Foreign aid organisations have a heavy presence in East Timor, from the UN to just about any NGO you'd care to name - AusAid, United States Agency for International Development and so on. There's a sense of resentment among locals as these do-gooders from across the world roar around town in their shiny white four-wheel drives. The presumption is that their sizeable tax-free salaries have made them blind to the conditions that exist outside Dili.

In the capital, though, the aid presence has created something of a bubble economy. There's a surprising range of international restaurants here and a wide selection of imported wine and beer. The presence of so many well-paid foreigners has driven prices up and makes for an unusual situation: stallholders and small businesses typically don't bargain, which is almost unheard of in Southeast Asia, because they're used to customers who pay the asking price.

They may not be welcomed by everybody but the last time the UN tried to scale down its presence in East Timor, all hell broke loose. There was civil war in 2006, with the police taking on the military while many civilians used the chaos to settle old scores. Australian soldiers restored the peace and the UN returned.

East Timor is at peace now but whether it stays that way is anyone's guess.

'Some people say there is no future here,' says Claude Perron, a Canadian businessman. 'Others say it has a very bright future. You could flip a coin.'

EAST TIMOR IS STRIKINGLY beautiful, with mountains that rise imperceptibly each year as Australia crashes into Asia, creating stunning peaks that descend sharply into pristine ocean.

Its president is a good ambassador. Most mornings, he walks several kilometres from his home on the eastern edge of Dili to his office downtown, even after a 2008 assassination attempt in which he was shot and almost died.

'Because I grew up in a remote mountain village, I am fixated on mountains,' Ramos Horta said during an interview at the second world war memorial at Dare, which has a panoramic view of the capital and the coral reefs along its fringes. 'And in Timor-Leste, we have majestic, beautiful landscape that goes up to 10,000 feet in certain places. I love walking through the hills.'

The Tour de Timor bicycle race takes its competitors on a five-day, 455-kilometre loop - from the presidential palace, along the coast, then into the hills of the interior, across to the south coast, skirting the shore again, then back over even bigger hills to the capital.

Ramos Horta was a big backer of the race (held last August) and was orchestrating its preparation while we chatted in the hills at Dare. At that stage, no one knew how the professional mountain-bike racers, many of them from Australia but some in teams from Malaysia, Hong Kong and Singapore, would fare on the killer hills. To add to the uncertainty, film star Billy Zane wanted to show up, to lambast Ramos Horta about his plans to do a deal with China involving a heavy-oil power plant.

'We could fly him up to the race in one of the helicopters,' the military aide pointed out.

'I'd rather we use any helicopters to get reporters up there, to cover the race,' Ramos Horta retorted, fully aware that this conversation had an audience.

Ever the savvy politician, he hoped to promote his country to beach-loving tourists, too.

'I love watching our wonderful sunset, too,' he said, returning to a conversation about what East Timor has to offer visitors. 'You could be watching out to the west from Dili and, on and off, dolphins may jump up to the level of the sun, staying there for a second, and you get the perfect picture of the dolphin in the middle of the miracle.'

He was exaggerating and being more than a little melodramatic. But what do you expect from someone who sits for a Sunday chat over coffee, ham and cheese wearing a T-shirt with a picture of Jesus on it?

Nevertheless, a recent survey by an Australian university revealed that East Timor does have a higher concentration of marine mammals - pilot whales, minke whales, spinner dolphins, orcas, dugongs - than anywhere else on Earth. The Timorese have never been a strong fishing nation and the country has little in the way of heavy industry, so the waters off the coast are still clean and full of life.

COOPERATIVA CAFE TIMOR (CCT) is the largest private employer in the country. It has a staff of about 300 that swells to some 3,000 during the coffee harvest. Its main workforce, though, is made up of the 21,555 small farmers who supply and collectively own it.

CCT sells much of its highly prized coffee to Starbucks, where it is marketed as a Timor blend and used to bolster weaker brews from places such as Colombia. East Timor's coffee is grown organically, not so much for ethical reasons but pragmatic ones - farmers can't afford pesticides or advanced technology - making for a robust bean. The coffee industry accounts for exports of about US$9 million per year, according to David Boyce, an adviser to CCT who has been in Timor since 1993, and CCT makes up nearly 40 per cent of that.

'[East Timor] is getting better, slowly,' says Boyce.

Over lunch in an Indian restaurant in Dili, he credits the government for cutting taxes on his industry, which stood at 50 per cent at one time, although, at 30 per cent, they're still high today.

'What do you get for that?' Boyce asks with a chuckle. 'No help from the government or the [Ministry] of Agriculture, although they're in favour of our cause.'

He says the biggest obstacle to East Timor's progress is apathy, which stretches to the upper echelons of the government. He blames the country's long history of subjugation: the colonised had no reason to build a nation they didn't control and the colonisers didn't much care. In the days of Portugal's military dictatorship, all of its resources were directed to keeping restive Angola and Mozambique in line - Timor was ignored.

'There's an inherited trait of not thinking past today and not thinking of the future,' says Boyce.

