Timor (1)

Timor – challenges for the new government – Part 1



Falling into line with the IMF and World Bank – anti-development

When Timor-Leste finally achieved independence they fell into the neoliberal hands of the IMF and the World Bank.

The choice to adopt the US dollar as its currency and to impose strict fiscal rules on how it could utilise its massive Petroleum fund has meant that economic development has been retarded and poverty rates have increased.

Things could have been very different if the government had have adopted their own currency and utilised their petroleum resources differently.

And, looking ahead, Timor-Leste could deliver much better outcomes for its 1.2 million citizens if they abandoned dollarisation and realised that the nation needs a lot of upfront public investment in order to develop the physical and human infrastructure.

And to achieve that, the Government would have to kick out the bevy of international officials and consultants who continue to preach the neoliberal austerity bias.

In the lead up to the election, the international press was quoting a so-called “independent policy analyst” who also happens to be a postgraduate student at an Australian university, as saying (Source):

Everyone in Timor Leste has been talking about economic diversification and a focus on agriculture, but it is still unclear what they are going to do about it …

You have to spend less and deliver more – that is the hard task the future government will have to face.

That is the problem. The nation has been taken over by this austerity mindset couched in claims that “its main oil and gas fields will run dry by 2022 and it will go bankrupt by 2027”.

It will certainly go bankrupt if its natural resource revenue runs out and it continues to use a foreign currency.

In January 2018 then the Institute of Business (IOB) in Timor-Leste, which is a private for profit education provider in Dili hosted a workshop which considered whether Timor-Leste should have its own currency.

The speakers at that workshop all agreed that “it is too soon for Timor-Leste to implement a national currency”.


The Timor-Leste Strategic Development Plan 2011-2030


As we will discuss tomorrow, the IMF/World Bank concept of fiscal sustainability is deeply flawed when applied to a nation that issues its own currency.

It is even more blinkered when applied to a nation that has dollarised. Sure enough, if a nation does not have its own currency and uses the US dollar then it has to get US dollars through trade.

In Timor-Leste’s case this is via its petroleum and coffee sales, which are both invoiced in US dollars. A situation could arise where the nation can no longer generate US dollars via its external sector and so government spending would be deeply constrained.

So when the likes of the World Bank are cheering on deep cuts in government spending, which has led to a sharp contraction in real GDP growth, they are doing so in the artificial environment of dollarisation.

Do away with that currency choice, that is, if Timor-Leste adopted its own currency, then the situation changes rather dramatically.

The government of Timor-Leste could purchase goods and services that would be for sale in that currency, such as local agricultural produce, idle labour and run continuous deficits to maintain real growth and development.


…, if the Government had constrained its expenditure as suggested and as the IMF has been recommending, then the GDP growth situation, which between 2013-16 was moderate to say the least, would have been much worse.

Even the World Bank acknowledges that the collapse in GDP growth in 2017 was directly due to major cuts in government spending motivated by a misguided (IMF) concept of fiscal sustainability.

A nation cannot develop if it is contracting due to fiscal austerity.


Overall, the outgoing government’s strategy has increasingly delivered failed outcomes.

A major shift in policy emphasis if required – towards job creation, decentralised infrastructure development, and more. I will discuss these priorities in Part 2.

Overall, the nation has to escape the yoke of the likes of the IMF and the World Bank and realise that their concepts of fiscal sustainability will leave the nation wallowing in poverty for decades to come.

The Associated Press article (April 16, 2018) – Nobel laureate blasts East Timor’s failure against poverty – reported the former President (Jose Ramos-Horta) as saying:

If I had been a prime minister for 10 years, I would have focused all those 10 years on quality education, on rural development and that means water and sanitation for the people … The study by the U.N. on our social economic indicators, particularly on malnutrition and children’s growth are extremely negative, I’d say total failure over the last 10 years


In Part 2, we will discuss the currency issue, the use of the Petroleum Fund, and the need for widespread public sector job creation (via a Job Guarantee).


Responses to Timor – challenges for the new government – Part 1

Neil Wilson says:

Wednesday, May 16, 2018 at 17:38

A key point about the Job Guarantee is that policy is kept sufficient tight that the JG buffer never exhausts in any physical location within the currency zone. Since private sector jobs are no longer vital, you can ensure competitive pressures are maintained and the disciplining nature of the Job Guarantee stays intact.

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