Timor (3)

Hasierarako, ikus Timor (1) eta Timor (2)


Timor-Leste – challenges for the new government – Part 3


This is Part 3 (and final) of my mini-series analysing some of the challenges that the newly elected majority government in Timor-Leste faces. In Part 1, I discussed the progress of the Strategic Development Plan and the challenges ahead in terms of poverty, unemployment, and other indicators relating to the development process. In Part 2, I focused more on the currency debate – documenting how the IMF and World Bank had infused its ideological stance into the currency arrangements that Timor-Leste set out with as a new nation. I made the case for currency sovereignty which would require Timor-Leste to scrap the US dollar, convert the Petroleum Fund into its stock of foreign exchange reserves, and to run an independent monetary policy with flexible exchange rates, mediated with the capacity to use capital controls where appropriate. In this final discussion I consider specific policy options that are required to exploit what is known as the ‘demographic dividend’ where the age-structure of the nation generates a plunging dependency ratio. To exploit that dividend, which historically delivers massive development boosts to nations, the shifting demographics have to be accompanied by high levels of employment. That should be policy priority No.1.


The urgency of a employment creation

It is obvious that the development process requires substantial investment in education. The gestation period from infancy to workforce is a generation and that requires sustained public sector support.

The challenges facing Timor-Leste in developing a knowledge-based society through investments in education are well summarised in the latest UNDP Report (cited above).


The main occupation in Timor-Leste is agriculture – around 60-65 per cent of people are engaged in that sector, predominantly in a subsistance status. The services sector deploys about 39.8 per cent of the workforce.

There is also a large proportion of the population that is classified under ILO labour force framework classifications as being inactive (around 45 per cent) – so they are studying or tending homes.

A productive route for the Government to follow would be to start creating opportunities to the agricultural sector to add value to their activities without compromising the capacity of the people to feed themselves or destroy the relatively well-developed land tenure arrangements.

The IMF and World Bank export-led obsession, which transforms subsistence agriculture into cash crops for export, has not been a productive way to go. When markets get flooded with over-supplies and prices drop below levels required to repay loans, the farmers are caught out – they are insolvent yet have undermined the subsistence basis of their activities.

Timor-Leste is like many developing nations – the majority of its population are engaged in subsistence activities in the so-called informal sector.

So it is hard to actually estimate the extent of unemployment or underemployment and the official estimates are relatively meaningless when trying to assess the extent to which labour resources are both available and idle.

The official labour force data will grossly underestimate the extent of labour underutilisation.

The 2016 Human Development Report published by the UNDP estimates the Employment to Population ratio for Timor-Leste was 39.3 per cent and the labour force participation rate was 41.3 per cent.

Modern Monetary Theory (MMT) tells us that the reason there is mass unemployment in less developing countries is the same as there is mass unemployment in advanced economies. There are plenty of jobs to do in both types of economies. There is no shortage of work!

In fact, in nations such as Timor-Leste there is an abundance of labour intensive work that can be done to improve the public amenity and infrastructure.

Some of that work could be directed at creating an import-competing capacity to reduce the dependence on imported goods and services, particularly food.

The problem is not a lack of jobs but a shortage of paid work.

The solution is to fund the work that needs to be done in all economies. If a nation has idle labour then that means there is not enough employment-creating funding being injected into the spending system.

As a starting point, the Timor-Leste government should take responsibility for providing work to all those who desire to earn a wage.

There is a generational aspect to that.

On the one hand, the adult population are mostly uneducated, with high rates of illiteracy. They have been agricultural labourers ekeing out a meagre existence.

Creating paid work opportunities for that cohort requires thousands of low-skill jobs to be created which will add value to their local communities and their agricultural pursuits.

On the other hand, the youth are increasingly being engaged within the education system, notwithstanding the continued problems with language etc.

They need to have confidence that the years of study will be rewarded with job opportunities in the formal sector.

In a nation that issues its own currency, the capacity to take responsibility for both challenges is clear.

In the case of Timor-Leste, which uses the US dollar things are less straightforward, which is why I believe the two most urgent challenges facing the government are:

1. Introduce a national currency.

2. Use it to exploit the ‘demography dividend’ through much larger job creation efforts and investments that are rich in employment leverage.

A good starting point would be for the Government to introduce an unconditional and universal employment guarantee.

But at things stand, even without its own currency, Timor-Leste is very different to a poor country that has few real resources to exploit.

