Is Timor-Leste a Failed State?

Guteriano Neves

There are numerous challenges that Timor-Leste is facing that people often talk about around the country and widely acknowledged across different spectrum of society. These challenges are not unique for Timor-Leste. However, when it is played down in Timor’s context, they are not as simple as its appear on the surface. It becomes more complicated. These are not the result of solely government’s lacking of coherent and integrated policy, or an already failed-state. These are the product of interactions of various factors and actors in the society. This article takes a look at two issues: institutional issue and petroleum dependency. Rather than viewing it as a product of a failed-state, these are challenges that Timor-Leste is facing.

Is Timor-Leste a failed state?

From 2006 onwards, Timor has been frequently labelled as a failed state. Theoretically, there are some conceptual issues regarding ” a failed state” in the development cycle. Most of the time, this concept is used to categorise many countries, such as Somalia, South Sudan, Congo, Afghanistan, etc that are facing political instability. The tendency is to simplify the complexity that these countries are experiencing. Deploying the term above implicitly implies that there are already dysfunctional state institutions within the society. Furthermore, the concept “failed-state” also implies that building a state and building a nation is a short-term project that can be achieved in certain period of time. As a matter of fact, nation-state building is a complex process, which determined by various factors, not only the state institutions, but also the social interactions and international context.

Specifically for the Timor’s case, most of the argument concentrate on the challenges that Timor-Leste is facing. This includes but not limited to financial sustainability, food security, malnutrition, import dependency, quality of spending, malnutrition, allegation of corruption. While it is important to acknowledge these challenges, the tendency to simplify the challenges that the country is facing and omit its contextual realities, will not be helpful. Therefore, it is important at least to consider contextual setting where these challenges exist, such as its history, politics, economics and social setting that underline these problems. Beyond the surface, these challenges are not something uniquely define Timor as a whole. What unique about Timor is the underpinning factors of these problems that the country is dealing with.

There are certain issues that the government should have responded better. No one denies that. However, there are some issues that require long-term approach, and contribution from different actors. These underlined difficulties are often missing or neglected in the way Timor is described or reported.

For that, one way is to contextualize the discussion on weather Timor is a failed state or not from institutional point of view. Many have discussed about the challenges that institutions are facing. Building institutions is a long-term and dynamic process. Socio-conomic and political setting change over time, and therefore our approaches for building these institutions also should change accordingly. It will be ahistorical and oversimplification to argue that the current institutional problems are merely the result of the current policies. Historical legacies of the Portuguese colonisation, the Indonesian military occupation, and the United Nation Transitional Administration of East Timor (UNTAET) are not to be ignored completely. They are, by all means, the essential rubrics that contribute to the life of most institutions in Timor-Leste today and the way people view the institutions.

Amid these challenges, it is valid to argue that these institutions are not collapsed or dysfunctional. During and after 2006 crisis, many scholars and journalist labelled Timor’s case as a failed state; the reality is that during the crisis and afterwards, the institutions were not collapse or dysfunction. The violence was contained in Dili. Outside of Dili, the people lived normally. When the Prime Minister at that time, Mari Alkatiri resigned, the process went on according to the constitution. FRETILIN retained control over the government and the Parliament until 2007. Amid the international uncertainity about the short-term security, Timorese went to three-consecutive elections in 2007. These elections were internationally recognized as the democratic elections. During 2012 three consecutive elections went on peacefully and democratically, and the power transition went on smoothly.

On the other hand, as a democratic society, discussion on state’s performance should not be limited to the way institutions address issues. One needs also to consider that the state is “an” institution that exists within society. There are numerous institutions that shape the way society is organized, and how individual behaves. Therefore, it is critical also to consider the space for the people to participate and to shape the public policy and development agenda. In this regard, there is relatively an open space for the people to discuss about issues on public policy that has direct impact on their lives. Non Governmental Organisations (NGOs) are playing active roles in shaping public policy discussion, and development agendas. Issues, such as petroleum dependency, import dependency, financial sustainability, transparency, corruption, have also been discussed at different level of discussion. People talk about public matters in the cafe, in the restaurants, in the street, in the community meeting, family gathering, wedding party up to traditional ceremony. Social network like Facebook, and Blog become a venue where people contest government’s program and policies. Politics is everywhere in Timor.

Another issue relates to the discussion on failed state is the relationship between state and the society. While state is new, society is not. The society has been existing for generations, with its own culture, practice, tradition, and structure. There are various factors and actors that are at display. Timor-Leste’s society, although its small, it’s diverse. Some of the challenges are not merely the result of failed-policy by the state, but also the product of social dynamic within society.
If the state is the result of a social contract, as the enlightenment thought goes, then it needs to build its legitimacy from the society, because it is one of the great determinant factor in the nation and state building process. This is a never-ending business, as this interaction between state and society is a dynamic process. As a matter of fact, there are many developing countries that are still facing this similar issues especially, when as the state is perceived as an agent that strengthens social inequalities, failing to provide social services and fails to construct a strong national identity that binds people together, or does not have a common objective that could unite people. As a dynamic process, society’s expectations change over time, therefore the way state institutions address the problems, and and its required capacity to do so is also changing.

