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Countries and Regions Country Assistance Plans Document
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Country Assistance Plans - East Timor : I. Country Performance Assessment
EAST TIMOR1. East Timor has not yet legally been constituted as an independent country and it is therefore not eligible for membership of ADB during the transition period, which is expected to last up to two years. This imposes constraints on the activities that ADB can undertake in East Timor. On the basis of legal opinions 1 prepared after East Timor’s separation from Indonesia ADB has provided technical assistance (TA) to East Timor from its own resources. In addition, it has been agreed that ADB may also assist through the management of donor resources for planning and implementation of physical rehabilitation and reconstruction activities in East Timor. 2. Following approval on 23 January 2000 of amendments to the Regulations of the Technical Assistance Special Fund and Japan Special Fund to facilitate the provision of technical assistance to East Timor, ADB allocated an initial TA budget of $5 million for this purpose. The TA program included three SSTAs (microfinance, rehabilitation of the telecommunication sector and poverty assessment and statistics). Advisory TAs have been identified in support of capacity building for governance and public sector management, community empowerment, further assistance to the transportation and communication sectors and environmental assessment. 3. ADB is also playing a significant role during the transition period in administering donor funds contributed to the Trust Fund for East Timor (TFET)2, for reconstruction and development activities. Pledges to the TFET, currently totaling approximately $160 million, will be disbursed as grants for project activities in a range of sectors. In this regard, implementation by ADB of a $29.8 million Emergency Infrastructure Rehabilitation Project, covering roads, ports and power sectors, commenced in May 2000, a $4.5 million Water Supply & Sanitation Project began implementation early September 2000, and a Microfinance Project, for $7.7 million was approved in December 2000. A. Economic Performance Assessment3A. Economic Performance Assessment4. By international standards, the economy of East Timor is small and the population is poor. The land area of 14,874 square kilometers is extremely mountainous, exhibits soil erosion, and is prone to drought. The 1998 population was 884,000, having increased at an average annual rate of 1.4 percent from the 1960 level of 517,100. Approximately 78 percent of the 1998 population was East Timorese, with Indonesians making up 20 percent as a result of in-migration, and Chinese 2 percent. Gross Domestic Product (GDP) in 1997 was approximately US$344 million, according to Indonesian data, implying a GDP per capita no higher than US$395 (see Appendix 2, pages 1 and 2). 5. In 1994, the agriculture sector accounted for about 31 percent of GDP, and employed the vast majority of East Timorese in subsistence rice and corn farming and supplementary, export-oriented production of coffee and beef. Administration and defense accounted for 21 percent of GDP, and construction for 18 percent. Transport and communications, and trade, restaurants and hotels each accounted for about 9 percent of GDP. The manufacturing sector was small, accounting for 3 percent of GDP. Importantly, professional and technical personnel in the administration, finance, and utilities sectors were predominantly Indonesian. Eight of 13 district leaders and almost 70 percent of teachers were non-indigenous. The Indonesian government provided approximately US$100 million per year to fill the gap between public expenditure and revenue raised in East Timor. 6. The violence and destruction that followed the pro-independence vote of 30 August 1999 created immediate humanitarian needs, with over 500,000 people displaced from their homes, including many refugees in West Timor and other parts of Indonesia. Out-migration of Indonesians left a large human resource gap, particularly in skilled areas. The planting season for 2000 was seriously disrupted due to the destruction of field crops, subsequent labor shortages, and lack of access to seeds and tools. Closure of the border with Indonesian West Timor and lack of civilian access to port facilities to permit commercial imports from abroad, combined with the disruption of the agriculture sector, caused the economy to be hit by a dramatic supply shock. Acute shortages led to spiraling prices, with an ad hoc price survey indicating a rise in the consumer price index for poor households in Dili of more than 200 percent between August and October 1999. In addition, basic physical infrastructure was seriously damaged. 7. Both the public and private sectors suffered almost total collapse. All of this makes the social and economic development challenge a daunting one that can be met only with substantial international assistance. Following the emergency phase of assistance in East Timor, agriculture and human resource development will be central to achieving sustainable improvements in social welfare. Remittances from the 20,000 East Timorese living overseas will be an important income supplement. Resource rent from oil and gas reserves in the Timor Gap may also be an important revenue source for government over time. In the meantime, the gap between essential public expenditure and domestically generated revenue can only be filled by external funding agencies. At the same time, considerable attention needs to be given to ensuring major inflows of capital during the transition period do not lead to structural imbalances in East Timor’s economy. Fiscal instruments must be put in place quickly to tax urban infrastructure and increase investment for overall economic growth and poverty reduction. ___________________
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