Timor-Leste: On the Road to Peace and Prosperity?

Timor-Leste experienced in 2010 a second year of relative political stability following the political crises and violence of 2006, 2007, and 2008. At the same time, serious strife within the Parliamentary Majority Alliance (AMP) coalition government signalled a new, destabilizing development in national politics as its political leaders manoeuvred in advance of the 2012 parliamentary elections. The Prime Minister, Kay Rala Xanana Gusmão, publicly attacked his second Deputy Prime Minister, Mário Carrascalão, and his Foreign Minister, Zacarias Albano da Costa, senior leaders of the Social Democrat Party (PSD), a partner in the AMP coalition. The Foreign Minister threatened to resign, then resisted the Prime Minister’s demand that he act on his threat. Later in the year, Carrascalão did resign (these events are discussed in more detail below). In October 2010, in a speech to the national congress of his own party, the CNRT (National Congress for Timorese Reconstruction), Gusmão declared that he no longer needed the coalition. Despite these provocations, the PSD remained in the AMP coalition, reserving its position on new alliances until the national elections.

A broader political development, engineered by the Prime Minister in 2010, was a major shift in policy to pursue a strategy of state-led development that is intended to transform Timor-Leste from the poorest state in Southeast Asia into a prosperous upper-middle-income country. The shift in state policy involves implementing a highly ambitious development plan for 2011–30 funded by large withdrawals from the Petroleum Fund. On 7 April 2010, the Prime Minister released his National Strategic Development Plan (NSDP) for Timor-Leste. Entitled “On [the] Road to Peace and Prosperity”, the NSDP sets an agenda to transform Timor-Leste within twenty years into the ranks of the most developed states in its region. This will be achieved, according to the NSDP, through economic growth at double-digit rates throughout the coming decade and beyond.¹ The strategy involves a programme of state-led development that will very likely remake the nature of the Timor-Leste state and of its political economy for the foreseeable future.

The engine of double-digit growth will be fuelled by the Petroleum Fund. The Fund, created by Law No. 9/2005, had accumulated US$6.904 billion by the end of 2010, notwithstanding the largest single quarterly withdrawal from the fund of US$436 million in the last quarter of the year.² Other than petroleum revenues, the Timor-Leste economy continues largely as one of subsistence agriculture. Timor-Leste is “the most petroleum-dependent country in the world”, with 95 per cent of state revenues coming from its maritime gas and oil reserves³.

The NSDP is clearly a political as well as a development strategy, intended to position Gusmão’s party to win the 2012 elections in its own right and deliver him, as Prime Minister, undivided control of his government. Gusmão’s calculation is, apparently, that the generous deployment of state resources to the electorate will win the CNRT majority support in Parliament and obviate the need to negotiate a coalition majority. Starting in 2009 the Prime Minister has launched a succession of special funds under his direction with which to disburse generous state funding for local infrastructure projects. The release of these funds in 2010 coincided with the Prime Ministers’ tour of the sub-districts to personally promote the NSDP.

The release of the NSDP, the Prime Minister’s tour of all the sub-districts to promote the NSDP, the distribution of government largesse to local contractors to complete local infrastructure projects, and moves to relax controls over investment and spending of Petroleum Fund savings have all signalled over the past year this major shift of direction in development strategy. The political agenda is to present the Prime Minister and his party as the generous benefactors of rural East Timorese who have until now seen central government as indifferent to their needs. The Prime Minister will expect voters in the sub-districts to remember the government...