflict in the past. For financing the massive investment in priority areas such as infrastructure and capital formation in strategic industries in the early stages of the plan, Timor-Leste will continue into the foreseeable future to resort to large withdrawals from the Petroleum Fund over the limit of the estimated sustainable income. For the country’s oil-backed investment to be viable, its performance should be superior to the profit earned elsewhere, notably global financial markets, which have provided valuable portfolio options for its petroleum revenues so far. The rate of return on the investment of the Petroleum Fund will depend not only on the quality of portfolio management, including in terms of profit optimization and risk mitigation, but also on the absorptive capacity for the investment options at home in particular, as the Timorese economy is still in a formative stage of development with various macroeconomic and administrative constraints. The drastic increase in withdrawals from the Petroleum Fund also comes at a time when the inflow of foreign aid to the country is expected to decline over coming years. In sum, the spurt in economic growth that the country has experienced recently will prove sustainable only if the investment financed with petroleum revenues can yield a reasonable return, which can be either reinvested for further growth or distributed among the people to eradicate extreme poverty and deprivations as and to improve quality of life. It is possible that Timor-Leste’s large public investment during the first decade of the Strategic Development Plan will induce a significant level of additional investment from the private sector, not only within the country but

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also from abroad, over the following decade. If more investment comes from the sources other than petroleum revenues, then the rate of return on the investment of the Petroleum Fund would rise over time to sufficiently offset the excess withdrawals from early in the plan’s implementation. Longer-term prospects for Timor-Leste therefore rest on how the country can succeed in using oil-backed public funds to trigger a transition to strong, private sectorled economic growth down the line. It is a general, easily understood concept that nations can increase their domestic product by augmenting physical capital such as land, plant, and equipment, which is to be applied to productive activities through investment by either the state or private firms. However, studies of economic growth over time have given rise to a series of challenges to this view, which has led to greater appreciation for the role of labor, especially skilled labor. In the 1950s, Russian-American economist Wassily Leontief demonstrated in his famous paradox that the American economy as a whole relied upon skilled labor, not physical capital, for its success. Later, American economist Robert Solow articulated the role of technology as a third, exogenous force, and in the debate that ensued, economists began to analyze technological changes as partly embedded in physical capital and partly in labor and were led to affirm that an enhanced capacity in humans to apply knowledge and skills would increase the range and value of output, just as an upgraded piece of equipment would do in production. The leadership of Timor-Leste predicts that the time will come soon when constraints on skilled labor, rather than those on infrastructure and productive capacities, will become the most onerous hurdle that stands in the way of the country’s economic growth and poverty reduction. In an interview with a UN magazine in 2011, 17 President of Timor-Leste José Ramos-Horta remarked, “We will have to invest hundreds of millions of dollars in building infrastructure, and invest more in education and health care over the next twenty years. The difficulties and challenges that we face are in terms of human resources—we do not have enough qualified people or well-functioning institutions that deliver services or execute the budget in a just, efficient manner.” President Ramos-Horta stressed that his government made a strong commitment to human resource development by increasing the state assistance for education of the youth, especially in the areas of science and technology, public administration, and business management. For Timor-Leste, development of human capital is critical not only for alleviating the problem of high unemployment especially among the youth, but also for enhancing national capacity for applying advanced technologies to derive higher value added from the country’s rich natural resource base. As President RamosHorta explained, “These (the investment in youth education) are the guarantee that, in the future, Timor-Leste will have a highly educated young population that will be able to compete regionally and internationally.”

