16 March 2018

18 Years Later: Should Timor Drop the U.S. Dollar?

On 29 January 2018, the Institute of Business (IOB) hosted a national seminar entitled Bele ka lae Timor-Leste iha moeda rasik? Perspectiva no desafius?, where representatives of government, academia and civil society shared ideas regarding the possibility of Timor-Leste implementing its own currency. Juvinal Dias from La’o Hamutuk gave a presentation alongside Minister of Finance Rui Gomes, Director of the Economics and Statistics Division of the Central Bank Gastão de Sousa, and Monash University Professor Brett Inder. Click on each name to download their presentation.

The following article reflects La’o Hamutuk’s presentation.

In 2000, while the UN Transitional Administration (UNTAET) was governing Timor-Leste, UNTAET, the IMF and some Timorese leaders recommended dollarization. At that time, several currencies were circulating in Timor-Leste’s economy. The Indonesian rupiah was widely used in markets and rural areas, Australian dollars circulated among businesses patronized by expatriates, employees of UN agencies were paid in U.S. dollars, and some Timorese citizens received pensions in Portuguese escudos. As no official currency exchange facilities existed, all foreign exchange was essentially “black market,” with no consistency of rates.

The transitional administration chose the U.S. dollar for various reasons. The Indonesian rupiah was very unstable; it had crashed in 1997-1998 and remained volatile in the coming years. The Portuguese escudo was being phased out in Portugal and replaced by the euro. The IMF and others pushed for dollarization to try to make the Timorese economy more stable, through price predictability, regulated foreign exchange and reduced reliance on the black market. The U.S. dollar was already used by UNTAET, was relatively stable on the global market, backed by a strong economy, and was the reference currency for the world oil market.

Benefits to using the U.S. dollar

International exchange rate stability

The value of new currencies often fluctuate as the global market tries to determine their worth relative to all other currencies. Currency values are based on existing credit history, long term monetary policy decisions and economic performance. New currencies are untested in their responses to different economic conditions, and therefore in the short-term it is difficult to determine the proper exchange rate.

In the case of Timor-Leste, national institutions have not yet proven that they can resist the temptation to print more money during economic hard times. Our currency could become more stable over time, as the Central Bank establishes a good policy record, but until the value would likely fluctuate.

Structure for young institutions

One challenge often faced by newly independent countries is having inexperienced institutions. The biggest risk is the potential use of cheap and quick fixes for the economy – such as printing money to reduce a budget deficit or providing credit to banks – which could have devastating impacts on inflation and exchange rates in the future.

Using the U.S. dollar protects countries from macroeconomic crises such as hyperinflation, which can result from dangerous monetary policy decisions, such as uncontrolled printing of money. Countries afflicted by hyperinflation , such as Venezuela and Zimbabwe, have had to face seemingly insurmountable obstacles to growth as their currencies become worth less by the hour.  In these situations, import prices soar, the price of domestic goods become unpredictable, investors pull out of the country, and the citizens cannot save because their money loses value every day.

Security for foreign and domestic investors

A relatively stable currency makes investors confident that the value of their investment will be preserved over time.

Investors trust in the value of the US dollar, and therefore, currently trust that the value of their investment in Timor-Leste next year will not be significantly different from the value of that investment this year. In fact, Heineken listed the U.S. dollar as one of the main attractions that led them to opening a plant in Timor-Leste. At least in the short-term, a Timorese national currency would discourage investment in Timor-Leste because it would make those investments relatively riskier.

Many commodities are bought and sold in U.S. dollars

Timor-Leste’s two biggest exports are oil and coffee, both of which are sold to the global market in US dollars. Therefore, using the US dollar partially insulates Timor-Leste’s economy from fluctuations in commodity prices.

The impact of the 2014 fall in oil prices on Timor-Leste’s economy was lessened because the country uses the U.S. dollar. During this time, the value of the US dollar appreciated relative to the Rupiah and other currencies, thereby reducing the cost of imported goods. As a result, the rate of inflation in Timor-Leste fell from 12% in 2013 to essentially zero in 2014.  Although the State received less money from its oil exports, prices that people had to pay for goods stopped increasing.

Challenges to using the U.S. dollar

Relinquish control over monetary policy

Monetary policy is a tool used by central banks to respond to different economic situations by adjusting a country’s money supply or interest rates. By using the U.S. dollar, Timor-Leste has given up its power to decide on monetary policy. Otherwise, the Central Bank could use such tools to stabilize the economy and help the country recover from external shocks.

