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Inequality in a Petroleum Dependent Country: A Timors Case[1]

 Guteriano Nicolau Soares Neves

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First of all, I would like to thank The Asia Foundation for organizing this Forum. My biggest gratitude goes to distinguished audiences for making your busy time available to be here with us. I highly appreciate it as it provides us a rare opportunity to offer different views about Asia’s growth, especially from my country; Timor-Leste. In this golden opportunity, I would like to share a little bit with you about the issue of inequality in my country; a country where I spent most of my life, a country where I grew up with and defines who I am today; a country where, its people have shown their determination to fight against the biggest military force in the region, and are still struggling to overcome the tragedy of the past, and to look forward for a better future.

I come from a country, where perhaps only few of you have heard about; and if you do, perhaps what you have heard is about war, violence, conflict, the poverty, fragility, or failure. It is true that Timor-Leste has been going through difficult time in struggle for independence, and in the process of building its state institutions and develop the country toward better future; a future that everyone is dreaming for. The challenges are indeed, enormous.

But Timor-Leste is not merely defined by the violence, fragility, poverty, failure and other negative notes. Our history of struggle has also taught us about persistence, dedication, heroism and humanism that some of these values defined our collective memory as a nation, and define our character to face today’s challenges. Many of our leaders have given the best period of their life to fight for independence during Indonesian military occupation. Many of our best Timorese gave up their life just to fight for a nation’s freedom.

Hopefully, Timor’s experiences can provide some positive lessons for other countries in the region and in the world.

Talking about inequality in Timor, it is an emerging issue. In my personal interaction with the reality, issues like poverty or inequality, is not something that I know only through news, or political rhetoric, or statistical numbers. It is not only about how many dollars do they make everyday. It is something that I see it, I experience it, and I live with it, and therefore, it builds personal commitment to contribute to transform it, based on my capacity. I encounter it when I see people don’t have access to water, kids travel long-distance to school, farmers travel long-distance to bring their local products to market, and various forms of poverty and inequality.

But one should not treat inequality as merely a product of current policy. Inequality in Timor – Leste is not a product of one single generation; or not merely a product of current policy. It has been there over generations, and the result of various factors and actors at display. And the current economic development model, which relies on Petroleum, and centralized in Dili, obviously will deepen this inequality, if it is not carefully addressed. Therefore it is important to depart from acknowledging that although it is a regional and global issue, when it comes to specific country, context does matter.

During 450 years of Portuguese colonial administration, Timor-Leste was underdeveloped. Many policies were discriminatory, to enforce the ruling class. Popular memory among Timorese is that Portuguese education system was intended only to prepare local people to work for colonial administration, and for those who worked with Portuguese or the generation of kings. Therefore many Timorese who were born during colonialism did not have opportunity to go to school.

During Indonesian military occupation, amid the structural violence, it did expand public service, such as education, health, and build some roads. Many of the roads built by Indonesian are still used by Timorese today. Indonesian administration during Soeharto’s era was centralised in Jakarta; hence, Timorese did not make decision for their own future. When Indonesian military left Timor in 1999, it undertook what was later known proved to be “systematic and structural” destruction campaign, killed more than one thousand people, displaced 80% of people, and destroyed around 80% of basic infrastructure.

UN administration during two and a half years did not change much. It was centralised in Dili, therefore, it reinforced Dili’s position in term of economy. Many international staffs came to Timor, and lived in little boxes, without much interaction with the rest of the economy. They should have done more, given the resources that the international community has and the size of the country.

Therefore, when we talk about Timor’s current challenges; its economic development, its internal dynamics, including inequality, we need to take into account what Portuguese administration, Indonesian occupation, and UN transitional administration left. And secondly, especially at current dynamics, we cannot ignore the impacts of oil dependency, and how it affects different segments of the society.

What I would like to share is how oil affects socio-economic dynamic in Timor-Leste. There are few notes that I can share.