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With a population 53 percent of which is below the age of 19, it is important for Timor-Leste to transform the capacity of the youth, who risk becoming liabilities to the nation, into assets which it can count on for its future. According to a 2010 labor force survey conducted by the government, about 50 percent of Timorese under the age of 20 are found to be “inactive,” being neither employed nor enrolled in school or training programs. Lack of vocational skills and knowledge, as well as a dearth of work opportunities, is denying Timorese youth a future of economic security and prosperity; Timorese society in turn is faced not only with the problem of wasteful disuse of the youthful talent and energy, but also with the specter of frustration and anger among the young generation, which may open up a possibility of another cycle of instability and disturbance, as seen in the past. The empowerment of young people indeed bears special significance to fragile and conflict-affected nations such as Timor-Leste. Youth empowerment, in a contemporary sense, does not stop at imparting essential learning tools such as literacy, speech, numeracy, and problem-solving techniques. It also means sharing with the young people basic values, attitudes, and skills that are required of us humans for making informed decisions to lead a better life and reach our full potential, and to do so without curtailing others’ participation in normal, healthy and enjoyable pursuits. Perhaps the coexistence in peace and harmony, while respecting the diversity in political, social, and religious views and beliefs, would be one of the vital principles that the youth in a post-conflict society must learn to follow for helping repair community ties that were severed during conflict and make strides forward in making and building peace in its aftermath. Indeed, the peaceful resolution of conflict and the prevention of violence, be it interpersonal or societal, overt or structural, is a positive value to be promoted on a global scale, not merely in fragile and conflict-affected societies. In teaching these crucial lessons to the youngest global citizens, one can take two approaches. The first approach begins with an understanding that, by defining instruction on the significance of peace as a “multi-disciplinary academic and moral quest for solutions to the problems of war and conflict,” 18 there is a knowledge component in peace that must be imparted. According to this approach, for example, developing a peace education program starts with identifying “the most important problems of mankind,” 19 which is followed by an in-depth study of causes and impacts of each of these problems existent at many different levels of human society. The second approach places greater emphasis on cultivating appropriate aptitudes and attitudes toward peace, by framing instruction on peace as to “promote, in the learners, attitudes of tolerance and empathy as well as skills in negotiation, problem-solving, critical thinking, and communication that will enable them to resolve conflicts without resorting to violence.” 20

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Disputes may be inevitable, but violence is not. To prevent conflict and arrest cycles of violence, we must seek, while promoting peace in the society, to build through education the capacity in youth to detect and attempt to reduce the drivers of conflict and, in the unfortunate event of an outbreak of violence, to implement measures that bolster peaceful outcomes in a swift and decisive manner. This is to create capacities for resilience in future generations in order to ensure that conflict does not arise in the first place and, if it does, that it does not recur. The international community has too often spent vast sums of money to deal with firefights that in hindsight might have been easily avoided with timely preventive actions before lives were lost and damage was done to lives and properties of many others. Education to advance the idea of peace, tolerance, and solidarity and to instill these values in the young people has a central place in all societies, and especially in fragile and conflict-affected regions. Having learned these lessons first hand from its own conflict-laden past, Timor-Leste has made a conscientious effort to nurture its young generations, so that they will not only be equipped with basic academic knowledge and professional skills, but also be imbued with important humanistic values such as acceptance of differences, compassion, and cooperation, as well as to be conversant in communication and problem-solving techniques in conflictrelated situations. In this way, they may constructively engage, as they grow and when they enter adulthood, in finding common solutions to divisive issues and contentious policy questions without resorting to violent actions. Every year, more than 30,000 pre-secondary students in Timor-Leste receive peace and civic education to take these lessons to heart. President Ramos-Horta, in a UNESCO report, declared, “Nothing is more important in a new nation than providing children with an education. If you want peace and justice, if you want jobs and prosperity, and if you want a people to be fair and tolerant towards one another, there is just one place to start—and that place is school.” He continued that, in today’s world where so many people are divided by faith, identity, or language, education can unite the people by inspiring them to be respectful and tolerant of each other. “Our ambition in Timor-Leste is to make education a tool to promote understanding, social unity, and human security. There is no surer path to peace.” It is in its youngest citizens that this triumphant new nation plants its blossoming modern foundation for the future. 21 NOTES 1. While higher oil prices are generally positive for an oil-producing economy, they can also fuel inflation. In Timor-Leste’s case, this chain of events is often triggered via increased government spending, a majority of which is financed with petroleum revenues. Therefore, although government spending stimulates domestic consumption and investment in TimorLeste, it is extremely important for the Timorese government to carefully monitor and manage

