Timor-Leste: Challenges and Promise in Development

By Kathy Zhang

Often times, money isn’t enough.

Timor-Leste, a small island country in Southeast Asia, recently “struck oil,” putting it in a unique position to accelerate its development and address the country’s extraordinary reality of widespread malnutrition. However, development planning can be undermined by a series of challenges, many stemming from a history of foreign occupation and political instability. With their new and substantial revenue stream, a key development challenge for the young country is to see how the government can strategically invest its earnings to alleviate poverty and foster sustainable and equitable growth.

Timor-Leste, which gained full independence from Indonesia in 2002, is one of the world’s youngest nations. The turbulent withdrawal of Indonesia and the civil unrest that followed left much of their infrastructure destroyed and population displaced. According to the 2011 World Development Report, post-conflict states usually take 15-30 years to transition from a fragility to stability. Timor-Leste is an active member of the g7+ group and seems to be developing on an accelerated track, largely due to its petroleum, which accounts for 90% of government revenues.

Development Priorities
Investing in infrastructure will be critical in Timor-Leste’s path in becoming a middle income, knowledge economy. A more connected network of roads and electrical grids will undoubtedly improve market productivity, helping to transfer products to markets and areas of need and reduce post harvest losses.

However roughly 70% of Timor-Leste’s work force is dependent on agriculture, yet the government currently invests less than 2% of its national budget in its agricultural sector. Agricultural productivity can be increased significantly through the dissemination of more efficient farming practices, technologies, and access to markets.

By building its agricultural capacity, Timor-Leste can boost its local economy and foster inclusive economic growth among its citizens.

In its Strategic Development Plan 2011-2030, the Timor-Leste government has outlined additional priorities including health, education, and employment opportunities. The challenge will now be turning these priorities and goals into actionable plans.

Avoiding the Resource Curse
With new capital to invest, Timor-Leste faces the challenge of building capacity and the necessary systems to ensure that the oil and gas revenue will be effectively used for development priorities. Timor-Leste can avoid the so-called “resource curse” by staying accountable to the development goals they’ve set, and supporting inclusive growth.

CGSD’s Dr. Glenn Denning and Sarah Curran recently visited Timor-Leste, joining our Vale Columbia Center on Sustainable International Investment colleague Nicolas Maennling (who is based in Dili) to learn about development challenges on the ground and to explore potential partnerships. Look for Sarah’s upcoming blog post about their the result of their mission.



    The possibility of resource curse arising out of oil and gas revenues is limited as the US $ is the currency of Timor Leste. So any possible negative effect through the appreciation of domestic currency is structurally ruled out. However, the country needs to be aware of two factors namely (a) High inflation especially in non oil sectors , (ii) the values and working styles of Timorese Civil Servants. The latter have been brought up during Indonesian regime who saw corruption and rent seeking in practically all economic activities. So the real danger is that the present day civil servants due to their legacy, may not be as honest as teh donors are claiming them to be. If these risks can be avoided, TL may escape the Resource curse. A reading of the contemporary trends, however, makes me very pessimistic.

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