IMF says East Timor could join Euroland

IMF says East Timor could join Euroland

DILI, East Timor (Reuters): The tiny, traumatized Southeast
Asian state of East Timor could adopt the euro as its currency,
an International Monetary Fund official in the territory told
Reuters on Friday.

East Timor voted in August to break free from more than two
decades of often brutal Indonesian rule, setting off a wave of
violence by pro-Jakarta militias and the Indonesian security
forces. As it moves towards independence under U.N. supervision,
it faces the task of choosing a new currency.

East Timor's main political umbrella group, the National
Council for East Timorese Resistance (CNRT), is advocating the
Portuguese escudo. Portugal ruled East Timor for centuries before
Indonesia invaded the territory in 1975.

But Portugal has joined the euro zone, and IMF economist Luis
Mendonca said the European single currency was a more favorable
option than the escudo.

"I think the East Timorese themselves consider three
currencies for the future -- the U.S. dollar, the Australian
dollar and the euro," Mendonca said.

"The escudo really doesn't exist. It is just a division of the
euro and the euro of course is a stable currency. It is
internationally accepted and gaining importance in the
international market, but one negative point...is that the
international trade of East Timor is done in U.S. dollars."

However, given the strict criteria for countries wanting to
join the euro, it is not clear whether East Timor would be
allowed to use the currency.

The Indonesian rupiah remains the most widely used currency in
the territory, followed by the Australian and U.S. dollars which
gradually came into circulation once East Timor voted to sever
ties with its giant neighbor.

East Timor's official currency will be decided by the 15-
member National Consultative Council (NCC), established by the
U.N. in December to ensure East Timorese were involved in the
decision-making process over the next two to three years as the
territory moves toward full independence.

"The IMF will not decide the currency for East Timor,"
Mendonca said.

"It has a view based on technical grounds, on the advantages
and disadvantages such as the stability of the currency, the
worldwide use of the currency and the composition of the trade of
East Timor in terms of the currency."

He said the rupiah was too unstable to be considered a viable
option.

Portugal has pledged considerable economic support for East
Timor as the impoverished territory struggles to rebuild.