East Timor moves toward own currency
East Timor moves toward own currency
Tom Wright, Dow Jones, Dili
East Timor's leaders are stepping up moves toward a national
currency to replace the U.S. dollar, which the United Nations
imposed after the territory's violent separation from Indonesia
three years ago.
A growing national desire for its own currency could bring
East Timor into conflict with international donors, who have
committed US$440 million in aid for the country in the next three
years.
Donors are open to a national currency in principle, but warn
that East Timor - one of Asia's poorest economies, where two-
thirds of workers rely on semi-subsistence agriculture - isn't
nearly ready to make such a change.
Although East Timor's new government continues to work with
foreign experts to build its fragile economy around the dollar,
there are signs of dissatisfaction with the U.S. currency, which
is increasingly viewed as a solution imposed by foreigners.
"We already talked about the possibility of having a national
currency," President Xanana Gusmao said in an interview this
month. "I believe the dollar isn't appropriate for our economy."
The government is hoping to set up a full central bank soon
which could issue a new currency, he added.
As yet, talks on what exactly what would replace the dollar
are in an early stage, but Investment Minister Jose Texeira said
an idea to peg an East Timorese currency to a basket of other
currencies is gaining acceptance.
"There's no doubt that all of us would like to see our own
currency," Texeira said.
Driving the desire to replace the dollar is the fact that East
Timor's people, about half of whom are illiterate, are finding it
hard to use the U.S. currency, meaning Indonesia's rupiah is
still accepted in rural areas.
The Banking & Payments Authority, East Timor's monetary body
set up last year under the U.N. administration, says it's
succeeded in making the dollar the means of payment for 90
percent of businesses and in most major towns. Outside the cities
is proving more difficult.
Farmers are baffled by the foreign nickel, dime and quarter,
which don't say in numbers anywhere on the coin how much they are
worth. As a result, some vendors aren't willing to accept
purchases of less than $1, which is making business difficult.
The international community recognizes the dollar is causing
some problems in agricultural communities, but says the country
isn't ready to launch its own currency.
In response to the problems East Timorese are having with U.S.
coins, the monetary authority, BPA, is considering minting its
own local coins with numbers or writing in the local Tetum
language. The coins, which might be minted in Australia, would
correspond exactly to the U.S. denominations, and East Timorese
would only be able to use them inside the country, said Luis
Quintaneiro, a Portuguese national appointed by the International
Monetary Fund to head BPA.
Such coins could form a first step toward a national currency,
but because people wouldn't be able to exchange the coins for
other currencies, this proposal would stop short of what East
Timorese ministers are talking about.
"They are not yet at a stage to manage a currency," said
Kadhim Al-Eyd, the International Monetary Fund's representative
in East Timor. "It's not something we are advising them to do."
BPA only has capital of $5 million, an insufficient amount to
back a currency. The government plans to increase this to $20
million, but with most spending in the next year going on
education and health, BPA's capital isn't a priority. The
authority is training local staff, but still has a way to go in
developing statistical analysis to be able to manage a currency,
Al-Eyd said.