If there are shocks to the economy, the Central Bank can devalue the currency to make exports more competitive, thereby offsetting some of the losses from the shock.

For example: Coffee is Timor-Leste’s largest non-oil export. Coffee production can be negatively impacted by external shocks such as poor weather conditions or widespread crop disease. In this case, the Central Bank could use monetary policy to devalue the currency, thereby making all Timorese goods relatively cheaper to foreign consumers. Therefore, the increased sales of other exports could make up for some of the decrease in the sales of coffee. However it is important to note that currently, Timor-Leste would not benefit much from using these types of monetary policy tools because we don’t yet have diverse exports.

Obstacle to diversification

The value of a Timorese national currency would be weaker than the U.S. dollar, making imported goods more expensive and local products relatively cheaper in comparison. Local products could compete with the relatively more expensive imported goods in the domestic market.  Subsequently, Timorese producers could sell more products, improve productivity and grow their production over time. As production and productivity increase, Timorese products would become more competitive on a global scale, thus expanding non-oil exports. This could be a tool to help Timor-Leste diversify its economy and encourage non-oil sector growth in the future.

The high value of the US dollar is part of the explanation for Timor-Leste’s import dependency because it allows Timor-Leste to import goods at a cheaper price than domestic producers can compete with. Replacing some imported goods with locally produced goods would begin to close the gap between imports and exports of non-oil goods, which will be an important step for economic sustainability as oil production ends and the Petroleum Fund is depleted over the next decade.

Is Timor-Leste ready?

All of the speakers at the IOB seminar, including La’o Hamutuk, agreed that it is too soon for Timor-Leste to implement a national currency. Timor-Leste will implement a national currency in the future, but first must develop the non-oil sectors of the economy, which includes agriculture, tourism and light manufacturing. This is because implementing a national currency now would lead to an increase in the price of imported goods, thereby worsening people’s purchasing power while domestic production remains low. Additionally, monetary policy is not an effective policy tool without several different export sectors to adjust.

The productive sectors of non-oil GDP are agriculture and manufacturing, which have been stagnant since 2003. Government spending has driven nearly all the growth in non-oil GDP , and it will go down in coming years as oil revenues runs out and the Petroleum Fund balance declines.

After productive, non-oil sectors contribute significantly to the economy, Timor-Leste should consider adopting its own national currency.

Recommendations in the meantime

La’o Hamutuk recommends that policymakers take seriously the need to diversify the economy. There is an urgent need for proactive policies which encourage the sustainable growth of productive non-oil sectors.

One way that countries can boost local production and gradually substitute imports for domestic products is by introducing a combination of import tariffs and government subsidies for targeted sectors. These policies can protect our domestic industry as it develops the capacity to compete with imported products. Over time, as local production grows, Timor-Leste will be able to phase out tariffs and subsidies, as is required by a gradual compliance with the free trade requirements of ASEAN.

Timor-Leste’s people achieved national sovereignty after years of struggle and sacrifice, and it might seem that having a national currency is one of the benefits of that victory. However, we need to be sure that it also materially benefits the people of this country, especially the many who are not yet fully enjoying the economic benefits of independence.

07 March 2018

Poténsia Indústria Ki’ik Prosesamentu Produtu Agríkola

Semináriu nasionál kona-ba Dezafiu no Poténsia Indústria Ki’ik Prosesamentu Produtu Agríkola iha Timor-Leste

Iha loron 22 Fevreiru 2018, La’o Hamutuk realiza semináriu nasionál ida iha Dili kona-ba dezafiu no poténsia indústria ki’ik prosesamentu produtu agríkola iha Timor-Leste. Semináriu ne’e nia objetivu maka atu hamosu espasu ba diskusaun entre ministériu relevante ho públiku kona-bá polítika, programa no estatutu dezenvolvimentu indústria ki’ik prosesamentu produtu agríkola iha rai laran. Oradór ba semináriu ne’e mai husi La’o Hamutuk, Ministériu Komérsiu no Indústria, Ministériu Agrikultura no Peska, no ONG Parcic. Iha kraik, bele hetan aprezentasaun sira husi Semináriu ne'e.

