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Mon, May 13, 2002 - Page 21 News List

East Timor seeks donations to keep its economy afloat

AFP , DILI

East Timor bids farewell to almost 500 years of foreign rule on May 20 -- but not to foreign aid.

At two-day talks starting tomorrow, 25 bilateral and multilateral donors will be asked to pledge US$90 million to plug the new nation's deficit and prop up its nascent economy.

"East Timor really needs continued engagement from donors at this critical point of the independence handover," warned Sarah Cliff, the East Timor country director for the World Bank, which is co-chairing the talks with the UN and East Timor's transitional government.

The half-island state is one of the poorest in the region and will have to wait until mid-decade to fully fund its own budget.

It is only in the fiscal year 2005-2006 that tax revenues from oil and gas development in the Timor Sea will be high enough to cover core government spending.

The former Portuguese colony and Indonesian province is struggling to recover from the decimation of 80 percent of its infrastructure in the vengeful Indonesian army-backed militia rampage that followed its August 1999 vote for independence.

It faces the loss of a major source of economic activity with the exodus of hundreds of foreign workers. The UN, which has been running East Timor since October 1999, is scaling back its civilian presence to 100 from an original 1,300, and downsizing foreign peacekeepers from 8,000 to some 5,000.

The deflation of the bubble economy that was propelled by foreigners' demands for hotels, restaurants and transport has left the economic outlook grim after two years of giddy growth as high as 18 percent, and rendered donor support vital.

Nevertheless the US$90 million request is far lower than the US$150 million deficit predicted at the last donors' conference in Oslo in December.

"The government has very sensibly decided to look at a gradual increase in spending, building up to the point when revenues will come in at larger levels in 2005-06," Cliff told AFP.

Total government spending for the first three years is set at 256 million dollars. East Timor's infant economy can cover 166 million dollars of that, but it is relying entirely on tax revenues -- from imports, income, utilities and facilities like ports -- to do so.

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