Since 2005, Timor-Leste has received multi-billion dollars from the oil and gas revenues. It also forms Timor-Leste to be the second most oil-dependent country in the world. Around 80% of state’s revenues are from oil, and around 88% of state’s annual expenditure is derived from oil. During the last five to six years, Timor-Leste has experienced significant non-oil economic growth rate; around 10-15%, and in this year, the projection is about 8%. And this economic growth rate is primarily driven by public sector expenditure.

Oil facilitates state to expand its programs; but not the economy. Oil, like other non-renewable resources, has very special characteristics to the economy, and to the society. Oil does not create many jobs as the other sectors. In Timor-Leste, although oil accounts for 80% of the total GDP, the only good thing about oil in Timor’s context is that it provides revenues for the state to implement its programs. So what happens in such structure of economy is that state receives revenues from the oil, but the rest of the economy gets nothing directly. In this context we already see the inequality between state and the society that oil industry has.

Because only state receives revenues, people that have direct impacts are people who work in the public sector or have connection with the public sector. In Timor’s context, it includes public servants, contractors and business sectors, politician, and veterans who get subsidy from the State. Most of these groups are in Dili. As such, this development model benefits Dili, and marginalises the rest of the country. Although other segments of the society also are benefited, but in relative terms, only small groups of people that benefited more than the rest.

It enforces the privilege of the City over the rest of the economy. Many statistics speak for it. Most the public servants, and middle to high level officials are in Dili. Most of private sector employments are in Dili. And most of the companies that provide services like hotel, restaurants, wholesale and retail sectors are in Dili. The rest of the country most of them work in low productivity and seasonal agriculture, involve in small-scale government-funded infrastructure programs, private-house construction, and other self-employment activities.

Another problem with the oil-dependency economy is inflation, especially, when fiscal policy is not well-thought off. Although Timor-Leste experiences high economic growth amid global financial crisis, at the same time, inflation was also high, reach double digit since 2008, and has decreased this year. Many commentators, including World Bank, and IMF agreed that this inflation is due to expansionary fiscal policy. To look specifically, inflation affects poor more than the rich. So, in term of wealth distribution from oil, rich are benefited from the oil revenues, but poor are suffering from the oil boom when the money poured into domestic market. In other words, rich are getting richer, and poor are getting poorer. Worse than that, price of basic needs such as food are the biggest contributor for the inflation.

Oil provides easy money, therefore, makes it easier to spend. But when the money easily spent into the domestic market, it disincentives people to produce. As result, it attracts demand for the imported goods and services from other countries, especially Indonesia. Timor-Leste, last year, suffers more than one billion trade deficits in goods and services. The only significant good that we export is coffee; which some of them get through to the United States. And economically it makes sense, because with the high inflation rate, it is more expensive to produce, than to import. So if the people makes decision based on free market economy, and rational choice based on free market thinking, people are rational. But to think of more sustainable approach, it is a problem. When to frame it in Timor’s context, it means that the rural area, which supposed to be the production base, lost its importance in the economic structure, and the most of money, does not trickle down to local economy.

These challenges are widely acknowledged in Timor-Leste. Many Timorese are conscious about it, so we discuss it in every moment. As it is a complex issue, it takes long-term and holistic approach. It will not be solved through state’s policy alone. State can establish long-term plan, but it requires mobilization of resources from different sectors of the society to achieve it; not only money, but energy, opportunity, knowledge to explore, and knowledge to innovate.

In a democratic society, as everyone is conscious of important roles they played in the past, so as everyone should bear responsibility to the failure of the past. Not only success that belongs to everyone; but also courage to take responsibility of the failure.

I thank you all for your attention, and I am looking forward to have more fruitful discussions.

[1] This topic was presented at The Asia Foundation Development Forum: Challenges and Voices for Asia’s Future. This Forum was organized by The Asia Foundation at San Francisco, on September 18th, 2014.