Regions and Countries

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p. 3 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Assistance Levels

Country Strategy and Program Update 2003-2004: Timor-Leste

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III. Implementation of the Country Strategy and Program

A. Progress Toward a Poverty Partnership Agreement

12. ADB will help address unemployment and widespread poverty through a partnership approach, working closely with the Government and other development partners in selected priority sectors. Poverty is pervasive in Timor-Leste. According to recent poverty assessment surveys, its incidence is about 40%. Poverty in urban areas is about 25% and in rural areas about 44%. Poverty incidence is lowest in the Dili/Baucau districts (14%) and highest in the western districts. More than 75% of the poor live in rural areas, and their means of livelihood are limited to subsistence and seasonal agriculture. Rural poverty is severe. The lack of data and time series for Timor-Leste makes it difficult to discern trends in relation to progress toward the Millennium Development Goals (MDGs). Appendix 2, Table A2.1 summarizes the MDGs on the basis of the limited data available.

13. The latest poverty assessment⁴ was undertaken jointly by the Government, ADB, the World Bank and the United Nations Development Programme (UNDP), and was based on household surveys and participatory poverty assessments. A poverty partnership agreement is expected to be finalized and signed by the Government and ADB by the end of 2003.

B. Progress in the Country Strategy and Program Focus Areas

1. Good Governance

14. The Government recognizes that good governance is necessary for efficient delivery of services, sustained growth, and poverty reduction. The NDP emphasizes good governance in all government operations. The Government is also committed to adopting IMF standards of transparency to ensure accountability and fiscal discipline. Currently, most institutions are weak and it is important to strengthen the capacity of central and local governments. The Government has expressed a strong commitment to openness and transparency. In early 2003, the Open Governance Program was initiated, and the NDP was developed after an extensive process of consultation with over 38,000 people participating in public meetings. The Government has prepared legislation to establish an independent ombudsman to address citizens’ complaints and safeguard public administration against corruption. In regard to the proposed petroleum fund, the Government has signaled its intention to disclose all payments in relation to oil and gas revenues, in accordance with the principles set out in the Blair Initiative.

15. ADB has provided four TA grants for capacity building at the national, district, and local levels. The first ADB assistance on capacity building at field level focused on community empowerment and supported UNTAET’s efforts in laying the groundwork for a network of local councils covering all districts, subdistricts, and villages⁵. This was followed by a TA to develop skills in economic recovery and public sector management⁶. The third capacity-building TA supported the establishment of the Local Government Think Tank, a select group of people from Timor-Leste, representing political and civil society organizations, to study and formulate options for a local government structure appropriate for Timor-Leste⁷. The fourth TA, approved on 5 March 2002, focused on developing the technical and administrative competencies of local authorities in public administration and governance⁸. These TAs have been well received and the Government has requested ADB to continue this support. To ensure sustainability, the National Institute of Public Administration is being developed to be the main channel for delivery of training and source of trainers and facilitators.

2. Private Sector Development

16. Private sector development (PSD) is critical to achieving growth and employment generation for social stability and poverty reduction, and requires a politically stable and business-friendly environment. The immediate challenge is to implement basic business laws and regulations, and establish critical market-supporting institutions. ADB, with other funding agencies, will continue to support the Government’s initiatives in these areas. The World Bank and United States Agency for International Development (USAID) are helping with the preparation of relevant legislation. USAID has also provided assistance for small and rural enterprise development, particularly for the coffee industry. Much of ADB’s TA activity, as well as its advisory support to TFET programs, is focused on creating the enabling environment for private sector participation in the infrastructure and microfinance sectors, for which ADB has the lead responsibility. ADB has helped establish a microfinance banking system for rural livelihoods enhancement⁹. ADB has also supported the finalization of Timor Sea oil and gas agreements, and assisted in establishing the base line data to determine the likely demarcation of Timor-Leste’s exclusive economic zone for resolution of the jurisdictions of living aquatic resources. To enhance PSD, the Government is undertaking a pre-investment study for establishing an industrial zone project and will seek private sector support in its establishment. The Government is committed to privatizing key utilities, and recently the telecommunications sector was privatized with ADB assistance¹⁰. ADB also provided a TA for the establishment of an efficient postal system¹¹.