Finally, state is not merely a product that consists of institutions. It also depends on the legitimacy from the society. Claiming legitimacy from the society is a continuos process, determined by the ability of the state to address these issues that affect people’s daily lives, to provide service, and at the same time, building a sense of identity that bind Timorese together, and building a sense of ownership from the society. At the end what is most important at this point is that people have have confidence on their future, have ownership for their own future; that their future, and the future of their children will be better off. This, again, of course is not an easy task. It is important to acknowledges that all the challenges are there, as such discussion on these challenges are relevant.

Petroleum Dependency is not limited to state’s finance
Fiscal sustainability is an issue that people is aware of in Timor-Leste. Most parties seem to be agreed that it is a result of oil-dependency and lack of coherent policy to develop non-oil sectors. However, there is a tendency to simplify the petroleum-dependency within the financial sustainability only. The reality is that there are many critical issues associated with the petroleum dependency that reinforce each other in a country where private sector was underdeveloped, and majority of the people are still living in subsistence agriculture. Among them are: vulnerability associated with dependence on a single commodity, low domestic production, state’s – society relations, and the healthiness of a society. These problems are not addressed through discovery of another oil fields, and build another oil industry that dominates the entire economy. Another oil industry; without development of other non-oil sectors, might provide revenues for the state, but it reinforces current development model, which is unsustainable.
Firstly, it is economically not sustainable for any country to depend solely on a single commodity. It is even worse if the source of dependency is to depend on a non-renewable resources, such as oil. Thus, even if Timor-Leste has more oil reserve than it currently has. This would not solve entirely the vulnerability of depending on a single commodity. It places the country in vulnerable position toward the prices of oil at the international market. Therefore, economic diversification for the long-term is an imperative for Timor’s future.

Secondly, oil in Timor was already being explored during an illegal occupation. Therefore, when Timor-Leste finally regained its independence in 2002, there was no much space for Timor-Leste to decide when it should to start extracting the oil resources from its resource. On the other hand, oil money tends to disincentive other non-oil sectors, if the money began to pours into domestic economy in a situation where the non-oil economy is still underdeveloped. The oil money incentivize consumption, and disincentivize domestic production. It attracts imports dependency; e.i. once you have money, it is easier to buy goods and services from the outside, rather than to producing it in domestically. Economically, from cost-benefit point of view, it makes sense, because with high inflation, it is less expensive to import than to produce. This has been the case in Timor’s experience during the last six to seven years.

Thirdly, oil in Timor was already explored during an illegal occupation. When Timor-Leste regained its independence, there was not much space available for Timor-Leste to decide on when it should start extracting resource. When oil money began to enter into domestic market in a condition in a situation where non-oil economy is underdeveloped, it directly or indirectly makes harder for non-oil economy to grow. Oil money incentivizes consumption, and disincentivize domestic production. It attracts imports dependency. Once you have money, it is easier to buy goods and services from outside than to produce it in domestic market. Economically it makes sense to do so. With high inflation, it is less expensive to import than to produce domestically. This has been the case in Timor’s experiences during the last six to seven years.

Moreover, dependence on oil is not healthy for society. Oil is a capital-intensive and not labor intensive industry. Oil does not create as many jobs as agriculture or small-scale industries. There are only a small minority of people that benefits it especially, those are directly connected with the oil industry. In Timor’s case, are the people who connect directly to public sectors. In this case, the contractors, the government officials, and the politician. This does not mean that all of the East Timorese people do not benefit from it; but it in relative terms, elites are the ones benefiting more than the rest of the people. It creates inequality between the poor and the rich, urban and rural, and men and women. There is a small number of people who live in Dili. Oil-dependent economy promotes rent-seeking behavior and rent-seeking activities. As the oil provides easy money, the tendency to spend it is also easily. Once the money is poured into the market through State’s annual budget in big amount – in relative term for the domestic economy – it incentivizes people with political and family connection to involve in rent-seeking activities. These involve obtaining the contracts without proper procurement process, being broker for the foreign – owned contractors, or waiting for public transfers without having to work hard for it. This is not limited to public officials, but it also involves the contractors, interests groups, businessman, as well as society in general.

The whole point is that the issue of petroleum dependence in Timor-Leste is not limited to financial sustainability. Framing the issue in this narrow context open the space to think that finding another oil reserve and build domestic oil production will be the solution for Timor’s economy. However, issues associated with oil-dependency is not limited to financing state’s activities. It is also about vulnerability, healthiness of the society, apt development model, and inclusive development, where it does not only benefit everyone. According to research studies, that are publicly available, oil revenues will continue to decline in the near future. The solution is not only to reduce transfers from Petroleum Fund or discover another oil fields and extracting it as soon as possible. Long-term solution will require investment on more sustainable sectors such as education, health, agriculture, industries that will substitute imported goods and services, and building basic infrastructure.

It is important to acknowledge the the and the complex challenges that Timor-Leste is facing. These challenges, although not unique for Timor-Leste, the context of which these challenges exist are unique in Timor’s own history, social, political and economic setting. Timorese have to live with these challenges and working together to overcome them. Viewing these challenges as the product of social and political dynamic and using these challenges as the basis to claim that Timor-Leste is a failed state is ahistorical, missing the context, and it is an oversimplification of the issue. There is no single solution and short-term approach for these challenges. It will require a holistic and long-term approaches. One thing for sure! At the end of the day, Timor’s infinite resource is not the oil and gas, but its people who have fought with high determination for the independence and who have gone through very difficult circumstances in their lives.

The author is Researcher at the Department of Research and Analysis of Presidency of Republic of Timor-Leste, and 2014 The Asia Foundation Development Fellow.