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By Madhu Narasimhan - Foreign Affairs
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By almost any measure, Southeast Asia is
thriving. The region has a population of over 600 million, brings in
more foreign investment than China, and boasts a combined GDP of $2.5
trillion, larger than India’s $1.9 trillion economy. It is no wonder,
then, that Indonesia, Malaysia, Singapore, and their neighbors have
received plenty of international praise in recent years.
But there is an outlier in the region, and it tends to go unnoticed.
In the 12 years since gaining independence, Asia’s youngest country, the
Democratic Republic of Timor-Leste -- better known as East Timor -- has
struggled in almost every facet of economic and political management.
The country recently submitted a formal application to join its ten
neighbors in the Association of Southeast Asian Nations (ASEAN), but
it’s difficult to see how it belongs in the club. As its neighboring
economies boom, East Timor is quietly on the path to becoming a failed
state. And it is quickly running out of time to change course.
ADDICTED TO OIL
East Timor’s path to independence was long and difficult. In the
mid-1700s, the Portuguese colonized the eastern half of the island of
Timor, as the Dutch took control of the western end (which later became
part of Indonesia’s territory). Over the next two centuries, Portugal
all but forgot about its colonial outpost, using it only for small-scale
trade purposes. In 1974, as Portugal decolonized its empire following a
revolution in Lisbon, East Timor was freed. But the respite was brief.
Beginning in late 1975, East Timor suffered a brutal 24-year military
occupation by Indonesia (which sought to control both halves of Timor);
over 100,000 East Timorese were killed during this period. In 1999, the
UN finally intervened to secure the area’s independence. After two years
of transitional government overseen by the UN, East Timor became a
sovereign nation in 2002.
Post-independence, the country suffered periodic episodes of
conflict, most notably in 2006, when violent riots against government
forces caused the displacement of 150,000 people, and in 2008, when
military rebels attempted to assassinate Prime Minister Xanana Gusmão
and then President José Ramos-Horta.
Over the past six years, the tide of violence has mostly receded. But
the relative calm has revealed East Timor’s many other pressing
problems. Unemployment is rampant (roughly 20 percent), and 37 percent
of the population lives below the international poverty line, surviving
on less than $1.25 per day. East Timor sits at the bottom of the Global
Hunger Index (alongside Burundi, Comoros, Eritrea, and Sudan), with more
than half of the country’s children suffering from chronic malnutrition
and stunted growth. The government has failed to make basic investments
in health services, education, or appropriate kinds of infrastructure
(although it has poured millions into inessential infrastructure
projects). Any travel outside the capital city of Dili requires
navigating treacherous mountain roads that are in shockingly poor
condition.
What little economic growth East Timor has experienced is almost
entirely due to natural resource extraction. East Timor is one of the
most oil-and-gas-dependent nations in the world, relying heavily on the
export of petroleum deposits under the Timor Sea. According to Charles
Scheiner, a researcher at La’o Hamutuk, a Dili-based think tank, the oil
and gas industry accounts for nearly 80 percent of East Timor’s GDP and
95 percent of state revenues.
But East Timor’s two major reserves, the Bayu-Undan field (operated
by the U.S. energy company ConocoPhillips) and the Kitan field (operated
by the Italian energy company Eni), are depleting rapidly, with
production projected to end by 2020. (By contrast, Southeast Asian
neighbor Brunei, with just a third of East Timor’s population, has at
least 20 times the amount of oil and gas reserves. Brunei also has
greater potential to discover new reserves in its maritime territory in
the coming decades.)
Beyond Bayu-Undan and Kitan, there is a potential third project in
the Timor Sea -- the Greater Sunrise gas field. But this project has not
gained any traction due to Dili’s ongoing disagreements with Woodside,
ConocoPhillips, and Royal Dutch Shell, the foreign energy companies
operating the field. Dili would like to develop a pipeline to a
processing plant on the Timorese coast in order to create local jobs,
but the petroleum firms prefer an offshore facility that would benefit
their bottom line. Hence, Greater Sunrise is far from being a sure-fire
contingency plan for East Timor.
The East Timorese government insists that its $16 billion Petroleum
Fund of Timor-Leste -- the sovereign wealth fund responsible for saving
and investing the country’s existing oil and gas revenues -- will keep
the country afloat even after oil and gas production comes to a halt.