3. Economic Growth

17. By international standards, the economy of Timor-Leste is small and the population is poor. GDP in 2002 was approximately $370 million, and GDP per capita was $445. The violence and unrest in 1999 shook the foundations of the economy, with the destruction of public and private property and much of the infrastructure, and significant disruption to the agricultural cycle and trade. Widespread starvation was avoided due to a switch to alternative foods, timely distribution of food by aid agencies, drawing on past savings, and support from relatives. Since then there has been a slow rebound in the economy. The medium-term outlook is for gradual growth and improvement in social conditions. The agriculture sector accounts for about 30% of GDP, and employs the vast majority of the people in subsistence rice and corn farming, and supplementary export-oriented production of coffee and beef. Large out-migration after 1999 left a large human resource gap, particularly in the skilled labor force.

18. The Government has recognized that skills development is key to the generation of employment and growth. This makes the social and economic development challenge a daunting one that can be met only with substantial government commitment and international assistance. Remittances from the 20,000 people from Timor-Leste living overseas will be an important income supplement. The Government will need to adopt business-friendly policies and an enabling environment for private sector development, including opportunities for increasing agricultural production, small agro-enterprise development, crop diversification, and employment-generating livelihood programs. Microfinance development can provide critical support to rural livelihoods, raising incomes and living standards. Lack of infrastructure and weak institutional capacities are the main impediments to growth in Timor-Leste. The Government has identified a serious lack of capability in the civil service, particularly in the National Statistics Office, to monitor and promote trade and other economic activities. At this stage, projects under TFET and several bilateral assistance programs have been the major contributors to economic growth.

19. Resource rent from oil and gas reserves in the Timor Gap will also be an important revenue source for the Government over time. The oil and gas income will provide the impetus for growth in the longer term. Recognizing the need to be vigilant against waste, mismanagement, and corruption, the Government proposes to establish a petroleum fund and with the assistance of the World Bank, IMF, various bilateral donors, and ADB has made significant progress in this regard. The World Bank is assisting the Government to establish backward linkages to onshore investments from the Timor Sea.

4. Human Development

20. The UNDP Human Development Index ranked Timor-Leste in the “low human development category”, ranking 167th among 191 countries. The literacy level is about 48%. Enrollment in primary and secondary schools is low compared to other developing member countries (DMCs). The current teacher-student ratio is 1:62. Timor-Leste’s population is young, with 35–40% below the age of 18. Health indicators are poor but have improved slightly. The under-5 mortality rate has fallen from 204.6 (per 1,000 live births) in 1993 to 143.5 in 2001, and the maternal mortality ratio from 800 (per 100,000 live births) in 1990 to 420 in 1999. Malaria remains a serious health issue; the number of reported cases in 1999 was 16,881. Life expectancy is about 57 years. About 50% of the population has no access to safe drinking water, proper sanitation, and electricity.

5. Gender and Development

21. Timor-Leste was ranked low among 191 countries on the gender development index. Under most Timorese traditional systems, the role of women is severely limited, with men dominating decision making and leadership roles within villages. The respective roles of men and women changed substantially as a result of the social disruption caused by the years of struggle for independence. One social legacy of the conflict over the last 24 years is the large number of widows. Households headed by women are estimated at around 14% of the total number of households. Female literacy is low at 35%. Women constitute an insignificant number of the labor force and are mostly concentrated in lower-skilled jobs. The Government’s target for participation of women in public decision-making bodies is set at 30%¹² to be achieved by 2007 (see Appendix 2, Tables A2.3 and A2.5).

22. Special measures need to be introduced to support changes in structures and mechanisms at the community and household levels so that women can access resources and participate equally in decision making. The existence of civil society organizations, including women’s organizations, is a relatively recent phenomenon in Timor-Leste. ADB will continue to promote the mainstreaming of gender issues in its operations.