That inertia makes it hard to get initiatives off the ground. Geoffrey Collins is an Australian who lives in the sleepy town of Same, near the south coast, in a beautifully restored colonial home at the Portuguese posto, the old town's administrative centre, on the hill. He wants to turn the former governor's residence next door into a pousada, or Portuguese-style guesthouse.

'I've been trying to get a lease on the place next door, but I don't think it's going to happen - it's been two years,' Collins says. 'I'm probably not paying someone the right amount of money.'

The building remains empty.

Still, the machinery repair shop he runs is doing well. Set up by a wealthy Australian, the venture is a not-for-profit business that charges locals low rates: a farmer might pay 50 US cents for a job that would ordinarily cost US$10. Locals with a decent income - teachers and engineers, for instance - pay slightly more. Foreigners such as UN staff pay full cost and subsidise the others.

The business is almost self-sufficient and the owner plans to hand it over to its Timorese staff once it is.

'There's a dire shortage of skilled technicians,' Collins explains. 'Everyone educated is study- ing to become an engineer and the rest have no education.'

OTHER THAN TOURISM AND coffee, the country's main economic hope lies in the Timor Sea. East Timor and Australia are bickering over how to exploit the oil and gas reserves that lie between the two nations.

East Timor's tumultuous history has made it hard for any industry to thrive. As a colony, once administered from Macau, it was returned to the Portuguese after the second world war. In 1975, when Portugal's military dictatorship crumbled, the Europeans left - only for Indonesia to immediately invade. After a decades-long independence struggle led by the exiled Ramos Horta and the current prime minister, Xanana Gusmao, East Timor got its independence in May 2002.

The country's name reflects its troubled past. East Timor is a repetition - 'Timor' means 'east' in Bahasa Indonesian. It's known as Timor-Leste in Portuguese and as Timor Lorosae, or 'Timor Where the Sun Rises', in the most com- mon local language, Tetum. Portuguese and Tetum are the country's official languages - controversially, since few Timorese speak the colonial tongue and most educated people grew up learning Indonesian.

East Timor has seen intermittent civil strife since independence, such as the conflict in 2006, which pitted the eastern East Timorese, who supported independence, against the Indonesian-leaning western East Timorese. In 2008, Ramos Horta was shot several times during a failed coup attempt led by rebel soldier Alfredo Reinado, who was shot dead by the president's bodyguards.

'[The year] 2006 came out of the blue for everybody,' Boyce says. 'It turned out to be an east-west thing and nobody expected that.'

But there are so many competing claims over property in East Timor that resentment breeds easily. Many homes have had different owners under Portuguese, Indonesian and Timorese rule, as conflict drove people away and peace drew them back. There's also the lingering legacy of the Indonesian occupation, with many people in western East Timor having ties to the western half of the island of Timor, part of the Indonesian province of East Nusa Tenggara.

Some businesspeople complain about corruption in the government. Perron, who is from Quebec, runs a small printing shop, Diak Screen Printing, that produces T-shirts and souvenirs. After five years in East Timor, though, he says he is fed up with the Department of Justice and the bribes he must pay government staff to get his business licence renewed each year. He has put his shop on the market.

'It's over for me, my mind has departed,' he says.

Nonetheless, the country remains attractive for some. Malaysian Borneo's Sutera Harbour Resort wants to build the first five-star resort in East Timor, the 383-room Dili Sutera. The project, which would include a 27-hole golf course, will provide 1,200 to 1,500 jobs - if it ever gets off the ground.

While that remains on the drawing board, a Singaporean developer, Tony Jape, is construct- ing a multi-storey shopping centre in the middle of Dili. The billboards surrounding what's now just a building site tout flashy brands and paint an optimistic picture. Sceptics, though, doubt he'll be able to fill it. 'I admire him for the risk he's taking,' Boyce says.

Simon Jeffery, an Australian who runs the Castaway Bar, is also trying his hand at development. Along with his Timorese partner, Alcino da Silva, and Bali-based Singaporean Bernard Foo, he has been buying up land on Avenida de Portugal, 'Beach Road', near the United States embassy. They've built apartments and 14 houses, which they rent out to expatriates. The rent on a three-bedroom home is about US$3,000 a month and tenants are mostly UN or USAid staff, or engineers employed by Timor Telecom.

Jeffery, the son of a former governor general of Australia, believes East Timor is in the early stages of establishing itself. Back in the 1960s, it was a popular honeymoon destination, particularly for Australians, and part of the 'hippy trail' across Asia. He expects tourism to return and thinks it can draw on the success of nearby Bali.

'You just need a couple of years of stability, a few more events like the Tour de Timor and people will come back,' Jeffery says.

Maria Noronha, who runs the tour company Eco-Discovery, says travellers have always been attracted to East Timor, even during its troubles. Now, though, tour groups are starting to arrive, with visitors coming from as far away as Estonia and Lithuania.

'It's getting really good - the security problem is behind [us],' Noronha says. 'We're getting to the point where we're busy.'

That bodes well for the future. According to local lore, no one visits East Timor just once: people always come back.

'You have your highs and lows here,' Jeffery says. 'When you have your lows, you think 'I've had it.' But you get on that Air North plane, and look out the window, and you're missing it already.'