Tuir mai, pontus hodi loke aprezentasaun no diskusaun husi Mariano Ferreira, La’o Hamutuk:
  • Iha 2017 La’o Hamutuk hahú peskiza ida kona-ba indústria kiak prosesamentu produtu agríkola nian iha Timor-Leste. Peskiza ida ne’e hala’o iha munisipiu haat: Ainaro, Bobonaro, Baucau no Covalima. Liu hosi peskiza ida ne’e La’o Hamutuk hakarak buka hatene Dezafiu no Poténsia ba Indústria Ki’ik Prosesamentu Produtu Agríkola nian iha Timor-Leste.
  • Rezultadu husi peskiza ne’e hatudu katak iha ona indústria ki’ik prosesamentu produtu agríkola nian iha munisipiu haat ne’e, ne’ebé sira nia produtu sira fa’an ona iha loja ka supermerkadu.
  • Produtu ne'ebé sira prodús mak hanesan: manteiga fore-rai, kripik ho variedade oin-oin, mina nuu virjen, rebusadu sukaer, tempe no tahu, guriguri gizi, cha herbal ho variedade oin-oin, foos rai, saus tomate, ikan tomate, marmelada ho variedade oin-oin, ikan tomate, fore-rai sona, sabaun, mina kamii, tintu hudi, no bani-been.
  • Aleinde fa’an produtu ne'ebé sira prodús iha sira nia sentru produsaun, kios/loja balu iha sira nia munisipiu, sira mós fa’an iha supermerkadu sira iha Dili laran. Grupu prosesador sira fa’an sira nia produtu liu hosi NGO fasilitador sira. NGO fasilitador lori produtu sira ne’e ba fa’an iha sira nia fatin no iha supermerkadu sira. Iha mós grupu balun ne’ebé mak sira nia produtu ONG sira mak sosa.
  • Supermerkadu sira en jerál nakloke atu simu produtu husi grupu prosesamentu nian. Kritéria prinsipál ne'ebé sira aplika maka kompatibilidade ho regulamentu Autoridade de Inspeção e Fiscalização da Atividade Económica, Sanitaria e Alimentar (AIFAESA) nian. Kritéria sira ne’e inklui kompozisaun produtu nian, data produsaun no mós data prazu nian.
  • Maioria hosi grupu produtór sira ne’ebé partisipa iha estudu ida ne’e hatete katak sira la iha problema ho merkadu, maibé problema ho konsisténsia no volume produsaun. Produsaun dala barak la konsistente tanba depende mós ba matéria prima ne'ebé iha.
  • Problema ho merkadu liga liu ba koñesimentu atu buka merkadu no meius atu transporta produtu ba merkadu Bainhira matéria prima laiha ka karun liu, sira labele halo produsaun hanesan baibain.
  • Dezafiu kona ba volume produsaun liga ba ekipamentu produsaun ne'ebé sei limitadu, fatin produsaun ne'ebé ki’ik no mós merkadu nian ne'ebé ki’ik liu. Oras ne’e sira iha kapasidade atu prodús uitoan de’it no maioria atu ba fa’an de’it iha Dili.
Orador seluk fo aprezentasaun sira, no bele hetan husi:

05 March 2018

Everyone welcome to celebrate Maritime Boundary Treaty

7:00 am, Wednesday 7 March
at La'o Hamutuk's office
As you probably know, the Maritime Boundary Treaty will be signed by Timor-Leste and Australia at UN Headquarters in New York on Tuesday 6 March at 5:00 pm, which is 7:00 am on Wednesday in Dili. La’o Hamutuk is organizing a small party to celebrate this signing, as a popular victory which many people have struggled for since before Timor-Leste restored its independence.

We invite everyone who supported this struggle to join us in celebration by sharing breakfast at La'o Hamutuk's office in Bebora.

Come together with pride and joy to celebrate this victory, which we knew would be difficult but never thought was impossible.  We won this 20-year struggle; our maritime boundary will follow the Median Line principle under international law. Although the government of Australia refused to recognize this right for many years, they finally recognized Timor-Leste's sovereign rights -- we won!

Once again, we invite all Timorese and international friends, as we all came together in the Movement Against the Occupation of the Timor Sea (MKOTT) to struggle for maritime boundaries, let us join in celebration of this victory of the Timorese people, solidarity activists and RDTL. 

Please bring coffee, traditional breakfast or other local food, to eat and drink together. La'o Hamutuk will show photos from our struggle, and we will have music and sing together.

Please share this information with other friends who might not see it. We greatly appreciate everyone's participation in this long struggle, and in this victory party.