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the inflationary pressures that may be caused not only by oil price hikes but also by the expansion in its budgetary expenditure. The country’s very large trade deficit, which amounted to US$ 256 million and was equivalent to 9 percent of Timor-Leste’s non-oil Gross Domestic Product (GDP) in 2010, is another major factor contributing to the inflationary pressures on its economy. One way to counteract the trade deficit, while meeting import requirements to both sustain economic growth and protect the people’s welfare, would be to promote exports. However, Timor-Leste’s merchandise exports, consisting predominantly of coffee, represented only 6 percent of its merchandise imports in value for 2010. For now, Timor-Leste’s wide trade gap is offset by an even larger surplus in its current account that includes petroleum revenues. In 2010, for example, petroleum revenues amounted to over US$ 2 billion, which helped bring about a surplus in the current account of US$ 1.5 billion. Timor-Leste’s inflation, calculated as the average of changes in the consumer price index during the year, is reported to have escalated in 2010 and 2011 from 0.1 percent in 2009, although the rates were much higher in 2007 and 2008, at 8.9 percent and 7.6 percent, respectively. The changes in Timor-Leste’s consumer price index, or its headline inflation rates, from year-end 2009 to year-end 2010 and from year-end 2010 to year-end 2011 were estimated to be 8 percent and 15 percent, respectively. There is little doubt that rising domestic prices as prompted by higher prices in international markets have contributed to the recent mounting inflation in Timor-Leste; the rise was lower for prices set by domestic conditions, suggesting that the inflation was caused more by cost-push than by demand-pull factors. The problem of imported inflation may turn into structural macroeconomic instability for the Timorese economy due to its high import propensity. For a detailed macroeconomic analysis of the Timorese economy, see, for example: Asian Development Bank. (2011). Asian Development Outlook 2011—South-South Economic Links. Mandaluyong City; and Asian Development Bank. (2011, February and July). Economic Conditions—Timor-Leste. In Pacific Economic Monitor. Available at www.adb.org/pacmonitor. 2. The National Development Plan was Timor-Leste’s first medium- and long-range national development plan. Launched soon after the Restoration of Independence in 2002, the plan covered the period up to 2020 and provided a “development vision,” which used to serve as a guide to the formulation and implementation of sectoral development strategies, before the Strategic Development Plan 2011–2030 took the place as the country’s primary development plan. The National Development Plan was rather a strategic document without specific action plans and corresponding resource allocations. For the full text of the National Development Plan, see: Timor-Leste. Office of the Prime Minister. (2002). National Development Plan. Dili. 3. For more information on Timor-Leste’s national oil company, see endnote 11 in chapter 3. 4. Out of US$ 1.5 billion, US$ 1.3 billion was funded with Timor-Leste’s own resources, while the balance came from external donors, including various foreign governments and international aid organizations, including the United Nations. 5. For a detailed examination on the Millennium Development Goals (MDG) Suco Fund, see chapter 7. 6. While presenting the 2011 state budget to the National Parliament for approval, Prime Minister Kay Rala Xanana Gusmão remarked, concerning the creation of the Human Capital Development Fund, “We know that to invest only in infrastructure, without at the same time investing in human capital, will only lead us to a ‘dead end.’ Unless we want to depend forever on international advisors, officers or even companies, we must accelerate immediately the strategy for developing our human resources.” For details, see: Timor-Leste. Ministry of Finance. (2011). State Budget 2011—Budget Overview (Book 1). Dili. 7. The National Development Agency was established in 2011 within Timor-Leste’s prime minister’s office to appraise multi-year projects and monitor their execution, especially in the context of the Strategic Development Plan 2011–2030. The specific functions of the agency include (1) to conduct independent reviews of the merits versus costs of capital development projects and their technical feasibility; (2) to supervise, in coordination with relevant government ministries and departments, the execution of projects, verify progress against the approved plans, and certify that a project has met plan objectives; (3) to provide managerial support for capital development projects of up to US$ 250,000 in value that are allotted to the sub-districts; and (4) to lead the implementation of projects under the MDG Suco Fund. The

