Democracy and Governance in East Timor
The Development Challenge: On May 20, 2002, after 24 years of Indonesian occupation, East Timor became the first newly independent nation of the millennium. East Timor is one of the ten poorest countries in the world with an estimated population of 924,642. Its small domestic market, island status, extreme mountainous terrain, and poor infrastructure present formidable challenges. Seventy five percent of the population is rural of which 80% rely on subsistence agriculture and live on less than one dollar per day. Unemployment is estimated to be higher than 19.5% and the illiteracy rate is 57% with an average household level of education of less than three years. Expanding rural poor families' access to financial markets, strengthening rural market institutions, and expanding productive employment opportunities in rural areas, especially for women, is critical to reducing the high level of chronic poverty facing East Timor. Demographics in East Timor reflect a young population with approximately 50% under the age of 15 and with low levels of education. Strengthening public institutions and building local capacity remain one of the most critical issues facing East Timor. The maternal mortality ratio of 830 per 100,000 live births and the under-five mortality of 125 per 1,000 live births are among the highest in the world.
The 2003 World Bank Poverty Assessment highlights the daunting economic and human development challenges East Timor faces, estimating that 39.7% of the population is under the chronic poverty level. Rural families have less access than urban families to basic infrastructure and services such as clean water, electricity, education, information access, health care, and sanitation. Extensive deforestation and subsequent erosion reduces agricultural productivity, degrades water resources, and decreases terrestrial and coastal biodiversity. The reduction of United Nations (UN) presence in May 2002 created a serious contraction in economic activity and a reduction in the overall growth rate. There has been a strong decline in new foreign and domestic investments. Furthermore, labor costs are higher and productivity lower than in neighboring countries.
Despite these challenges, East Timor has made solid progress since 1999 in establishing a democratic state and revitalizing its economy and export market for coffee. It developed a new constitution, held legislative and presidential elections that met international standards, and established working democratic institutions. East Timor has established a Bank and Payment Authority and is a member of the United Nations, the International Monetary Fund, World Bank, and the Asian Development Bank. The Government of East Timor (GoET) has strong political will to implement economic reforms and increase its public investments in social development. Although the country continues to advance economic and social reforms, high population growth and low economic growth continue to impede achievements in improving livelihoods and reducing poverty.
East Timor's leadership has shown a consistent commitment to economic growth and poverty reduction. As a result, East Timor was designated on November 8, 2004 as a Millennium Challenge Account (MCA)-eligible Threshold Country. However, work remains to achieve full MCA candidate country status. East Timor reportedly failed (or lacked information in) the economic freedom category, but passed two other categories. However, rapid progress is possible to achieve in the economic freedom category given the willingness of the GoET to respond, dedication of the international community, and concentration of MCA threshold resources in this area.
During the next few years East Timor will continue to depend on the donor community to meet its core operating costs and social development needs. Projected Timor Sea's oil and gas revenues are higher than expected due to the current historical high price levels. However, the uncertainty of the current price and the outcome of treaty negotiations with Australia continue to make future revenue in the short term difficult to predict. Furthermore, the low level of domestic and foreign investment hinders the ability of the GoET to collect revenue. The GoET's core budget is expected to be fully financed from its own resources by FY 2008 or FY 2009.
The overall goal of the USAID program will continue to address the long-term development needs in accordance with key U.S. foreign policy interests in East Timor: democracy, economic prosperity, improved global health, and regional security.
(Excerpted from the 2006 Congressional Budget Justification for East Timor)
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