Timor-Leste, for the time being has oil and gas resources, which have been exploited and the returns accumulated in the Petroleum Fund – some $US16,799 million by the end of 2017.

This fund gives the government an immense capacity to fast-track infrastructure, health, education, training and employment development.

All of which are the essential building blocks to sustainable economic development.

We will consider the Petroleum Fund presently.

But in saying the Timor-Leste government has to take responsibility we also have to consider what sort of spending is best to advance that responsibility.

The political divide that was evident in the recent election campaign is exemplified by diverse views on where the government should spend the Petroleum revenue.

On the one hand, the current approach has been to invest in large-scale infrastructure projects – such as the South Coast highway project (Tasi Mane) and the Zonas Especiais de Economia Social de Mercadu de Timor-Leste (ZEESM) in the Oecussi region.

The Tasi Mane project has absorbed billions of dollars in public outlays and was designed to capture more of the outcomes of the Petroleum industry for the domestic economy.

It aims to build a new industrial zone (in three clusters) on the south-west coast to foster further petroleum development.

The Oecussi special zone project (ZEESM) is also absorbing large outlays and focuses on tourism (big Chinese constructed hotel etc) at the expense of local development. Indeed, several small settlements were bulldozed to make way for roads and the hotel.

I understand the politics that led the Timor-Leste government to take the decision to spend billions on these huge projects. To some extent they were pigeon-holed by outside pressure (IMF etc).

But the reality is that while the Petroleum industry has generated significant revenue flows for the State, it is not well linked into the industrial structure of the economy and does not provide the sort of employment creation that will be necessary to exploit the ‘demographic dividend’ or to provide work for older underemployed adult workers in the agricultural sector.

Large-scale projects also include the large outlays on the new airport and the container port. These are also not large employment and skill-development generators.

So apart from the issues with land clearances, the destruction of local cultures, and other social costs that these projects have generated, the fact is they do not employ enough locals or provide effective skill development. The projects are dominated by foreign interests.

Critics within Timor-Leste have noted that these funds allocated to the large projects might have been better spent invigorating local agricultural production to better insulate the nation from its imported food dependency or investing in an improved regional and rural road network to make it easier for remote farmers to market their produce.

They argue that continuing to spend billions on the Petroleum industry, with uncertain multiplier effects back into the local economy (employment, skill development, etc), diverts funds from non-oil activities that would allow Timor-Leste to diversify its economy and set it up for the long-term when its natural resource wealth is depleted.

There is considerable truth in those claims.

Which is why I would develop and introduce a Job Guarantee as a matter of priority.

It is clear that skill levels vary and in Timor-Leste there is a paucity of skilled labour. Does this mean that large-scale public works programs such as road building etc are unsuitable?

Not at all. It just means that the public works programs have to be designed in ways that are inclusive to the least-skilled workers and are highly labour intensive.

My work in South Africa (in relation to the Expanded Public Works Program which employed more than a million workers in the first five years of operation) taught me that large-scale public works initiatives can be very successful in alleviating poverty and improving intergenerational opportunities for families (adults get work, children perform better at school).

They are difficult to organise and never ‘perfect’ but they add productive value to the communities and the people that participate in the work.

The other thing that this experience taught me is that there are many ways in which a particular goal can be addressed.

My interaction with civil engineers in South Africa was illustrative. The bureaucrats – engineers who had been educated in the US or Britain were horrified that labour-intensive road building methods were advocated. They wanted the best-practice methods commonly used in the most advanced nations, which end up employed hardly anyone per km of road laid.

After all, they were educated in the advanced techniques.

The scientific research though shows that the two methods of road building both produce first-class surfaces that are durable and effective.

But for these sorts of programs to be successful, they have to be flexible and scale the employment reach to suit the circumstances. So the labour-intensive methods employ more and can be inclusive for the lowest skill workers but they still produce excellent roads.

There are many more examples like this one that I could relate.

Piecemeal and small-scale employment programs based on some limited international development aid might create a few jobs here and there.

But what Timor-Leste needs are tens of thousands of jobs to be created in the first instance and the decentralised institutional structure developed to support this development.

There is thus two issues. The micro one of building the capacity to run a large-scale employment guarantee. There are good models available to guide such a process.

The second issue is the macroeconomic problem and the debate in Timor-Leste is yet to get beyond the IMF-type obsessions.

