Indonesia looms as East Timor's top trade partner

Indonesia looms as East Timor's top trade partner

DILI, East Timor (Reuters): East Timor is likely to count
Indonesia, its old and often brutal master, as its top trade
partner as the devastated fledgling nation strives to rebuild,
the United Nations and World Bank say.

Laid waste less than five months ago by pro-Jakarta militias
opposed to independence, East Timor is still tied economically to
Indonesia despite its bloody severing of sovereign ties.

U.N. chief in the territory, Sergio Vieira de Mello, named the
Indonesian-ruled Western half of Timor island and two major
Indonesian cities as likely centers of the trade.

"It is clear to me that West Timor in particular and other
areas like Surabaya and Denpasar will become the main trade
partners of East Timor," he told Reuters on Thursday.

Most investment in the fledgling nation, which voted for
independence on August 30, has so far come from Australia, but
Indonesia has regained a firm business footing in the territory
it ruled as a province for 24 years.

Government-owned Merpati Nusantara Airlines said this week it
would be the first to resume commercial flights. The first
diplomatic mission in East Timor will be Indonesian.

The World Bank says it makes economic sense for East Timor and
Indonesia to exchange goods and services, especially as the
Indonesian rupiah is the de facto legal tender in East Timor.

"East Timor is in a really tough spot -- it's surrounded by
Indonesia which is a really good market...," a World Bank
official said.

"I don't think it's impossible for Indonesia to be the number
one trading partner of East Timor but there are political
issues."

One of those is the border between East Timor and Indonesia's
West Timor, which is still officially closed.

Independence leaders Xanana Gusmao and Jose Ramos-Horta plan a
regional tour to canvass investment opportunities beyond
Indonesia.

Ramos-Horta told Reuters that on January 23 the two men would
leave for China, South Korea, the Philippines, Thailand, Malaysia
and Singapore.

"This is a great opportunity for a lot of infrastructure to be
developed -- tourism and agriculture," Ramos-Horta said.

"There is tremendous agricultural potential along East Timor's
south coast where the country is very fertile and production
could feed the entire territory and be exported to northern
Australia."

Agriculture would be the mainstay of East Timor's economy,
Vieira de Mello said.

Arabica coffee would be the main export earner, with 8,000
tons exported in 1999 valued at US$20 million to $22 million.

It would be followed by rice and maize, which are still at
subsistence level.

Vieira de Mello, a Brazilian, said East Timor's mineral base
was an unknown quantity and that income generated by gas and oil
would be limited but important in the two to three years the
United Nations took to guide the territory to full independence.

"We're not talking about an income of hundreds of millions of
dollars per year at this stage, but under $10 million per year
for the next two to three years," he said.

But the United Nations' focus is on the nuts and bolts of the
economy: establishing a central fiscal authority, an official
currency and a central payments office and tackling unemployment.

"What we're trying to do is to establish the basis of a sound
economic environment... and once we have established this legal
basis for the economy to be re-activated then obviously you need
an injection of capital to tackle the fundamental problem here
which is unemployment," Vieira de Mello said.

He said funds announced at a donors' conference in Tokyo last
month would be used to launch rehabilitation and reconstruction
projects to provide thousands of jobs across the country.