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English translation of the decree-law that establishes the National Development Agency is available online at http://www.mof.gov.tl/wp-content/uploads/2011/08/ADN-assinaturasen.pdf. 8. The National Procurement Commission was established in 2011 within Timor-Leste’s prime minister’s office to provide various services relating to procurement of goods and services in an efficient, accountable, and transparent manner to government ministries and departments, and other public entities that are in the process of executing various projects. The specific functions of the commission include (1) to conduct procurement operations worth US$ 1,000,000 and above; (2) to provide technical assistance and advisory services for procurement operations worth less than US$ 1,000,000; and (3) to support the National Development Agency, government ministries and departments, and other public entities concerning any aspect of planning, implementing, and monitoring procurement activities under their purview. The English translation of the decree-law that establishes the National Procurement Commission is available online at http://www.mof.gov.tl/category/documents-and-forms/procurement-documents/procurement-law/?lang=en. 9. For a detailed examination of the Petroleum Fund, see chapter 3. 10. Short- and medium-term projections of the state budget expenditure and revenue as provided in this paragraph are quoted from: Timor-Leste. Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili. 11. The Paris Declaration on Aid Effectiveness represents a significant step toward consolidating international efforts to improve the effectiveness of foreign aid and its contribution to development. The declaration is premised on a strong partnership between donors and recipient countries and defines the principles and commitments by which both sides intend to ensure that foreign aid is as effective as possible. The declaration outlines five basic principles of aid effectiveness, as follows: (1) Ownership—Recipient countries should exercise effective leadership over their development policies and strategies and coordinate development actions; (2) Alignment—Donors should base their overall support on recipient countries’ national development strategies, institutions, and procedures; (3) Harmonization—Donors’ actions should be more transparent, collectively effective, and harmonized with each other; (4) Result-oriented management—Development resources should be managed in a manner to improve decisionmaking with a focus on results; and (5) Mutual accountability—Both donors and recipients should be accountable for development results. For details, see: Organisation for Economic Cooperation and Development (OECD). Development Co-operation Directorate (DCD-DAC). Paris Declaration and Accra Agenda for Action. Available at http://www.oecd.org/document/ 18/0,3746,en_2649_3236398_35401554_1_1_1_1,00.html. 12. The Accra Agenda for Action is designed to take foreign aid delivery even further than the Paris Declaration. The agenda calls for early implementation of foreign aid reforms, including (1) to unite foreign aid and provide more opportunities for recipient countries to take stronger leadership in the formulation of development policies and strategies as well as in aid coordination; (2) to utilize as far as possible the systems that recipient countries have already in place for foreign aid delivery; (3) to develop stronger partnerships with recipient countries by fostering mutual responsibility, respect, and trust and encouraging wider participation of stakeholders, including new and non-traditional donors and the civil society; (4) to reinforce transparency and accountability principles in foreign aid delivery, with a focus on real and measurable impacts on development; and (5) to further improve foreign aid delivery in “fragile states” by better adapting to their specific context and their state-building and peace-building needs. For details, see ibid. 13. Statistics on foreign aid as provided in this paragraph are extracted from the Organisation for Economic Co-operation and Development’s Query Wizard for International Development Statistics, available online at http://stats.oecd.org/qwids. 14. Statistics on Timor-Leste’s government spending in this paragraph are computed using the data from: Asian Development Bank. (2011). Asian Development Outlook 2011: SouthSouth Economic Links. Mandaluyong City; and Timor-Leste. Ministry of Finance. (2011). State Budget 2012—Budget Overview (Book 1). Dili. 15. At the meeting of the Organisation for Economic Co-operation and Development’s Development Assistance Committee in 2007, development ministers of donor governments and

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the heads of international aid organizations endorsed the 10 Principles for Good International Engagement in Fragile States and Situations. The principles are premised on the assumptions: (1) that fragile states confront particularly severe development challenges such as weak governance, limited administrative capacity, chronic humanitarian crises, and persistent social tensions, violence, or the legacy of civil war; (2) that a durable exit from poverty and insecurity for fragile states will need to be driven by their own leadership and people; and (3) that the adoption of a shared vision, principles such as these, and a concerted effort by stakeholders can facilitate fragile states in building legitimate, effective, and resilient state institutions. The principles call for the following actions to ensure sound donor engagement in fragile states: (1) to take the premise as above as the starting point; (2) to ensure that no activities cause harm; (3) to focus on state-building as the central objective; (4) to emphasize prevention; (5) to recognize the links among political, security, and development objectives; (6) to promote non-discrimination as a basis for inclusive and stable societies; (7) to align with local priorities in various ways and in different contexts; (8) to agree on practical coordination mechanisms between international actors; (9) to work efficiently while also remaining engaged long enough to ensure success; and (10) to avoid “pockets of exclusion” in the states where only few international actors are engaged and foreign aid volumes are low. For details, see: Organisation for Economic Co-operation and Development (OECD). Development Co-operation Directorate (DCDDAC). Principles for Good International Engagement in Fragile States. Available at http:// www.oecd.org/document/46/0,3343,en_2649_33693550_35233262_1_1_1_1,00.html. 16. The Transparency Portal, an Internet-based gateway available within the Ministry of Finance’s official website (accessible at http://www.transparency.gov.tl/english.html), has the following aims: (1) to provide the citizens with a transparency window to state affairs; (2) to promote public participation in the government decision-making process; (3) to reduce the risk of corruption; (4) to enhance the credibility of information on public finance; (5) to safeguard the citizens’ right to the government information; and (6) to promote a culture of transparency in the country. 17. UN Industrial Development Organization (UNIDO). (2011, First Quarter). Interview with His Excellency José Ramos-Horta, President of Timor-Leste. In Making It Magazine. (pp. 36-37). Vienna. 18. Consortium on Peace Research, Education and Development. (1986, December). Report on the Juniata Process. In COPRED Peace Chronicle. Fairfax: George Mason University. 19. In developing a peace education program in the 1970s, UNESCO considered the following as the most important issues facing mankind: (1) adherence to the principles of the equality of rights of peoples and the right of peoples to self-determination; (2) maintenance of peace and disarmament; (3) the action to ensure the exercise and observance of human rights and fight against discrimination in its various forms; (4) economic growth, social development, and their relation to social justice; (5) management and conservation of natural resources and the environment; (6) preservation of the cultural heritage; and (7) the strengthening of the UN system in its effort to resolve such issues and propagate solutions. For details, see: UNESCO. (1974). Recommendation Concerning Education for International Understanding, Co-operation and Peace and Education Relating to Human Rights and Fundamental Freedoms. Paris. 20. United Nations. (1996). Promotion and Protection of the Rights of Children—Impact of Armed Conflict on Children, Note by the Secretary-General (UN Doc. A/51/306). New York. 21. Ramos-Horta, J. (2011). Education as a Path to Peace. In Education for All Global Monitoring Report 2011. Paris: UNESCO.