But, like the country’s oil wells, that account is drying up. The
government is withdrawing billions of dollars to pay for physical
infrastructure, services, and other programs, which is likely to exhaust
the entire Petroleum Fund by 2025, according to La’o Humutuk.
Beyond
that point, politicians would have to slash the state budget by at least
two-thirds (even if a deal is reached on the Greater Sunrise field) in
order to keep the country on a solvent course.
The fact that East Timor has been able to depend, until now, on
natural resource extraction has given it few incentives to develop a
more diversified economy. The country’s only other export is coffee,
which yielded only $16 million in 2013 (compared to $3 billion from oil
and gas). Even if production of coffee and other cash crops is ramped
up, it won’t be able to close the petro gap. And with imports remaining
high ($1.3 billion in goods and services in 2013, according to La’o
Hamutuk), a massive trade deficit is inevitable.
But East Timor won’t be able to fix these devastating economic
problems until it addresses its political malaise. Corruption and
cronyism are endemic; several members of the national cabinet have
recently been ensnared in high-profile scandals. (Emilia Pires, the
minister of finance, for example, has been indicted for allegedly
granting a $2.04 million government contract to her husband’s Australian
business.) Too often, the government’s response to such scandals has
been to clamp down on press freedoms. Under a new law passed in May
2014, journalists in East Timor -- including foreigners -- who fail to
earn credentials from the government face fines or imprisonment. Soon
after the law was passed, Jose Belo, one of East Timor’s most renowned
journalists, proclaimed that it “was the last day that East Timor could
be considered democratic.”
Perhaps Prime Minister Xanana Gusmão -- one of the principal figures
in the nation’s resistance movement, subsequent independence, and
sovereign government -- and his colleagues are now resorting to a lower
politics because they themselves feel helpless in confronting the
overwhelming challenges. They may well sense the impending doom that
awaits East Timor. Indeed, Gusmão is quickly making his way toward the
exit; he has announced that he will step down from his position this
September. Future leadership -- and long-term prospects for democracy --
remain unclear in this fragile, volatile state.
AN AMBIVALENT GLOBE
Facing a rather grim outlook, East Timor has started to look to
foreign powers for economic and political assistance. In 2011, it
applied to join ASEAN, after nine years of observer status. Although
outwardly cordial, most countries in ASEAN have preffered to maintain
their distance from East Timor, seeing it as a regional laggard. Most
countries in ASEAN have preferred to maintain their distance from East
Timor, seeing it as a regional laggard. But analysts predict that East
Timor could be accepted into the bloc within the next year or two, given
the country’s geographic ties and its persistence in the application
process. Even so, according to an April 2013 presentation by Douglas
Kammen, a professor of Southeast Asian studies at the National
University of Singapore, “[membership in] the planned ASEAN economic
community is not likely to have a serious impact on Timor-Leste.” Simply
put, it won’t change the fact that East Timor has few exports and many
imports, nor will it attract significantly more foreign investment in
the absence of better governance.
East Timor’s fate will also be affected by its bonds with countries
outside the region. Its relationship with Australia, which lies just 400
miles to the south, has soured in recent years over disputes regarding
ownership of the Timor Sea petroleum reserves and allegations that
Australia has spied on Dili’s cabinet.
At the same time, East Timor's ties with China have strengthened.
China has made investments in East Timor since its independence,
providing naval vessels and helping construct Dili’s defense
headquarters, foreign affairs ministry, and presidential palace. All of
this has been part of Beijing’s broader effort to increase its
involvement with the Portuguese-speaking bloc around the globe. More
important, these investments allow Beijing to extend its influence deep
into Southeast Asia, at the strategic confluence of the Pacific and
Indian Oceans.
East Timor has also received attention from the United States, which
has launched a number of high-level diplomatic initiatives there. In
2012, U.S. Secretary of State Hillary Clinton made a historic visit to
East Timor to meet with top government officials. USAID, the U.S.
development agency, has become increasingly present in there, funding
projects focused on democracy promotion, economic development, and
health care. The U.S. government has also created Fulbright fellowships
and international exchange programs to place Americans in special
assistant roles within the East Timorese government. These programs also
empower East Timorese citizens to study at universities in the United
States.