The only way that nation such as Timor-Leste are going to move into the middle-income cohort of nations and be able to successfully create enough jobs for their rapidly growing populations is for them to abandon these nonsensical neoliberal concepts of ‘fiscal space’ and appreciate that the space for government spending is defined by the real resources the government can bring into productive use without creating accelerating inflation.

Fiscal rules, such as the ESI in Timor-Leste, constrain the capacity of the nation to grow and to put in place structures that allow the nation to exploit is ‘demography dividend’.

Once it is understood that the Timor-Leste could use its own currency to bring thousands of workers into the formal, paid economy and put in place structures that are capable of supporting the creation and administration of millions of public jobs, then development will accelerate.

A growing local market will start to attracts private sector activity.

The Dual-sector model developed by West Indian development economist W. Arthur Lewis in the 1950s remains relevant in these cases.

Lewis conjectured that developing nations have a surplus of unproductive agricultural labour which can be released to other sectors (manufacturing in his case) without any loss of food production.

The subsistence sector is a low productivity sector because it is labour intensive and when labour is attracted (or motivated by policy shifts) out of agriculture to higher productivity pursuits, there is no loss of output in the agricultural sector as the underemployment falls.

The Minimum Wage issue

The statutory minimum wage in Timor-Leste is $US115 a month (or about $US3.75 per day). It was last adjusted on June 22, 2012.

Under the terms of the Labour Code n.4/2012 (established February 21, 2012), the minimum wage was meant to be reviewed two years after it became operational. It has been stuck at the 2012 level.

In real terms that minimum wage level has dropped to around $US89 per month in 2018 or $US2.90 per day.

The following graph shows the current nominal minimum wage (green) and its real equivalent as inflation has eroded its purchasing power since 2012.

77.7 per cent of those in employment are considered to be working poor at the PPP$US3.10 a day benchmark.

Local aid workers believe that the minimum wage it should be raised to more than $US200 (Source):

The introduction of a Job Guarantee – an unconditional job offer at a socially inclusive wage to anyone who desires paid work but cannot find it – would define the minimum wage for Timor-Leste.

Careful consideration is required to determine its level. But it makes no sense to set the minimum wage at a level that maintains working poverty and creates incentives for low productivity, private sector development at the same low wages.

It is clear that the statutory minimum wage in TL has to rise significantly if the nation is to achieve the development goals set out in its SDP.

Fiscal sustainability and currency sovereignty revisited

I will prepare more detailed estimates of the investments needed to create a functional and effective Job Guarantee program in Timor-Leste once I have access to better (more refined and granular) data.

Further, I will prepare more detailed estimates of the likely fiscal parameters – Petroleum Fund depletion, growth in domestic revenue etc as better data emerges.

It is difficult to be specific given the variations in the official data that is produced in various publications (Government fiscal statements, central bank statements, IMF, UNDP, World Bank, etc).

There is considerable uncertainty about when the oil and gas reserves will be exhausted and the rates of return that can be generated on the existing (very large) $US16 odd billion Petroleum Fund.

In the now defunct 126-page – State Budget 2017 Book 1 – there is a confusing array of estimates of the likely dynamics of the Petroleum Fund over the next 10 years.

But while there is considerable uncertainty even within the Government’s own fiscal statements, it is clear that the ‘front-loading’ development policy that the Government has pursued in the context of declining oil revenues will see the Petroleum Fund depleted in the not too distant future.

Some estimates place this date at 2032 while the La’o Hamutuk organisation “estimates that the Petroleum Fund could be empty by 2027” and that “Austerity starts in 2027” (Source).

Whatever the reality of these competing estimates, the conclusion is that by failing to introduce its own currency the Government will deplete its Petroleum Fund sooner rather than later.

The idea that the nation will switch at some point in the next 10-15 years to ‘austerity’ is highly problematic and is based on the assumption that it continues to use the US dollar.

By introducing its own currency now, the Government can use the US dollar revenue it is still generating (and the stock in the Petroleum Fund) for imports and bring idle resources into productive use domestically using its own currency.

That is a much more sustainable path to follow than trying to balance the extensive needs for human development against running out of US dollars in the Petroleum Fund.

The so-called “front loading policy” that the Government has deployed to fast track its Strategic Development Plan (SDP) involves:

a tax policy seeking to invest withn the country an amount exceeding the estimated sustainable revenue of the Petroleum Fund in order to set the conditions for diversifying the non-petroleum economy.