Selected References on Timor-Leste

BEFORE THE RESTORATION OF INDEPENDENCE Gusmão, X. (2005). Timor lives! Speeches of Freedom and Independence. Woollahra: Longueville Media. Hill, H., and Saldanha, J. (eds.). (2001). East Timor: Development Challenges for the World’s Newest Nation. Singapore: Institute of Southeast Asian Studies. Marker, J. (2003). East Timor: A Memoir of the Negotiations for Independence. Jefferson: McFarland & Co. Martin, I. (2001). Self-Determination in East Timor: The United Nations, the Ballot, and International Intervention (International Peace Academy Occasional Paper Series). Boulder and London: Lynne Rienner Publishers. Pinto, C., and Jardine, M. (1997). Inside the East Timor Resistance. Toronto: James Lorimer & Co. Ramos-Horta, J. (1987 and 1996). Funu: The Unfinished Saga of East Timor. Asmara: Red Sea Press. Ramos-Horta, J. (2000). Democracy and Diplomacy in the Asia-Pacific Region. In Hopkins, J. (ed.). The Art of Peace: Nobel Prize Laureates Discuss Human Rights, Conflict and Reconciliation. Ithaca: Snow Lion Publications. Stahl, M. (1991). Santa Cruz Massacre—East Timor (Original camera tapes of the author) [YouTube video]. Available at http://www.youtube.com/watch?v=7HkktBcIDzg. United Nations. (1999). A series of reports entitled Question of East Timor: Report of the Secretary General, dated May 5, May 24, June 22, July 20, August 9, and December 13, 1999 (UN Docs. S/1999/513-A/53/951, S/1999/595, S/1999/705, S/1999/803, S/1999/862, and A/54/654). New York. Also available at http://documents.un.org/simple.asp. United Nations. (2000, 2001, and 2002). A series of reports entitled Report of the SecretaryGeneral on the United Nations Transitional Administration in East Timor, dated January 26, 2000; January 16, May 2, and October 18, 2001; and January 17, April 17, and April 24, 2002 (UN Docs. S/2000/53, S/2001/42, S/2001/436, S/2001/983, S/2002/80, S/2002/432, and S/2002/432/Add.1). New York. Also available at http://www.un.org/en/peacekeeping/ missions/past/etimor/docs/UntaetDr.htm.