Ema hotu bele mai festa ba Tratadu Fronteira Maritima

Tuku hitu dadeer, loron 7 Fulan Marsu
iha La'o Hamutuk nia servisu-fatin
Nudár públiku hatene ona, tratadu ba Fronteira Maritima sei asina iha sede Nasoins Unidas entre Nasaun rua, Timor-Leste no Australia, dia 6 Marsu, tuku 1700 oras Nova Iorke USA, tempu hanesan iha Dili dia 7 kuarta feira tuku hitu dadeer.  La’o Hamutuk hakarak organiza festa ki’ik atu selebra asinatura ida ne’e, nudár vitória povu nian ne’ebé ema barak buka antes Timor-Leste hetan nia Independénsia.

Liu husi karta ida ne’e, ami konvite ita-boot sira hotu ne’ebé durante ne’e apoiu luta ida ne’e, atu mai hamutuk hodi ita selebra hamutuk hodi hemu kafé dadeer nian iha edifísiu La’o Hamutuk nia iha Bebora.

Mai hamutuk ho hanoin orgullu, kontente hamnasa hodi festeza buat ne’ebé ita sente todan maibé la sente imposivel. Ita manán duni ona iha luta ida ne’e, manán tanba ita iha ona liña fronteira Maritima tuir prinsipiu Liña Klaran tuir Lei Internasionál. Objetivu ida ne’ebé Governu Australia tempu naruk abandona, ohin loron ita nia luta konkista sira nia mudansa no atinje vitória final ba povu TL nia luta.

Dala ida tan, ami konvite kolega hotu Timor oan, nudár ita hotu hamutuk iha MKOTT ne’ebé Luta ba F.M, mai ita halo festa hamutuk ba vitória ne’ebé ita hetan ona nudár povu, ativista solidariedade no nudár estadu.

Kolega sira bele lori mai, kafé, ai-farina da’an, talas da’an, hudi, no ai han lokál seluk tan, hodi ita han no hemu hamutuk nudár maneira festa popular ida. La’o Hamutuk sei iha loke foto balun husi ita nia manifestasaun sira hodi ita hotu haree fali no sei iha múzika balun atu ita rona no kanta hamutuk.

Bele fahe mós informasaun ne’e ba kolega sira ne’ebé la konsege hetan husi konvite ida ne’e. Ba kolega sira nia atensaun no mai festa hamutuk, la haluha hato’o apresiasaun boot.

28 November 2017

TL is borrowing more - will we be able to repay?

In order to continue high infrastructure spending while appearing to reduce withdrawals from the Petroleum Fund, the Timor-Leste Government has signed several loan agreements with multilateral agencies and foreign governments. Although Timor-Leste’s current debt is relatively small, the Government’s borrowing plans have accelerated in recent years; the 2017 State Budget projects spending nearly $1.2 billion in borrowed money between 2017 and 2021.

La’o Hamutuk agrees that Timor-Leste needs better infrastructure, and loans are one mechanism which governments can use to finance infrastructure or other socially or economically beneficial projects. However, we see that the Government is instead planning to borrow to supplement unsustainable, unviable projects, whose total costs are so high that it would be impossible to justify paying for them only with money from the Petroleum Fund. At the same time, the availability of loans is allowing politicians to avoid making the difficult but necessary choices about how to bring government expenditures down to sustainable levels.

As Timor-Leste’s petroleum revenues will soon end, the Petroleum Fund’s sustainability is in doubt, and the non-oil, non-state economy has barely improved since independence, La’o Hamutuk fears that taking on hundreds of millions or billions of dollars in debt will put a heavy, unfair burden on future generations and could result in Timor-Leste being unable to pay its debts, which would have severe consequences for our people and economy. Therefore, this article describes Timor-Leste’s current and future borrowing, explains La’o Hamutuk’s concerns about the current policy and suggest how Timor-Leste can avoid falling into unsustainable debt. We hope that it will increase public understanding of this important issue and help Timor-Leste’s policy makers to critically review their borrowing plans.

History of borrowing by Timor-Leste

In 2009, the Government passed laws paving the way to borrow from foreign institutions, and it began to sign loan contracts in 2012. It has since agreed to borrow money for seven projects, six of which are road upgrades, the other being a drainage project in Dili. Some projects only use a single loan, while others involve multiple loans. As of November 2017, Timor-Leste has signed loan contracts totalling about $400 million, which is scheduled to be borrowed from creditors over the next five years, with repayments continuing until the mid-2040s.