Basically, it means the government has been spending more from the Petroleum Fund than the IMF considered would maintain its capital (the so-called estimated sustainable revenue (ESI) or the profits the nation receives from investing the Fund) and that means the Fund will deplete earlier than otherwise, leaving Timor-Leste with limited capacity to generate the currency it uses – the US dollar.

I explained the setting up and operation of Timor-Leste’s Petroleum Fund including the concept of the ESI in this blog post – Timor-Leste – beyond the IMF/World Bank yoke (November 20, 2012).

The ESI essentially is an assessment of the return on the Petroleum Fund investment and varies with oil price shifts and shifts in other financial asset prices.

In Timor-Leste’s context, all the notions of fiscal space that the IMF and UNDP wheel out are moot.

Constraining the notion of solvency to the balance in a foreign-currency denominated sovereign fund and claiming this limits what the government can do to bring idle resources into productive use is a typical neoliberal stunt.

The case in general is explained in this series of blog posts – Fiscal sustainability 101 – Part 1Fiscal sustainability 101 – Part 2Fiscal sustainability 101 – Part 3.

For Timor-Leste, the idea of fiscal sustainability tied to the Petroleum Fund in Timor-Leste becomes inapplicable if the government has its own currency.

Clearly, if the government uses a foreign currency (in this case, the US dollar) and relies on exporting a commodity in US dollars for its tax base then it can run out of spending capacity should the exported resource deplete.

But, fiscal sustainability with its own currency (which it can never run out of) becomes tied to what can be purchased with that currency that is available for sale.

With the ridiculously high unemployment rate in Timor-Leste one would have to argue that these workers would not accept a new currency in return for work to maintain a position that the Timor-Leste government has limited capacity to spend its own currency.

Clearly, once the government imposes all tax liabilities in the local currency then it would not take long for people to start demanding it.

There are hundreds of developing countries that do have currency sovereignty which means they can enforce tax liabilities in the currency that the government issues. It doesn’t matter if other currencies are also in use in those countries, which is common.

For example, the USD will often be in use in a LDC alongside the local currency and be preferred by residents in their trading activities. But, typically, the residents still have to get local currency to pay their taxes. That means the government of issue has the capacity to spend in that currency.

So the point is that as long as there are real resources available for use in a less developing country, the government can purchase them using its currency power and bring them back into productive use.

There are hundreds of thousands of people in Timor-Leste who are unemployed or underemployed in the informal sector.

They are real resources which have no ‘market demand’ for their services. The government of Timor-Leste could easily purchase these services with the local currency without placing pressure on labour costs in the country.


The Timor-Leste is encouraged to:

1. Introduce its own currency immediately.

2. Announce an unconditional, decentralised employment guarantee at a living minimum wage once they have put in place the administrative capacity to manage such a program.

3. Invest much more in education and health.

4. Divest investments in the oil and gas spaces.

Iruzkinak (1)

  • joseba

    Labour force trends in Timor-Leste continue to point to a need for a Job Guarantee

