A framework for East Timor's economic planning

A framework for East Timor's economic planning

The following is the first of two articles on East Timor's
economic planning by C.G. Moghe, who has worked in financial
services in various countries for the last 30 years.

JAKARTA (JP): East Timor, this latest addition to the "League
of Nations", as yet not well versed in the ways of the world, is
forming its administration of which rigorous economic planning
should be an integral part.

Much hope is placed on known oil and gas reserves which are
yet to be fully developed.

What is yet to be clear is the division of the royalties,
which Indonesia (the original contracting party for the oil
development rights) and Australia (since the reserves are not
clearly in East Timorese water) may want to share.

The income from these energy resources, after the sharing is
agreed upon, together with coffee, are expected to be the
backbone of the East Timor economy. The coffee is said to be one
of the best in the world, but most cultivators have been
Indonesians, with unknown loyalties.

The economy will thus not be diversified. Handouts from the
richer nations of the world can also, at least initially, be
counted upon, although such handouts have been proven to be
addictive.

A number of countries have amply established that unless the
wealth of the nation is well administered and developed in a
planned manner for sustained benefits, the country suffers worse
than not having had these resources in the first place.

It is therefore important to develop a framework for planning
the economic development of this yet-to-be-born country together
with a strong constitution, able administration and the necessary
"checks and balances".

Even a small company, coming in to the economic world, finds
it necessary to have a "business plan" and a planning model. If
East Timor has to first survive and then flourish, and find worth
its while to have broken away from Indonesia, these are essential
requirements.

Some of the models have been tried in other countries, some
successfully, some not. For evaluating each of the models, it is
necessary to remember the common backdrop of the pluses and
minuses of East Timor. Some of these and their implications are:
1. East Timor is a small country with a population of about
800,000 -- not attractive enough for any outside investor as a
market for goods and services.
2. Its location is not very accessible to most developed
countries. Utilization of resources will therefore be restricted.
3. East Timor's culture is significantly different than the
neighbors and therefore it may not be able to count on great
cultural ties with many of them.
4. The country is still suffering from the after effects of the
bloody separation from Indonesia and needs to spend a lot on
welfare and infrastructure in the next few years.

All this expenditure is urgent but may not be highly
productive, which is in effect a handicap for economic
development.
5. The leadership and administration is as yet untested, with the
attendant risks.

While each of the "models" given below is labeled for easier
reference, it is not a distinct, unbreakable model and certain
amount of "mix and match" approach may in fact be useful.

The "mixing and matching" will also have to be in line with
the political tastes of the future government, negotiation
results for revenue sharing of oil and gas reserves and various
other factors.

Under the Macau Model, the Portuguese, the erstwhile masters
in East Timor, established Macau almost 400 years ago to exploit
the trade opportunities in the Pearl Delta/Southern China. It was
the most active trading post for China Trade, until the British
could establish Hong Kong as a competitor about 150 years ago.

Macau reverted to China about a year ago, and is now
administered a Special Administrative Region, with its own
economic policies at least for some time to come.

East Timor may therefore find that the route chosen by Macau
may have some relevance. Macau started off as an important
trading post for all Europeans, but with the dominance of Hong
Kong as a larger, better managed trading post, started losing its
importance beginning the 18th century.

Like a threatened business enterprise, Macau was quick to
develop its own alternative business: the leisure industry.

Initially this was mainly gambling, a favorite "sport" among
many Chinese, in to which tourism was interwoven gradually and
successfully.

Other enterprises albeit less successful, followed in the form
of manufacturing of garments, helped by a separate quota for
Macau, shipping etc. supported by financial services.

Macau is gradually crumbling as a result of gang wars for
takeover of the casinos, into which prostitution has spread.

East Timor can view this situation as a niche ready to be
exploited. East Timor is culturally marginally different than
Macau, with much less Chinese influence/presence. It is however
centrally located for the well-off Chinese of Southeast Asia.