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AFTER THE RESTORATION OF INDEPENDENCE Asian Development Bank. (2009). Trade and Growth Horizons for Nusa Tenggara Timur and Timor-Leste (Southeast Asia Working Paper Series No. 4). Mandaluyong City. Also available at http://beta.adb.org/publications/trade-and-growth-horizons-nusa-tenggara-timur-andtimor-leste. Asian Development Bank. (2011). Asian Development Outlook 2011: South-South Economic Links. Mandaluyong City. Also available at http://beta.adb.org/publications/asian-development-outlook-2011-south-south-economic-links. Asian Development Bank and International Finance Corporation. (2007). Timor-Leste Economic and Social Development Brief. Washington, D.C. Also available at http://siteresources.worldbank.org/INTTIMORLESTE/Resources/English.pdf. Australian Council for International Development. (2008). Timor-Leste Civil Society Analysis: Report of an In-country Consultation and Desk Review for Strengthening Civil Society. Available at www.acfid.asn.au/what-we-do/docs_what-we-do/docs_countries-regions/ docs_timor/Timor%20CivilSociety%20Analysis%20for%20ACFID_AWigglesworth.pdf. Commission of Truth and Friendship. (2008). Final Report of the Commission of Truth and Friendship Indonesia: Timor-Leste. Denpasar. Available at http://www.laohamutuk.org/Justice/Reparations/CTFReportEn.pdf. Economist Intelligence Unit. (2011). Timor-Leste Country Report July 2011. London, New York, and Hong Kong: Economist Intelligence Unit, Ltd. Financial Standards Foundation. (2010). Country Brief: Timor-Leste. Available at http:// www.estandardsforum.org/system/briefs/335/original/brief-Timor%20Leste.pdf?1270587846. Grantham, H., Watson, J., et al. (2010). National Ecological Gap Assessment for Timor-Leste 2010 (Report prepared on behalf of Timor-Leste Ministry of Agriculture and Fisheries and UN Development Programme). Byron Bay: CNRM Solutions Pty, Ltd. Also available at http://www.cbd.int/cms/ui/forums/attachment.aspx?id=92. Hedditch, S., and Manuel, C. (2010). Timor-Leste - Gender and Investment Climate Assessment (Economic Opportunities for Women in the Pacific series). Washington, D.C.: International Finance Corporation. Also available at http://www.ifc.org/ifcext/sustainability.nsf/Content/ Publications_Report_EconOpWomenPacificTimor-Leste. International Monetary Fund. (2011). Democratic Republic of Timor-Leste (IMF Country Report No. 11/65). Consisting of the following five section reports: (1) 2010 Article IV Consultation - Staff Report; (2) Joint World Bank/IMF Debt Sustainability Analysis; (3) Staff Statement; (4) Public Information Notice on the Executive Board Discussion; and (5) Statement by the Executive Director for Timor-Leste. Washington, D.C. Also available at http:// www.imf.org/external/pubs/ft/scr/2011/cr1165.pdf. International Monetary Fund. (2009). Democratic Republic of Timor-Leste: Selected Issues (IMF Country Report No. 09/220). Washington, D.C. Also available at http://www.imf.org/ external/pubs/ft/scr/2009/cr09220.pdf. King, R. (2007). Certain Maritime Arrangements in the Timor Sea, the Timor Sea Treaty and the Timor Gap 1972-2007 (Report submitted to the Australian Parliament’s Joint Standing Committee on Treaties Inquiry). Available at http://www.aph.gov.au/house/committee/jsct/ 6_7_february2007/subs/sub6.pdf. La’o Hamtuk (Timor-Leste Institute for Reconstruction Monitoring and Analysis). (2008). Sunrise LNG in Timor-Leste: Dreams, Realities, and Challenges. Dili. Also available at www.laohamutuk.org/Oil/LNG/LNGReport.pdf. Organisation for Economic Co-operation and Development, World Bank, et al. (2010). Monitoring the Principles of Good International Engagement in Fragile States and Situations Democratic Republic of Timor-Leste (Country Report No.6). Paris: Organisation for Economic Co-operation and Development. Also available at www.oecd.org/dataoecd/18/17/ 47170576.pdf. Peace Dividend Trust. (2009). Business Community in Timor-Leste: Part One - Overview and Part Two: Employment Landscape. Available at http://www.scribd.com/doc/48044334/