The loan-financed projects are currently in various stages: some have already been completed, while others have faced long delays and have only just begun or are stalled. Out of the total amount contracted, Timor-Leste has already received and spent about $97 million, and much more will be disbursed by lenders in the coming year as more projects begin construction phase.

Justifications for borrowing

The main justification given for borrowing is that Timor-Leste needs to build infrastructure, but it has limited financial resources to do so. Therefore, rather than continuing to withdraw too much from the Petroleum Fund (PF) and reducing its sustainability, loan proponents in the Government and lender agencies argue that borrowing can reduce these withdrawals while allowing the necessary infrastructure spending to continue.

However, the Government is not reducing its withdrawals from the PF as it borrows more; rather, it is planning to continue withdrawing unsustainable amounts from the PF every year. Indeed, the 2017 State Budget projects to withdraw almost four times the Estimated Sustainable Income from 2018 until 2021; this will reduce the PF balance by almost a quarter by the end of 2021, from today’s $16.8 billion to $12.8 billion. It could fall even further if PF investments do not earn the expected returns (returns were negative in 2015 and 26% lower than projected in 2016), or if domestic revenues do not increase as quickly as the Government hopes. La’o Hamutuk estimates that without major changes to the Government’s current course, the PF could be entirely depleted by 2028.

The Government and lender agencies also argue that concessional loans are ‘cheaper’ than withdrawing the same amount from the Petroleum Fund, as they say that the interest rates on the loans are less than the returns on PF investments that would be lost by withdrawing the same amount from the PF. However, while the PF’s average return so far has been greater than the interest on concessional loans, these earnings will dwindle as the PF’s balance falls, eventually reaching zero when the Fund is empty. However, Timor-Leste will still have to pay back the loans, with interest, regardless of how long the PF lasts, which will place extraordinary stress on an already tight budget.

La’o Hamutuk is also concerned that the Government could be tempted to take out commercial loans (which come with much higher interest rates) for some of its largest planned projects, as most of Timor-Leste’s current creditors are unwilling to lend for them. Creditor agencies like the World Bank and ADB say that they carefully evaluate each project before lending; however, less scrupulous lenders could see Timor-Leste’s petroleum wealth as a guarantee that it will repay its debts, regardless of whether the loan-funded projects are beneficial or whether repayments will negatively impact the people’s well-being.

Loan proponents also contend that Timor-Leste can access technical assistance (TA) by borrowing from international agencies, which helps to improve the quality of project implementation. However, Timor-Leste does not need to borrow money to access TA – either we can hire experts directly, or donors may provide it for free or below cost. Timor-Leste pays for TA when it comes with a loan – the cost of the assistance is added to the balance of the loan, which we will have to repay with interest. Some have also said that borrowing is a way of ensuring that projects are implemented well, as the creditor agencies bring technical experience and oversight. However, using loans as a way to bypass poor project management is not a sustainable solution – the Government needs to improve its own processes, rather than taking loans to avoid having to do so.

In addition, as Timorese firms still lack the capacity to implement major construction contracts, most of the borrowed money will go directly to foreign companies. If the Government paid for the projects directly, it could require joint ventures between local and foreign companies. This would build the capacity of local companies, while also bringing more benefits to Timorese workers and the local economy.

Largest planned loans are for unviable, unsustainable megaprojects

The Government has also justified its borrowing on the grounds that loan-funded projects have high social and economic returns that outweigh their costs. Timor-Leste’s currently-signed loan agreements are for road upgrades and a drainage project in Dili, and these projects will have some social and economic benefits by improving transportation, safety and quality of life. However, out of $1.3 billion ($1.2 billion projected in the 2017 State Budget plus $85 million in new loans signed in 2017) to be spent from planned new loan agreements over the next five years, more than $900 million is for just three projects: the expansion of Dili airport, and two components of the Tasi Mane petroleum infrastructure project – the south coast highway and the Suai Supply Base.

For years, La’o Hamutuk and many others have argued that these projects – especially Tasi Mane – will waste Timor-Leste’s people’s money, while bringing financial, social and environmental costs that far outweigh their potential benefits. Even if Sunrise gas eventually comes to Timor-Leste, Tasi Mane’s economic feasibility is doubtful; La’o Hamutuk fears that if the Government decides to use public money to subsidize the project, a large portion of Timor-Leste’s petroleum wealth will be squandered. Meanwhile, the project would take over large areas of agricultural land, thousands would lose their homes and livelihoods, and Timor-Leste would be at great risk of environmental damage and pollution. Borrowing to pay for these projects does not make them viable; it merely allows politicians to build these unrealistic dreams without paying for them -- burdening future generations with heavy debts.

