In Timor's dreams

PUBLISHED : Friday, 06 April, 2007, 12:00am
UPDATED : Friday, 06 April, 2007, 12:00am

The formula East Timor's leaders have for dragging their nation from poverty looks straightforward enough: use the revenues from the country's oil and gas reserves to create a vibrant economy. As simple as this may sound, they will need all the luck they can get - because no country has ever achieved that goal.

Time and again, history has shown that petroleum resources bring nations misery, not wealth. There are terms for this phenomenon in the development community: the 'paradox of plenty' and the 'resource curse'.

Saudi Arabia is the world's most oil-wealthy nation, yet the per capita gross domestic product is just US$13,800 compared to Malaysia's figure of US$12,700 and Hong Kong's US$36,500. Iraq has the world's biggest estimated oil reserves, but corruption, mismanagement and the continuing insurgency mean that per capita GDP is US$2,900.

Monarchies, corrupt autocracies and immature democracies in Asia, Africa, the Middle East and South America ensure that the wealth from oil and gas goes to a small elite, and does not filter through to the general populace.

Even in Brunei, where the autocratic monarchy keeps citizens relatively well off - providing high-quality medical care, education and pension systems - the future is not certain. The price of petroleum is not guaranteed, nor are reserves finite.

There are examples of governments that have managed petroleum revenues wisely: Norway, the Canadian province of Alberta and the US state of Alaska top the shortlist. None is completely reliant on oil for its income, though. Norway, for example, uses little of the money in its oil fund, which is aimed at long-term development needs rather than immediate goals.

But the picture is generally negative. East Timor's leaders want their nation to be the shining example that bucks the trend. In 2005, they set up a petroleum fund to manage the revenues from a resource that they know will be exhausted in one or two generations. The billions of dollars they hope to accrue will be used to eliminate the catalogue of problems East Timor faces as one of the world's 20 poorest nations. Per capita GDP is US$800, on a par with Afghanistan.

Almost half of the population of 900,000 live on less than US$1 a day, the UN's recognised poverty line; an estimated 70 per cent are unemployed; 60 per cent cannot read or write; the average life expectancy is 57 years; one in 10 children will not live beyond five years of age; and so the misery list goes on.

A petroleum fund containing billions of dollars would go a long way to resolving these matters, were it not for a few other realities. Most of East Timor's infrastructure was destroyed during its fight for democracy, and education and health services are rudimentary. The nation's democracy is immature and factional fighting rife - 37 people were killed in political clashes last year and, with presidential elections set for Monday, battles have resumed. But perhaps most worrying of all - for those who put faith in oil and gas as being East Timor's future - corruption is rampant: the Berlin-based group Transparency International ranked it equal 111th with nine other countries on its latest corruption perceptions index of 163 countries.

Starting next year, and for the next few decades until the oil and gas run out, East Timor will be one of the world's most petroleum-dependent countries. The Dili-based non-governmental organisation La'o Hamutuk has calculated that 89 per cent of the total economy and 94 per cent of government revenue will come from oil and gas exports.

Officials claim that the petroleum fund has been set up in such a robust manner that it will ensure East Timor's future viability and prosperity. Never mind that there is no other nation on Earth that has successfully managed this feat with oil and gas alone.

I am an optimist by nature. The East Timorese fought hard for their freedom - first from Portugal and then Indonesia. They deserve to have the nation that they have dreamed of.

Reality and history dictate matters somewhat differently.

Peter Kammerer is the Post's foreign editor