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Timor-Leste. National Statistics Directorate. (2011). Population and Housing Census 2010. Consisting of the following four volumes: (1) Highlights of the 2010 Census Main Results in Timor-Leste (Volume 1); (2) Population Distribution by Administrative Areas (Volume 2); (3) Social and Economic Characteristics (Volume 3); and (4) Suco Report (Volume 4). Dili. Also available at http://dne.mof.gov.tl/publications/index.htm. Timor-Leste and United Nations. (2009). The Millennium Development Goals, Timor-Leste. Dili. Also available at http://www.tl.undp.org/MDGs/MDGs_File/ UNDP_MDGReport_Final.pdf. Timor-Leste, Global Environment Facility, et al. (2006). The Democratic Republic of TimorLeste: Stocktaking Report for the United Nations Convention on Climate Change. Available at http://ncsa.undp.org/docs/457.pdf. United Nations. (2006). Report of the Secretary-General on Justice and Reconciliation for Timor-Leste (UN Doc. S/2006/580). New York. Also available at http://documents.un.org/ simple.asp. United Nations. (2006). Report of the Secretary-General on Timor-Leste Pursuant to Security Council Resolution 1690 (UN Doc. S/2006/628). New York. Also available at http://documents.un.org/simple.asp. United Nations. (2007, 2008, 2009, 2010, and 2011). A series of reports entitled Report of the Secretary-General on the United Nations Integrated Mission in Timor-Leste, covering the periods of August 9, 2006 to January 26, 2007 (UN Doc. S/2007/50); January 27 to August 20, 2007 (UN Doc. S/2007/513); August 21, 2007 to January 7, 2008 (UN Doc. S/2008/26); January 8 to July 8, 2008 (UN Doc. S/2008/501); July 9, 2008 to January 20, 2009 (UN Doc. S/2009/72); January 21 to September 23, 2009 (UN Doc. S/2009/504); September 24, 2009 to January 20, 2010 (UN Doc. S/2010/85); January 21 to September 20, 2010 (UN Doc. S/ 2010/522); September 21, 2010 to January 7, 2011 (UN Doc. S/2011/32); and January 8 to September 20, 2011 (UN Doc. S/2011/641). New York. Also available at http://documents.un.org/simple.asp. United Nations. Economic and Social Commission for Asia and the Pacific. (2003). Geology and Mineral Resources of Timor-Leste (Atlas of Mineral Resources of the ESCAP Region, Vol. 17). New York. Also available at http://w.unescap.org/esd/publications/AMRS17.pdf. United Nations. Economic and Social Commission for Asia and the Pacific. (2008). Traders’ Manual for the Least Developed Countries: Timor-Leste (ST/ESCAP/2493). Available at http://www.unescap.org/tid/publication/tipub2493.pdf. United Nations Development Programme. (2011). Timor-Leste Human Development Report 2011. Dili. Also available at http://hdr.undp.org/en/reports/national/asiathepacific/timorleste/Timor-Leste_NHDR_2011_EN.pdf. United Nations Integrated Mission in Timor-Leste. (2008). Thematic Report on the Right to Food in Timor-Leste. Available at www.ohchr.org/Documents/Countries/UNMIT2008_Dec.pdf. United Nations Integrated Mission in Timor-Leste. (2011). Timor-Leste: Recovery to Development: A Statistical Profile. Available at http://unmit.unmissions.org/Portals/UNMIT/Socio%20Economic/Timor-Leste%20Statistical%20Profile_06052011.pdf. Walsh, M., Grenfell, D., et al. (eds.). (2010). Nation-building across the Urban and Rural in Timor-Leste (Conference report). Melbourne: RMIT University. Also available at http:// mams.rmit.edu.au/yt2l84jvltc5z.pdf. World Bank. (2007). Timor-Leste’s Youth in Crisis - Situational Analysis and Policy Options. Available at http://siteresources.worldbank.org/INTTIMORLESTE/Resources/youngincrisienglish.pdf. World Bank. (2007). Timor-Leste Youth Development and the Labor Market: Summary of Findings and Options. Available at http://siteresources.worldbank.org/INTTIMORLESTE/ Resources/TLYouthEmploymentReportSummaryEnglish.pdf. World Bank. (2009). Timor-Leste Country Environmental Analysis. Available at http://siteresources.worldbank.org/INTTIMORLESTE/Resources/TL_CEA_18Aug09_Tetum.pdf. World Bank. (2010). Expanding Timor-Leste’s Near-Term Non-Oil Exports: Diagnostic Trade Integration Study Prepared for the Integrated Framework (Draft). Available at http://siteresources.worldbank.org/INTTIMORLESTE/Resources/Volume1TimorLesteDTIS.pdf.

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World Bank. (2010). Reducing the Risk of Disasters and Climate Variability in the Pacific Islands: Timor-Leste Country Assessment. Available at http://siteresources.worldbank.org/ INTTIMORLESTE/Resources/TIMORLESTEASSESSMENT.pdf. World Bank. (2010). Timor-Leste: Key Issues in Rural Energy Policy (Asia Sustainable and Alternative Energy Program series). Available at http://www-wds.worldbank.org/external/ default/WDSContentServer/WDSP/IB/2011/01/18/000334955_20110118035558/Rendered/ PDF/590000WP0P11631e1RuralEenergyPolicy.pdf.

Index

aldeia or aldeias, 130, 163 Asian Development Bank, 158 Association of Southeast Asian Nations (ASEAN), 7, 19, 33, 137, 141 Australia, 44, 139, 151 Australian Agency for International Development, 140 Bank for International Settlements, 55 barrios, 92 Brazil, 93, 146, 151 business reform, 32 carbon dioxide, 102, 109 Community Leadership and Election Law, 36, 90 Community of Portuguese-Speaking Countries (CPLP), 7, 144 Constitution of the Democratic Republic of Timor-Leste, 15, 27, 73, 87, 102 Convention on the Elimination of All Forms of Discrimination Against Women, 35, 84 Convention on the Rights of the Child, 35, 84 Cooperativa Café Timor, 72 Darwin, Australia, 17, 47 decentralization, 166 Dili Declaration, 149 Dili, Timor-Leste, 11, 110

