Doing business with East Timor

Agriculture offers low earnings to the mass of the population, while a service economy is growing in the cities. The largest sector by value is public administration, which accounts for more than one quarter of GDP.

East Timor has come a long way economically since the destruction of 1999. Impressive annual average GDP growth in excess of 15 per cent in the last two years has brought GDP close to 1998 levels.

But growth is expected to slow sharply in 2002-2003 as Dili’s UN and reconstruction-fuelled economic bubble deflates, and UN staff depart. Indeed, zero growth is predicted over this period of economic transition. However, as East Timor’s economy returns to a more realistic pattern, growth is expected to resume.

Australia is keen to assist East Timor to develop its economic relationships and to lay the groundwork for private sector activity.

I have congratulated the independent East Timor on its first budget, which was a responsible and realistic one. Budget projections for East Timor suggest that it will be critically important to broaden and deepen the economic base, and develop an environment for the private sector that promotes growth and investment.

We also welcome East Timor’s forthcoming membership of international financial institutions (World Bank, IMF and ADB) and the decision that the World Bank should play a central role in East Timor’s budget mechanism.

East Timor needs to establish a planning framework to strengthen and diversify the economic base. The new nation needs substantial investment in infrastructure, and in expanding the capacity of the productive sectors of the economy. It requires a clear and stable regulatory environment. Above all, it needs consistent investment in people, in their health, education and skills.

With Australia’s support, East Timor’s Planning Commission has formulated East Timor’s first national development plan. Subject to its approval by the national Parliament, the plan sets out the funding priorities and programs that the country will pursue for the five years till 2007.

To enable continuing economic growth, it is essential the new East Timor Government act early to put in place an institutional and legislative framework conducive to investment and economic growth over the longer term.

East Timor’s future depends ultimately on establishing a thriving private sector that can generate output, savings, private investment, trade and new jobs.

Public policy must foster an environment in which the private sector can expand. There is an urgent need for East Timor’s new government to develop an action plan to encourage foreign investment.

The need for legislation on property rights and on land, and for a sound commercial and regulatory framework, is most pressing. Critical policy issues concerning land ownership disputes must be resolved.