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East Timor
The Development Challenge: East Timor has gone through three major transitions since its vote for independence. These include a political transition to a democratic government, an economic transition to a free and open market, and a social transition dealing with major social conflicts and reconciliation from 25 years of Indonesian occupation and reconciliation. Fundamental democratic and economic reforms have accompanied this transition period. As of May 20, 2004, the people of East Timor (Republica Democratica de Timor-Leste) will be completing their second year as an independent democratic country in Southeast Asia. The challenges of building a strong democracy and vibrant economy with fragile democratic institutions and limited human capital remain daunting over the next several years.
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The Development Challenge: East Timor has gone through three major transitions since its vote for independence. These include a political transition to a democratic government, an economic transition to a free and open market, and a social transition dealing with major social conflicts and reconciliation from 25 years of Indonesian occupation and reconciliation. Fundamental democratic and economic reforms have accompanied this transition period. As of May 20, 2004, the people of East Timor (Republica Democratica de Timor-Leste) will be completing their second year as an independent democratic country in Southeast Asia. The challenges of building a strong democracy and vibrant economy with fragile democratic institutions and limited human capital remain daunting over the next several years.
East Timor's budget revenues for the next three years are projected to be lower than previously estimated, creating an unexpected short-term financing gap from FY 2004 through FY 2006 of an estimated $120 million. This financing gap is due to lower than expected oil and gas revenues to significantly cover core government expenditures through FY 2007. During this three-year period continued donor budgetary support financing is critical to narrowing the central government's revenue gap, maintaining stability and supporting the implementation of the National Development Plan.
East Timor's economy has declined significantly. United Nations staff is departing and foreign investments are not materializing due to the uncertainty in the investment climate, concern about regional security, and a weak judicial system. More than two-fifths of the population live on less than $1 per day and only one in five families has access to electricity and only two in five families have access to clean water. Unemployment is rising and it is a major national concern. Urban youth unemployment is estimated around 40%. The declining local economy and expected lower economic growth levels over the next year will be unable to provide the number of new employment opportunities for workers entering the labor force. The country had a per capita income of $430 in 2002, which is expected to decline in 2003, life expectancy of 57 years, high infant mortality, and a literacy rate of 43%. Food security remains a major problem for the majority of rural families facing inadequate access to basic food sources.
U.S. foreign policy interests in East Timor remain focused on assisting the country to establish a stable and secure democratic government and a growing market economy. As one of the first and largest foreign aid providers during East Timor's transition period, the United States is recognized by the Timorese as a reliable, credible and efficient source of outside advice and assistance. Continued funding levels through FY 2005 will enable the United States to continue its critical development support and central leadership role in East Timor.
The USAID Program: USAID's East Timor program focus on two objectives: 1) institutional and policy changes that support private sector development including the revitalization of the local economy; and 2)strengthening democracy and good governance. In FY 2004 funds will be used to implement the ongoing economic growth programs that support the expansion of coffee and vanilla exports, increased household incomes, technology transfers, diversification and sustainability of agricultural systems, expansion of technical/vocational training, and improved enabling environment for private sector growth and job creation. Also, ESF funds will sustain a network of critical health clinics providing basic health services to coffee workers and their families to maintain worker productivity and address basic family health care. ESF funds will be used to support a new micro enterprise activity that will expand rural families' access to critical rural markets (input, financial, and labor) to further stimulate the local economy and expand employment opportunities.
USAID plans to use FY 2004 funds to continue support of East Timor's democratic development by increasing public participation in good governance including strengthening of the judicial system, supporting the development of political parties, strengthening civil society, and fostering civilian oversight of uniformed forces.
The democracy program will improve citizens' access to justice through institution building in the judiciary system, training of judicial personnel, and expanding the reach of legal aid groups. Furthermore, USAID will support increasing citizens' knowledge of rights, responsibilities and legal processes; and the strengthening of government and independent institutions, including new legislative and executive bodies, to implement democratic processes, adopt effective legislation and deliver services to communities. In FY 2004, USAID will continue to contribute to the World Bank-administered Transitional Support Program (TSP), which supports East Timor's nascent governing structures and provides critical support for the implementation of the National Development Plan supporting priorities in basic education, health, and poverty reduction. In response to the current financing gap facing the East Timor Government, due to unexpected shortfall in gas and oil revenues and a weaker than expected economy, the US government anticipates increasing its contributions to the TSP program in response to the East Timor government's request for assistance in narrowing the budgetary shortfalls in FY 2004 and FY 2005.
USAID plans to use FY 2005 funds to support the new strategy, which is focused on strengthening of the private sector and creating jobs with a significant emphasis on rural areas to further reduce poverty and improve rural livelihoods. In addition, USAID will maintain support for the strengthening of democratic values and good governance with a focus on rule of law and justice. In response to the increasing government financing gap due to delayed oil and gas revenues coming on line, USAID, in line with other donors, is planning to continue support to the central government, but likely at a reduced rate.
Other Program Elements: An NGO strengthening program, funded and managed by USAID's Bureau for Democracy, Conflict and Humanitarian Assistance (DCHA), provides support for a set of NGOs in and around Dili to support their ability to provide continued and sustainable services to rural areas. A Victims of Torture program, funded through DCHA, trains rural community groups to address the needs of survivors of torture from Indonesian presence in East Timor. Through the Global Health Fund, East Timor receives funding for tuberculosis and malaria programs.
Other Donors: Coordination among donors is excellent with bi-annual development partners meetings, which have been held since January 2000. A donor coordination meeting is held monthly in Dili chaired by the Vice-Minister of Finance and Planning. The UN Mission of Support for East Timor is currently scheduled to close in May 2004 but may be extended in considerably smaller numbers to provide support to the security sector. Donors, including USAID, support the World Bank-managed Transitional Support Program, which provides direct support to the East Timor national budget with benchmarks linked to the five-year National Development Plan. TSP donors participate in a bi-annual review of the Government of East Timor's progress in meeting National Development goals and objectives. The United Nation agencies represent the largest multilateral donors, followed by the World Bank and the Asian Development Bank.
With respect to the bilateral donors, the top five bilateral donors are Australia, Japan, European Union, United States, and Portugal. Bilateral programs cover a wide array of development activities, including capacity building, budget support, health, education, and humanitarian assistance. These four areas account for 70% of the assistance provided to date to East Timor. Allocations for agriculture and rural development, basic infrastructure, water supply and sanitation, environmental protection and management, and private sector development have received much less support. The top five donors and the multilateral donors account for over 75% of the total external assistance. Since East Timor's vote for self-autonomy, over 35 official donors have provided assistance to East Timor and approximately 20 of these donors continue to be active.
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