6. Environment

23. Timor-Leste is predominantly rural, with only 1% of its land area used for settlements, and 13% suitable for agriculture. About 86% of the total land area is covered with secondary (mostly scrub) forest (76%) and grassland (10%). As a result of slash-and-burn practices and the disruptions to the agricultural economy due to the civil conflict, land degradation has accelerated over the years. According to official estimates, as much as 70,000 hectares of forest were lost since 1972, although the real figure is likely to be higher. As of 2000, remaining forest area is estimated to be roughly 34.1% of total land area. As a result of deforestation, there has been a significant loss of biodiversity, and increased erosion and flash flooding from barren hillsides. There is inadequate information on the status of marine and coastal resources. Institutional legislation and structures need to be established urgently to implement environmental protection measures across all sectors and users. At present, the capacity to review, evaluate, and monitor the environmental impact of projects or mitigating measures is limited. There is an urgent need to develop appropriate regulatory frameworks and environmental policies. Given ADB’s key role in the infrastructure sector, TA¹³ in 2000 helped begin establishing the institutional and human resource capacity to address environmental and resource management issues in this sector. In 2002, ADB approved a TA¹⁴ to develop and implement an integrated water management policy to help address water-related issues and to mitigate the adverse impact of infrastructure projects on the environment (see Appendix 2, Table A2.1).

7. Regional Cooperation

24. Several opportunities for regional cooperation between Timor-Leste and neighboring countries can be identified. Timor-Leste and Indonesia, in particular, stand to gain substantially through strengthening cooperation. In October 2002, an Indonesia-Timor-Leste Joint Committee started a dialogue to solve issues related to land border demarcation and maritime boundaries. There are also pending political and social issues relating to refugees and reconciliation with those opposed to Timor-Leste’s independence. There has been good progress by the Joint Committee in these areas. The extent to which Timor-Leste fosters relations with its neighbors will have a profound impact on its future. Timor-Leste has also secured membership in various organizations. Recently, it became the 79th member of the Africa, Caribbean and Pacific (ACP) group, and this will pave the way for Timor-Leste to become a member state under the Cotonou Convention (ACP-EU) giving it preferred access to markets and development aid from the European Union. It has also been given a special observer status within the Pacific Forum and a special status as guest of the Chairman within the Association of Southeast Asian Nations (ASEAN) Regional Forum. ADB provided assistance in defining Timor-Leste's exclusive economic zone¹⁵ and in the Timor Sea negotiations¹⁶. ADB will explore opportunities for establishing links between Timor-Leste and other DMCs for skills development and training.

C. Highlights in Coordination of External Funding and Partnership Arrangements

25. Development partners are key to Timor-Leste’s development. For the country’s reconstruction, bilateral donors, multilateral banks, and the UN have provided substantial development grants. The development community at large has coordinated well to facilitate efficient delivery and utilization of aid to help the country during transition. Regular coordination through biannual and monthly meetings of development partners and the Government have been crucial for strengthening partnership and country ownership. Development partners established two trust funds: the Consolidated Funds for East Timor (CFET)¹⁷ and TFET; the former designed to finance largely recurrent expenditures, and the latter, the capital investment portion of the budget. Donor-financed budget support has been sustained since 2002 under the World Bank-administered Transitional Support Program¹⁸ (TSP).

26. Significant collaboration with the World Bank has taken place in all TFET projects, notably the poverty analysis study and the infrastructure rehabilitation project. Successful collaboration has also taken place in regard to the water supply and sanitation sector with AusAID, the Government of Japan, and the Humanitarian Aid Office of the European Commission (ECHO). In economic and public sector reforms, there has been considerable collaboration with IMF, UNDP, World Bank, and the Government of Portugal. In the power sector, ADB has collaborated with the Government of Norway. Road works were coordinated with the Government of Japan and UNTAET and funding agencies have participated in project reviews. To address monsoon-caused road failures in 2000–2001, ADB collaborated with the UN PKF. In the microfinance project, a multi-funding agency foundation and management board were established to manage the microfinance institution. The Hera Fisheries Port Rehabilitation project is a good example of funding agency coordination among World Bank, AusAID, and ADB. Much funding agency activity and coordination has taken place with regard to the oil and gas revenue issue (see Appendix 2, A2.6).

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