downstream revenues or operations, 47, 140, 160 “Ease of Doing Business” ranking, 33 East Timor Transitional Administration, 14 Economic Stabilization Fund, 53 electricity, 56, 107, 162 estimated sustainable income, 51, 53, 168 European Union, 110, 136, 142 exclusive economic zone, 75 export: agricultural, 33, 66; diversification, 33, 161 Extractive Industries Transparency Initiative, 5, 30, 52 Falintil-Forças de Defesa de Timor-Leste (F-FDTL), 14, 138 Food and Agriculture Organization, 65, 71 Forças Armadas de Libertação Nacional de Timor-Leste (FALINTIL), 12, 14 Frente Revolucionária de Timor-Leste Independente (FRETILIN), 12 g7+, 7, 149 globalization, 95 Gross Domestic Product (GDP): growth, 159; non-oil, 18, 50, 157. See also Gross National Income Gross National Income: growth, 50; per capita, 20, 51. See also Gross Domestic Product (GDP) 185

186

Index

Gusmão, Kay Rala Xanana, 12, 15, 25, 37, 108, 137, 158 Guterres, José Luis, 150

renewable energy, 100, 107 Restoration of Independence, 1, 15, 35 right to development, 28

Hamutuk Hari’i Futuru, 18 Human Capital Development Fund, 32, 94, 128, 162 Human Development Index, 3, 20

Sachs, Jeffrey, 57 Sector Investment Programs, 84 Sengupta, Arjun, 28 Simu Malu, 17 Singapore, 19, 142, 151 Small Island Developing States (SIDS), 6, 100, 127, 147 state budget, 19, 51, 162, 164, 169 Strategic Development Plan, 4, 18, 77, 108, 158; and children, 85, 86; and Millennium Development Goals (MDGs), 130; and women, 90; and the youth, 94 Suai, Timor-Leste, 43, 162, 167 suco or sucos, 72, 90

Indonesia, 12, 45, 64, 92, 137, 151 Inflation, 175n1 Infrastructure Fund, 32, 162 Joint Petroleum Development Area, 45 land reform, 31, 74 Least Developed Countries (LDCs), 6, 33, 127, 147 Linaburg-Maduell Index, 52 Millennium Development Goals (MDG) Suco Fund, 35, 108, 130, 163 National Disaster Risk Management Policy, 111 National Food Security Policy, 73 National Priorities Programs, 158 Oecussi-Ambeno (Oecussi), 11, 167 official development assistance, 127, 140, 147, 169 oil and/or gas field: Bayu-Undan, 5, 47; Greater Sunrise, 43, 48, 140; Kitan, 49 Peace Dividend Trust, 93 Peter G. Peterson Institute for International Economics, 30, 52 Petroleum Fund, 5, 30, 51, 157, 168 petroleum revenues, 19, 50, 161 Pires, Emilia, 53, 150 Policia Nacional de Timor-Leste (PNTL), 14, 89, 140 Popular Consultation, 13, 18 Portugal, 12, 44, 144, 151 profit oil, 45, 52 Provedor for Human Rights and Justice, 36 Ramos-Horta, José, 13, 17, 137, 146, 151, 173

Tara Bandu, 105 Taur Matan Ruak, 24 Tetum, 11 Timor Gap Treaty, 45 Timor Sea Treaty, 45 Timor-Leste: Central Bank of, 51; Ministry of Agriculture and Fisheries, 69, 73; Ministry of Economy and Development, 106; Ministry of Education, 86; Ministry of Finance, 51, 170; Ministry of Foreign Affairs and Cooperation, 143, 151; Ministry of Tourism, Commerce and Industry, 6; Secretariat of State for Professional Training and Employment, 94, 163 Timor-Leste Chamber of Commerce and Industry, 6, 32 Timor Gas & Oil, E.P., 59n11 Timor-Vita, 71 trade balance, 33 Treaty on Certain Maritime Arrangements in the Timor Sea, 48 Truth and Friendship Commission, 138 U.S. Agency for International Development, 72, 93 unemployment, 25, 91 UNICEF, 93, 94

Index United Nations, 6, 146; Development Programme, 103, 111; Framework Convention on Climate Change, 102, 103; Integrated Mission in Timor-Leste, 16, 136, 146; peacekeeping, 13, 139, 146, 151; Police, 16, 23, 145;

187

Transitional Administration in East Timor, 13 upstream revenues or operations, 47, 140 World Bank, 33, 92, 102, 107

About the Authors

Abraham Joseph, Ph.D., worked for the United Nations for twenty-two years, holding various senior-level positions, including the head of the Office of Socioeconomic Affairs in the UN Integrated Mission in Timor-Leste. He also served as a senior advisor to Timor-Leste’s Foreign Minister. Takako Hamaguchi worked for UNICEF for sixteen years before starting her own consultancy firm on international development and cooperation.

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