ECONOMY: Activists Seek to Keep East Timor Debt-Free

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, May 13 2002 (IPS) - Debt-relief campaigners say they hope East Timor’s donors and creditors will promise enough aid this week to keep the nascent country free from sovereign debt.

East Timor will be declared officially independent from Indonesia May 20. Donors are to meet in the capital, Dili, May 14-15 to pledge money to help meet a projected budget shortfall of around 90 million dollars for the next three years. After that, revenues from offshore oil and gas are expected to supplement earnings from coffee exports.

Donor governments have said they are willing to plug the revenue gap. At issue, however, is what strings will come attached to their money, which likely will be administered by the World Bank through a facility set up to collect and disburse aid to East Timor.

Officials in Dili and international civil society groups, however, are working to have the facility handed over to the United Nations, which they see as more likely to allow East Timor to use the money in the form of unconditional grants. The World Bank, they say, likely would look to convert the money into loans, thus saddling the fledgling government with long-term debt.

“A lack of funds could stand in the way of East Timor’s commitment to use future revenues to secure healthcare and education for its people rather than to service a debt to wealthy states and financial institutions,” said the East Timor Action Network (ETAN), a U.S. rights group.

“What we are trying to do is avoid East Timor falling into debt and suffering conditions imposed by the World Bank and IMF (International Monetary Fund),” said Karen Orenstein, ETAN’s Washington Coordinator.

A World Bank official, speaking on condition of anonymity, told IPS the lending institution had no immediate plans to lend money to East Timor. Rather, the Bank was best placed to manage the money and use safeguards to ensure that tax revenues and donor contributions are used for their intended purposes.

“But for the long-term plans, the governments have the option to generate revenues domestically through efficient tax collection for example or through concessional loans over 40 years, which is close to free money,” she said. “That’s the way to go.”

The official also said that at Tuesday’s meetings, donors likely would move from funding projects to supporting the national budget as a whole.

“This is a leap of faith in the government,” she said, adding that the Bank has been advising Dili to consider expenditure cuts and to come up with ways to generate revenue.

East Timorese development watchdog La’o Hamutuk, however, said it has investigated several of World Bank projects and found problems in planning and execution.

For their part, U.S. activists have lobbied Congress and the U.S. administration to plug at least one-fourth of East Timor’s budget gap with unconditional grants and to press other countries and international financial institutions to follow suit.

“Activists have a unique chance to take pre-emptive action – to prevent the stranglehold of structural adjustment, loans, and the vicious cycle of poverty from putting its deadly grip on the new country,” ETAN said.

Mara Vanderslice of the anti-debt group Jubilee USA, said the idea has caught the imagination activists.

“We find it a very exciting idea,” she said. “Here you have a country that has been in the news; a country that is starting on a new slate. We are very hopeful that it’ll work.”

Activists are further encouraged by the small budget deficit. The shortfall was initially estimated at 154 million-184 million dollars but the government has now modified its figures and says it expects to need only 90 million dollars over the next three years, according to Orenstein. “This is half the price of a U.S. F-22” jet fighter, she said.

Activists said they were heartened by East Timor’s stated “no loans” policy of financing development for the country of some 800,000 people. The nation will remain heavily reliant on foreign aid for many years, however, because more than two decades of armed resistance to Indonesian occupation has left infrastructure in ruins, jeopardising the drought-prone agrarian economy.

Some 48 U.S. lawmakers have written to the George W. Bush administration in support of the activists’ efforts. “We are of course very encouraged by the responses to our campaign,” said Orenstein. “But because the IMF and the World Bank are all over East Timor, we are not really sure if it’s going to work.”