How much will Timor-Leste have to pay back?

The State Budget documents lack meaningful information on expected loan repayments, so La’o Hamutuk has estimated how much Timor-Leste will have to pay back if it follows the plans described in the 2017 State Budget. However, due to fluctuating interest and exchange rates, and the fact that the Government declines to make some repayment obligations public, it is difficult to know exactly how much Timor-Leste will have to repay.

Our analysis shows that even if Timor-Leste signs no additional loan agreements after 2017, it will have to pay back an average of $24 million per year between 2022 and 2036. If no other oil and gas fields come online, the Petroleum Fund runs out in the mid-2020s, and domestic revenues increase by 9% per year starting in 2018 (this is optimistic, especially as many 'domestic revenues' are fees the Government pays to itself, which will decline when oil money runs out and the Government is forced to reduce spending), the State’s total annual income will average about $420 million per year throughout the 2020s. This means that around 6% of Timor-Leste’s revenues will be diverted to repay loans.

If the Government carries out all of the plans in the 2017 Budget and borrows a further $1.3 billion between 2017 and 2021, Timor-Leste will have to repay this – plus around $400 million in interest – over three decades. The country will spend an average of $100 million per year on debt service from 2026-2037 –almost a quarter of all revenues. (There is no guarantee that Sunrise will be producing revenues for Timor-Leste by this time, or ever, so it is not considered in this analysis.)

This will leave around $320 million per year – plus whatever remains of the PF – to pay for everything else in Timor-Leste’s State Budget. To put this in perspective, recurrent expenditures alone during 2016 was $857 million. If the proposed tax reform doesn’t meet its targets, there will be even less money available. Moreover, recurrent spending will be even higher ten years into the future, as Timor-Leste will have more, older infrastructure to maintain, people will expect better-quality services, and the population will have increased by about 20%.

What happens if Timor-Leste cannot pay?

If Timor-Leste’s policy makers fail to heed the warnings of La’o Hamutuk, the World Bank/IMF and others about unsustainable spending and the risk posed by excessive borrowing, the country might borrow more money than it can repay. If this happens, it is highly likely that Timor-Leste will have to surrender some of its hard-won sovereignty to outside agencies in order to be have its debts "restructured" or reduced.

In the past, creditor agencies (especially the IMF) imposed Structural Adjustment Programs (SAPs) on indebted countries which aimed to enable governments to pay their debts by reducing public expenditures and generating short-term income. SAPs required countries to liberalize domestic markets, sell off public assets to private investors (often at discount rates), cut public sector wages and employment, increase fees for public services and reduce spending on education, health care, social welfare and government subsidies. SAPs were heavily criticized by many activists, NGOs, governments and economists due to their negative impacts on the poorest people and countries, as cash-strapped governments were forced to continually divert their limited funds to paying creditors rather than investing in essential services, poverty reduction and economic development.

Due to the failures of SAPs and their negative impacts, they were replaced by Poverty Reduction Strategy Papers (PRSPs) in the late 1990s. A PRSP is a plan that the Timor-Leste Government would develop – under the “guidance” of creditors – to change monetary and fiscal policies in order to qualify for debt relief or restructuring. PRSPs are supposed to be better than SAPs, as they are ostensibly owned by governments themselves, rather than imposed by creditors, and they are supposed to involve civil society participation and promote poverty reduction through “inclusive” economic growth.

However, critics argue that PRSPs are simply SAPs under a different name but with nearly the same effect, as acceptance of the PRSP by creditors (and subsequent debt relief) require governments to implement “free market” reforms in an effort to stimulate economic growth and reduce the size of government. PRSPs therefore result in many of the same policies as were imposed in SAPs, such as: privatization of public assets; cuts to subsidies and public spending; and liberalization/deregulation of local markets. In addition, civil society participation in the process has often been tokenistic, with a few meetings with government officials being considered sufficiently participatory by creditor agencies.


Timor-Leste’s oil revenues will effectively end next year, and non-oil domestic revenues are not increasing fast enough to replace the money from oil and gas. Regardless of whether the Government takes more loans, Timor-Leste may soon face huge spending cuts in wages, social services and infrastructure. The austerity will hit much harder if we have failed to make meaningful progress in improving basic services and the non-oil economy.