    … TL is one of the poorest nations. It has a very fast growing and young population. Around 70 per cent of the workforce is ‘self-employed’ in the agricultural sector despite that sector enjoying only modest growth (9 per cent between 2000 and 2017) which has seen it slip in importance from 24.5 per cent of total GDP in 2000 to just 9.2 per cent in 2017 (latest data). The growth in employment in TL has been largely confined to Dili and is mostly in self-employment with limited job security and capacity for wages growth. There are two factors constraining the growth of quality employment: (a) the lack of investment in education and skills development; and (b) the lack of diversity in the structure of the economy, with the oil and gas sector accounting for 43 per cent of total output (2017) but generating very few employment opportunities. Governance issues (rule of law, contractual enforcement, political uncertainty) also contribute to a lack of capital formation, which, in turn, constrains employment growth. What is needed are policies to diversify the economy both in industrial structure and in spatial terms (promote growth outside of Dili), strong investment in education and health, and job opportunities that are suitable to the unmet needs in regional areas and the skill levels of the citizens who live there. Once I investigate the data more deeply I will publish a Job Guarantee proposal. But here are some necessary thoughts that condition my approach.
    Currency sovereignty
    … I remain of the view that in the interests of Timor-Leste’s long-term development, the new government should abandon the US dollar as soon as possible.
    The bevy of consultants, IMF delegations etc that hover around the TL consulting ‘honey pot’ all argue that Timor-Leste cannot cope with its own currency.
    1. A TL currency would depreciate quickly and hyperinflation would follow soon after.
    2. TL is small, open economy dependent on imports and oil revenue, with few exports which face volatile prices on international markets. It has an undeveloped financial sector and a dearth of private activity.
    So such a depreciation would not change the real exchange rate and hence improve competitiveness.
    Always these arguments are presented in terms of the failed ‘export-led’ IMF-type models and avoid facing the issue that having its own currency would enhance the government’s capacity to bring all idle resources into productive use, including labour resources.
    The IMF obsession with export competitiveness has delivered poor results for nations that have tried to export their way to prosperity with a fiscal straitjacket being imposed.
    Even within the trade-narrative, using the US dollar as its currency significantly disadvantages Timor-Leste in terms of international competitiveness.
    Timor-Leste has to take US interest rates as given and nominal movements in the US dollar drive its real exchange rate, which is the accepted indicator of international competitiveness.
    If the US dollar appreciates against the currencies of TL’s major trading partners – for example, Indonesia, Malaysia, Australia and Chine, then TL loses international competitiveness.
    Domestic inflation pressures also exacerbate this shift.
    Further, the interest rate environment is clearly determined by what the US Federal Reserve Bank deems to be suitable for advancing its agenda, which certainly does not include any consideration of the impact of different interest rate choices on Timor-Leste.
    While the real exchange rate movements (up by around 45 per cent in 2014 relative to 2010 dropping to 30 per cent by 2017 on the back of a more stable US dollar and low domestic inflation) do not affect the oil sector exports (they are contracted in US dollars), other exports such as tourism are disadvantaged.
    The use of the US dollar was also meant to be attractive for Foreign Direct Investment (FDI) but the evidence is that FDI has declined over the last decade (with some positive blips in recent quarters).
    Dollarisation has also undermined the development of a local import-competing sector. At present, Timor-Leste can import goods and services more cheaply than they can be produced locally because it uses the US dollar.
    If the US dollar was abandoned and the local currency depreciated somewhat – then that cost disadvantage would be eliminated, thus spawning incentives to develop import-competing products. FDI would be attracted to those opportunities.
    A viable import-competing sector is a bulwark against imported inflationary pressures. It also provides for skill development and a ‘market’ for non-government consumption spending.
    One of the problems of the agricultural sector is the lack of market access. The development of import-competing processing capacities and increased market access would complement government investment in rural infrastructure designed to improve output and access to the growing markets.
    I also have written about the problem with the finite oil resources which contribute to the Petroleum Fund.
    The Government is using the considerable resources available from the Petroleum Fund to rebuild the roads, water supply systems, the power supply, houses and school buildings which were targetted as a malicious last act of an illegal colonisation by the Indonesians.
    Much more public infrastructure development, especially in rural areas is required.
    … I have documented the extreme lack of diversity in the TL economy – with its dependence on the oil and gas industry.
    It was entirely reasonable for the TL government to draw on the petroleum resources to fund their social and infrastructure programs given that it had been blindsided into using the US dollar as its currency.
    The problem for resource-rich poor nations is clear – how to diversify economic activity to provide a richer distribution of jobs for its growing population.
    The corollary is how to diversify opportunities for those groups that are marginalised – rural communities, women, those with disabilities, and other minorities.
