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.