If Timor-Leste has borrowed hundreds of millions or billions of dollars for projects that fail to generate returns, paying back creditors will divert even more funds from essential areas, impacting our most vulnerable people. If we have failed to develop alternative sources of revenues and our debts are more than we can pay, default will result in loss of sovereignty, even harsher austerity and a long, difficult struggle to escape from the cycle of debt.

To avoid this result, La’o Hamutuk urges Timor-Leste’s policy makers in the Government and Parliament to demand that major projects undergo full, objective cost-benefit analyses, and postpone any plans to borrow for these projects until a comprehensive analysis regarding the State’s ability to repay the loans is done and made public. This may not be enough to prevent the PF from being depleted, but it will extend its life, while freeing up resources for the Government to be able to focus on the difficult but essential task of improving the well-being of our people and developing a sustainable, diverse economy that benefits all of Timor-Leste’s people.

This blog article is excerpted from a paper by Niall Almond which will be edited and published in the forthcoming proceedings of the 2017 Conference of the Timor-Leste Studies Association.

09 November 2017

Public discussion on Timor-Leste's debt / Enkontru kona-ba Deve Publiku

[English follows below]
Liu dékada ida ona, La’o Hamutuk halo peskiza no analiza kona-ba Timor-Leste nia deve públiku no Governu nia polítika empréstimu, no Governu asina tiha ona kontratu empréstimu lubuk ida ho ajénsia internasionál sira. Tanba Timor-Leste nia reseitas husi mina no gas besik hotu ona, no Estadu seidauk iha fonte seluk ne’ebé bele substitui mina, importante ba povu atu bele komprende kona-ba Governu nia polítika no planu atu jere deve públiku iha futuru.

Tanba ne’e, ami hakarak konvida ita boot mai enkontru públiku ida atu aprende hamutuk kona-ba rezultadu peskiza ne’ebé La’o Hamutuk halo kona-ba asuntu importante ida ne’e, no mós atu rona perspetiva Ministériu Finansas nian kona-ba jestaun deve públiku no polítika empréstimu.

Enkontru públiku ida ne’e sei realiza iha:
Data               : Tersa-feira, 14 Novembru 2017
Oras               : 08:45 – 12:00
Fatin              : Salaun Enkontru, Asosiasaun-HAK, Farol, Dili
Oradór sira     : Niall Almond, Peskizadór La’o Hamutuk
                        Epifenio Martins, Ministeriu Planu no Finansas

Gratuitu no loke ba ema hotu.
Bele hetan Niall nia aprezentasaun husi iha ne'e (mós PowerPoint).

La'o Hamutuk will hold a free, open public meeting to discuss Timor-Leste’s public debt management and loans policy. The Government has signed several loan contracts with international agencies.  However, Timor-Leste’s oil and gas revenues will soon run out, and the State does not yet have alternative sources of revenues to replace oil, so we would like to help people understand the Government’s policy for managing public debt.

Tuesday, 14 November 2017      8:45 am – noon
Meeting room, HAK Association, Farol, Dili
Speakers: Niall Almond, La'o Hamutuk researcher
                Epifenio Martins, Ministry of Planning and Finance

The discussion was in Tetum, but we translated Niall's presentation into English (also PowerPoint). Our web page has more information about debt.

04 September 2017

Copenhagen Agreement: Permanent Boundary or CMATS redux?

Between 28 August and 1 September 2017, another round of maritime boundary negotiations between Timor-Leste and Australia took place with the Conciliation Commission, this time in Copenhagen. This Conciliation Commission was established in June 2016 after Timor-Leste gave formal notice to Australia in the Permanent Court of Arbitration in April 2016.

Although these meetings in Copenhagen and elsewhere remain confidential, the Permanent Court of Arbitration shared information about the process in a 1 September press release announcing that the two nations have reached agreement about the central elements of delimiting their maritime boundary in the Timor Sea.

This agreement package not only discusses maritime boundaries, but also “addresses the legal status of the Greater Sunrise gas field, the establishment of a Special Regime for Greater Sunrise, a pathway to the development of the resource, and the sharing of the resulting revenue.” To explain, the legal status of the Greater Sunrise gas field changed after Australia and Timor-Leste, together with the Conciliation Commission, issued a Joint Statement on 9 January 2017 to terminate the CMATS Treaty (Treaty on Certain Maritime Arrangements in the Timor Sea). This week’s press release also says that the two delegations will meet again privately with the Conciliation Commission to finalize this agreement by October 2017.