    The following graph shows the evolution of real GDP in TL – separated into Oil and Non-oil production from 2000 to 2017. The decline of the oil contribution is a reflection of falling oil prices and claims that the oil reserves are running out. (…)
    The predictions of the demise of the oil sector are probably a little premature given that Australia and TL recently (August) reached a resolution of their maritime borders, which has allowed the TL to issue new licences to explore the so-called “Greater Sunrise offshore gas and condensate fields, and for Carnarvon’s Buffalo offshore oil field” (Source)
    And this is the big unknown.
    The TL government has spent millions (a significant draw down from its Petroleum Fund) on the so-called Tasi Mane project in the south-west coast of the nation.
    The international press regularly reports that there is a new airport that is largely unused, a four-lane ‘superhighway’ that no-one drives down, all part of a plan to build an onshore processing facility to value add on its oil production.
    Although, I am reliably told that this infrastructure is being used and is setting TL up for a more prosperous future.
    In that sense, the gamble is that the new arrangements with Australia (the “Treaty”) will transfer the majority of the royalties “from the still undeveloped Greater Sunrise field” to TL (Source).
    The estimates of the returns are huge and disputed.
    The critics claim that the bet is too risky and is “the least efficient way of creating jobs in Timor.”
    Further, it is claimed that “Timor simply lacks the skilled workforce to build or operate an LNG plant or oil refinery.”
    One of the clear outcomes from the billions that will be spent of the oil infrastructure project is that a small number of people will benefit greatly and the rest will probably not enjoy any significant material advantage.
    The question of diversification is continually raised in this context.
    One of the accepted principles of economic development is that public investment in education and training (all levels) and health care are essential drivers of increased material prosperity.
    There are many reasons for the links between increased prosperity and investment in education and health care that I will not go into here.
    But with such an investment in the oil infrastructure project, the TL government has been significantly reducing its real spending in other functional areas that will be essential for diversifying economic activity and broadening prosperity.
    The following graph shows the real public spending by functional area (2019 US dollars) in TL.
    (…) It is simply not viable to develop a diversified economy if the Government is cutting back on spending in these essential functional areas.
    Quite apart from the quantum of public social spending, another aspect concerns the incidence – who benefits?
    In 2014, 41.8 per cent of the population of TL lived below the National Poverty Line (Source) but the spatial distribution is very biased towards rural areas – there is evidence that in some places poverty rates are 25 per cent (Dili) yet rise to 80 per cent in some remote areas.
    This puts the oil-export growth strategy into context.
    It has reduced poverty rates overall but barely touched the rural areas.
    The Asian Development Bank report – The Social Protection Indicator for the Pacific Assessing Progress (published July 2019) – provides evidence that Social Protection expenditure (aged and other pensions, welfare cash transfers, active labour market programs) in the Pacific region nations:
    … tends to favor the nonpoor over the poor.
    We learn that:
    1. “Social insurance spending on the nonpoor in 2015 (2.4% of GDP per capita) was nearly five times as high as that on the poor (0.5% of GDP per capita). Nearly all countries spent more on the nonpoor.”
    2. “The gap in social assistance spending was less pronounced than that in social insurance, but the nonpoor still received more than the poor”.
    3. “In ALMPs, the difference in spending was very small, at 0.2 percentage points in favor of the nonpoor.”
    Specifically, for TL:
    … despite these poverty-targeted programs, the nonpoor still received more than the poor in the Cook Islands and Timor-Leste …
    Timor-Leste has an ALMPs that targets cash for work for rural youth. It spent 0.2% of GDP per capita on the poor and 0.5% of GDP per capita on the nonpoor.
    Which suggests that the schemes in place need to be more effectively targetted and the level of spending on human development needs to rise in TL.
    If one wants to reduce the poverty rate, then welfare assistance has to disproportionately benefit the poor rather than the non-poor.
    In general, the ADB found that “Social insurance programs … remain very narrowly based on those in formal employment. Social assistance programs reach only a fifth of intended beneficiaries.”
    They recommend broadening the schemes “to reach those in the informal economy” and to “expand coverage of social assistance programs to better reach vulnerable groups, such as children, older persons, and persons with disabilities”.
    Spending on training and skill development (ALMPs) is woeful.
    The ADB recommend that:
    Further investment in ALMPs is clearly needed to help address the needs of the unemployed and underemployed through skills development. It can also help support the poorest segments by involving them in food- and cash-for-work programs and providing them with immediate relief.
    Further, for those in employment, there has been a distinct lack of Government motivation to keep lifting the minimum wage.
    On May Day 2019. there was the largest gathering of workers in Dili “in decades”, according to the Union Aid Abroad-APHEDA report (May 3, 2019) – Workers in Timor Leste come together for Dili’s biggest May Day ever.
    The rally demanded that the minimum wage be increased to around $US200 per month.
    But any increase in the minimum wage in the formal sector, while desirable, will have to be extended by appropriate institutional arrangements into the informal sector, where most of the poverty exists.
    Which brings me to the Job Guarantee.
    Labour Force trends in Timor-Leste