Some observers suspect that Washington has sought better relations
with Dili in order to protect the U.S. energy company ConocoPhillips,
which has a leading role in East Timor’s economy. In that sense, many
East Timorese fear that U.S. engagement could be temporary. After all,
ConocoPhillips may be an economic priority right now, but in five years’
time when the Bayu-Undan field runs dry, Washington might be less
compelled to assist East Timor.
Indeed, East Timor has reason to worry. The worse the state fares,
the fewer countries will be interested in making significant economic or
diplomatic investments there -- whether it is the United States, China,
Australia, or the ASEAN neighbors. Foreign aid (which has already
amounted to over $5 billion in the post-independence years) may continue
to flow in, but even on that front, several donor states -- and even
Dili’s own politicians -- have complained that the funds have
disappeared into a black hole, with East Timor having become yet another
so-called republic of NGOs and consultants. Instead, East Timor must
look inward to solve its biggest problems.
PAST AS PRELUDE
Dili must stop searching for a magic bullet -- whether it be
petroleum reserves or authoritarian tendencies -- for its economic and
political woes. Instead, it must return to the basics. The country
should focus on developing its agricultural centers and coastal
fisheries (industries in which nearly 40 percent of the East Timorese
workforce is employed), creating a sustainable, subsistence-based
economy that can meet the public’s basic needs without having to take on
a heavy dose of imports. East Timor should then slowly seek to expand
its international exports market, even if it will take years to close
the gap left in the wake of the petroleum crisis. To do this, the
country will have to develop and popularize a recognizable brand for its
exports (most notably, coffee), services, and tourism sectors that will
appeal to international consumers.
Meanwhile, over the course of the next five to ten years, before
offshore oil and gas production ends, East Timor should make smarter
investments with its Petroleum Fund withdrawals. The government must
shift its spending priorities from expensive, fruitless projects (for
instance, the new Ministry of Finance skyscraper) to developing the
country’s human capital over the long term. Food security, primary and
higher education, and quality hospitals are all necessary investments --
and they must be funded now, before it is too late. And a new
generation of leaders will need to get the country’s domestic political
house in order. Democracy is messy in its early stages, but there is no
excuse for rampant graft and strong-arming of the press.
Even as East Timor tries to become more self-reliant, the
international community will still have responsibilities. As Southeast
Asia plays a larger role on the world stage, it can’t afford to have a
failed state -- or an isolated eleventh semi-partner -- in its midst.
ASEAN should initiate free trade agreements with Dili that place an
emphasis on increasing East Timor’s exports; the group should also focus
on sending more airline flights to Dili, an important first step in
improving the country’s tourism sector. In exchange, East Timor should
promise to improve governance and invest in its basic needs.
If the United States and Australia hope to contain China’s military
rise in Southeast Asia, they should also make longer-term investments in
East Timor, beyond the oil and gas sector. Australia should reset its
relations with Dili by resolving the Timor Sea disputes as soon as
possible. For its part, the United States should appoint an ambassador
to Dili (only a chargé d’affaires has been stationed there until now).
It should also preserve its military initiatives (for example, the U.S.
Navy's stopover missions in Dili and the Marine Corps' presence in
Darwin), as a signal to China; provide more funding for exchange
programs; and increase public engagement efforts in Dili and outside the
capital. On an economic level, Washington should encourage the U.S.
coffee company Starbucks to further develop local industry in East
Timor, and it should facilitate other mutually-beneficial partnerships
between U.S. and East Timorese enterprises. Ideally, the United States
would initiate these programs soon. After all, China is making headway
into the region, treating East Timor as a potential strategic ally.
As the East Timorese consider what will likely be a difficult future,
they ought to look to their recent past in order to retain a sense of
hope. East Timor, after all, has endured and overcome terrible and
tragic circumstances with great resilience. In the context of this
not-so-distant history, the country might find that it has the strength
for one more proverbial fight: the fight to create a peaceful,
prosperous state. As East Timor’s current president has said, “To build
the country we dream of, we have ahead of us battles so hard and
stringent as the battles we have had in the past.”
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