Although no details are available about what the two parties have agreed on, some people, including state officials, politicians and diplomats, have begun celebrating its result as a victory for Timor-Leste, which is dominating social media in Timor-Leste. Radio Televizaun Timor-Leste (RTTL) invited La’o Hamutuk, as a non-governmental organization that has long followed the process of defining maritime boundaries, to participate in their program 7 Minuto in the Saturday evening news to give our point of view on the results of the recent Copenhagen meeting.

Although La’o Hamutuk appreciates the efforts of the two nations to take a new step in talking about their maritime boundary dispute, we think it is too early to consider this agreement a victory that reaffirms Timor-Leste’s sovereignty. We don’t yet know the details of what they have agreed, and whether or not it follows the UN Convention on the Law of the Sea (UNCLOS) principle of the Median Line, which is the goal of the Timor-Leste people’s struggle.

La’o Hamutuk considers this celebration like the ‘celebration’ in 2005, when Timor-Leste and Australia agreed on the CMATS Treaty. On 9 December 2005, the Government put out a press release to celebrate that agreement, declaring that ‘This is a good agreement for Timor-Leste but it is also a good agreement for Australia’ which ‘also opens the way for the construction of a pipeline between Greater Sunrise and Timor-Leste and for the installation of a refining facility that will be the starting of petroleum activities on Timorese soil.’

Sadly, although the celebration had begun, in the end that ‘agreement’ was not considered a victory for Timor-Leste. This is because the CMATS Treaty blocked Timor-Leste from speaking about its sovereign rights while Greater Sunrise was in production, and continued to recognize Australia’s rights to sea areas which properly belong to Timor-Leste under principles of international law. Eventually, Timor-Leste decided to terminate the CMATS Treaty last January. In 2004, La’o Hamutuk had suggested to leave Greater Sunrise for the next generation, to be developed after the two nations had established a permanent maritime boundary.

Coming back to the new Copenhagen agreement – Although the substance of the agreement remains confidential, we hope that Timor-Leste chose to achieve its full sovereign rights, and not to repeat past errors which gave Australia permission to take our money and occupy Timor-Leste’s territory. It’s no secret that Timor-Leste has always abandoned its commitment to a permanent maritime boundary when it comes to the negotiating table.

When the Timor Sea Treaty was signed in 2002, Timor-Leste had to surrender 10% of the petroleum revenues from the Joint Petroleum Development Area (JPDA) to Australia because the new nation needed income rapidly to rebuild while emerging from the massive destruction by the Indonesian military and their militias after the 1999 referendum. And in 2005, Timor-Leste surrendered its chance to speak out when the Government prioritized getting 50% of Sunrise revenues. Today, Timor-Leste’s financial situation is different from 15 years ago, but what will happen next month? Will Timor-Leste and Australia have a permanent maritime boundary, or will they make a new arrangement to replace the terminated CMATS Treaty?

There are two roads open to these two nations, depending on what proposals are brought to the negotiating table. The better road would be for the two countries to establish a permanent and fair maritime boundary. Australia must come to the negotiating table with good faith – that they will use UNCLOS as the basis for defining the maritime boundary. Australia is politically and economically powerful in this region, and it is easy for them to impose their interests in bilateral negotiations, rather than accepting those of their negotiating counterpart.

In addition to good faith from Australia, Timor-Leste also should have a strong position for the long term. Timor-Leste has already spent money and plans to spend a lot more for the Tasi Mane Project on its south coast, and wants to bring the Sunrise gas pipeline to that coast. But Timor-Leste should reduce its obsession with developing oil fields in the Timor Sea, and not include it in the package of proposals for the negotiation.

If Timor-Leste includes the status of the Greater Sunrise field in the negotiations, even if the share of revenues to Timor-Leste is more than the 50-50 share under CMATS, this continues to give Australia space to maintain its occupation of Timor-Leste’s territory while Sunrise is in production. La’o Hamutuk believes that if the new agreement really follows the UNCLOS median line principle, Dili alone may be able to decide about Greater Sunrise development, without consulting with Canberra.

However, if Timor-Leste only wins the Sunrise pipeline and a larger share of revenues relative to Australia, but we do not get a permanent maritime boundary according to UNCLOS, the result of these negotiations can be considered as only an effort to revoke the CMATS treaty, rather than a victory in the struggle for sovereignty.