    The ILO data is based on three labour force surveys conducted in 2010, 2013 and 2016. The data conforms to ILO Labour Force standards which all national statistical agencies deploy in their labour force data collection and dissemination.
    The main results are:
    1. The working age population expanded from 627 thousand in 2010 to 724.5 thousand in 2016 – an increase of 97.5 thousand (15.6 per cent). This amounts to an annual average rise of 16.3 thousand.
    2. If that growth continues (and I will come up with some fairly accurate predictions another day), then the working age population will grow to 790 thousand by 2020.
    3. The participation rate is also increasing – having risen from 24 per cent in 2010 to 46.9 per cent in 2016. As the formal economy expands so will the participation rate, given the young age profile of the nation.
    One might expect this to rise to around 60 per cent by 2020 (a very modest assumption).
    4. Between 2010 and 2016, the labour force rose by 188 thousand or 31 thousand per year.
    5. However, employment only increased by 164 thousand (or 27.5 thousand a year) which accounts for the rise in unemployment by 23.6 thousand.
    6. So while the size of the labour market is rising, unemployment is rising disproportionately and is was 10.4 per cent (2016) rather than 7.8 per cent in 2010.
    7. The ILO provides broader measures of labour underutilisation to reflect underemployment and unemployment. It was last calculated in the 2013 LFS to be 14.7 per cent up from 9.9 per cent in 2010.
    The ILO caution us not to interpret the rise in employment as “massive expansion of job creation”.
    A significant part of the increase is due to the change in operations of subsistence foodstuff production from production mainly for own-consumption not considered as employment to production wholly or mainly for the market considered as employment … Another part of the increase reflects the movement of subsistence foodstuff producers to informal employment as own-account workers or contributing family workers in informal sector enterprises. The increase in employment reflecting job creation in the formal sector has therefore been much lower than what the numbers suggest.
    Consider what the growth in formal employment will have to be to return and stabilise the unemployment to its 2010 level of 7.8 per cent.
    This would require that unemployment remains at its 2016 level as the labour force grows.
    The following graph shows the trajectory of employment from 2010 to 2016 (solid blue line), the projected increase based on the average annual change between 2010 and 2016 (dotted blue line), and, the employment trajectory that will be required to achieve that goal (grey line).
    The projected shortfall will be 20 thousand odd jobs by 2020.
    But bear in mind the caveat that the ILO presented above in relation to shifts between the subsistence farming sector.
    That caveat is likely to require a much larger increase in actual job creation to stabilise the unemployment rate at the 2010 level, which is still too high.
    The point is that the gap between the projected lines gets bigger as time passes.
    The spatial considerations are also relevant.
    The ILO write:
    The expansion of labour market activity in the rural areas from 2013 to 2016 can be explained partly by the contraction of subsistence foodstuff production …
    This refers to the massive rise in participation in the rural areas from 19.6 per cent in 2010 to 62 per cent in 2016. Compare that to the decline in the urban areas from 35 per cent (2010) to 32.1 per cent (2016).
    Then there is the NEET problem – Youth who are not in employment, not in education or training.
    In total there were 71.6 thousand youth in this category, which constituted 29.2 per cent of the total youth population. There is no future if this group is not eliminated.
    And I could dig deeper into skill and occupation structures.
    The challenges are clear.
    A faster growth in employment is required in the formal sector, which will such more and more of the informal population into paid work. That employment will have to be highly targetted and accessible to the youth who are increasingly being excluded.
    In that context, an essential starting point should be to introduce a Job Guarantee.
    It is clear that skill levels vary and in Timor-Leste there is a paucity of skilled labour. Does this mean that large-scale public works programs such as road building etc are unsuitable?
    Not at all. It just means that the public works programs have to be designed in ways that are inclusive to the least-skilled workers and are highly labour intensive.
    My work in South Africa (in relation to the Expanded Public Works Program which employed more than a million workers in the first five years of operation) taught me that large-scale public works initiatives can be very successful in alleviating poverty and improving intergenerational opportunities for families (adults get work, children perform better at school).
    That model would provide a useful framework for the TL Government.
    Piecemeal and small-scale employment programs based on some limited international development aid might create a few jobs here and there.
    But what Timor-Leste needs are tens of thousands of jobs to be created in the first instance and the decentralised institutional structure developed to support this development.
    There is thus two issues. The micro one of building the capacity to run a large-scale employment guarantee. There are good models available to guide such a process.
    Second, the only way that nation such as Timor-Leste will move into the middle-income cohort of nations and be able to successfully create enough jobs for their rapidly growing populations is for them to abandon these nonsensical neoliberal concepts of ‘fiscal space’ and appreciate that the space for government spending is defined by the real resources the government can bring into productive use without creating accelerating inflation.
    I will return to these issues when I have built a formal JG model for TL.

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