Timor-Leste Small country, big year

The Economist - Mar 10th 2012 - DILI - From the print edition

Elections will test the stability of a state celebrating ten years of independence

THE Timor Plaza in the centre of Dili could probably fit into the basement of many of Asia’s megamalls, but that has not stopped it from becoming an instant landmark. Timor-Leste’s first shopping centre, opened last year by a Timorese who had made good abroad, has become a symbol of the tiny half-island state’s slow recovery from the devastation visited upon it by departing Indonesian troops and their vicious proxy militias after the Timorese voted in 1999 to end Indonesian rule.

This year the country will pass more important milestones. Bracketing celebrations in May to mark the tenth anniversary of its founding, Timor-Leste will hold elections. On March 17th comes the first round of a presidential vote. In late June there will be a parliamentary poll. The hope is that a UN peacekeeping force of about 1,300 policeman will leave at the end of the year, as will a separate international force composed mainly of Australian troops. If everything goes well, internal security would be turned over to the Timorese for the first time in 13 years.

That is a big if. When Timor-Leste gained independence, there were doubts that it was even a viable state. It suffered an army mutiny and a coup in 2006, followed by the attempted assassinations two years later of the president and prime minister. Consequently, the way this year’s elections are conducted probably matters more than the results. If they are seen as fair and peaceful, that will trigger the UN withdrawal and reassure foreign investors that the country has put the years of violence behind it. If things go wrong, lofty development plans, as well as Timor-Leste’s ambition to join the Association of South-East Asian Nations (ASEAN), could be scuppered.

So far, however, so good. Sensitive to what is at stake, party leaders have agreed not to incite violence and generally to keep the political thermostat turned down. There have been few signs of trouble from much-feared martial-arts groups of unemployed youths, and campaigning has been largely peaceful.

This calmer, optimistic mood is enhanced by the fact that the government of Xanana Gusmão, a former liberation leader and now prime minister, has been on a spending spree since it was elected in 2007, courtesy of revenues from the country’s offshore oil and gas. This year’s state budget, at about $1.67 billion, is 28% higher than last year’s. That has allowed the government to start a cash-transfer programme, giving money to favoured constituencies such as the elderly and “veterans” of the liberation struggle.

It has also given many people a stake in the cash economy for the first time. And it has made the amiable Mr Gusmão even more popular. What a happy coincidence. The cash payments alone should ensure that his party, the Congresso Nacional da Reconstrução de Timor-Leste (CNRT), wins the most seats in the parliamentary election, even if it once again fails to win an outright majority.

Mr Gusmão’s tactics will probably trump concerns that Timor-Leste is falling prey to a resource curse. Pumping so much money into a fragile, underdeveloped economy has already produced an inflation rate of about 17%. The main opposition party, Fretilin, argues that it is also increasing corruption and inequality. More important, argues Charles Scheiner of the local Institute for Development Monitoring and Analysis, over-reliance on oil “crowds out the policy space” for other ways to increase national income. Oil still accounts for 95% of government revenues—and production has peaked.

One person who has been complaining increasingly loudly is another liberation leader, President José Ramos-Horta. He is running again, yet despite his background he might lose this time. His former comrade-in-arms, Mr Gusmão, no longer backs him and the CNRT supports another candidate, a former chief of the armed forces. If Mr Ramos-Horta loses the presidency, Timor-Leste will be deprived of both an important interlocutor with the outside world and a constructive internal critic.