Timor's Prosperity Lies In Its Best Assets: Its Beaches And People

East Timor holds a special place in the Australian psyche.  It is our newest neighbour, and we played a critical role in supporting its road to independence in 2002 through the Australian-led INTERFET peacekeeping mission.

Australian troops also kept the peace after the bloody Indonesian withdrawal in the aftermath of Timor's 1999 independence referendum.

A half-century earlier, Australian troops were in East Timor fighting against the Japanese enemy in World War II.  Many Timorese sacrificed their lives to help the Australian soldiers during the year-long guerilla campaign in 1942, providing food, water and shelter, and carting equipment and supplies.  When Australia pulled out of Timor, the Japanese sought revenge on those Timorese who had assisted our troops, executing them in their thousands.

So what should Australia make now of its newest and youngest neighbour nation-state?

Like so many postcolonial states, East Timor's long journey to independence and democracy has been bloody and violent.  As a post-conflict nation, East Timor more or less had to build its democratic institutions and governance systems from scratch.

In the 15 years since gaining independence from Indonesia in 2002, East Timor — with the help of Australia and many others in the international community — has made good progress.  But there is more to be done.

As an international observer at East Timor's general election on July 22, I was impressed by a generally successful democratic process.  This was the first election administered without the UN's assistance.  The contrast in the conduct and outcome of the election in nearby neighbour Papua New Guinea with East Timor couldn't be more stark.  The PNG elections have been marred by intimidation and violence, attempted kidnap­pings and burning buildings.  In one electorate, the third-ranked candidate was declared the winner, while in another two candidates were declared to have won.

In East Timor, the formal month-long election campaign was calm and orderly.  In many respects, the campaign mirrored what we see in Australia, with slick party billboards calling for fairness and equality, better investment in roads, health and education, while candidates appeared on televised debates, held political rallies and used social media to disseminate their messages.

Some elements of the election process were odd.  Notably, there was a lack of criticism of other parties or political leadership.  This is still a new and fragile democracy, and there is a nervousness that negative or scare campaigns could incite violence.

The two major parties, Fretilin and CNRT, came out on top and are likely to form a national unity government once again.

The challenge for Timor's government and democracy now is to move beyond a tussle for support for the charismatic leaders of the independence movement, and to focus on the serious policy and development issues facing the country.  In a country where 40 per cent of its 1.2 million people still live below the poverty line, Timor's leaders must focus on its prosperity and development.

Understandably, during the past 15 years political leaders in East Timor have been focused on keeping the peace and stabilising a country still traumatised by a bloody independence movement in which more than 200,000 people died.  For Australia, a peaceful East Timor is of paramount importance.  We do not want to see a return to the violent clashes of 2006 when the country was on the precipice of civil war and Australia had to send troops in to keep the peace.

So far, Timor's budget expenditure has been sustained by dipping into the capital of its $16 billion petroleum sovereign wealth fund.  This year it accounted for 78 per cent of the budget.  This is unsustainable and the fund is expected to be depleted within the decade.

It would be folly to pin Timor's hopes of future prosperity on a favourable outcome to the present conciliation with Australia on the maritime boundary.  Economic development needs to move beyond oil and gas to other industries such as agriculture and tourism.  This is important for the 60 per cent unemployed Timorese youth who are yearning for jobs and opportunities.

As a tourist destination, it is clear that East Timor has considerable potential.  It offers beau­tiful beaches, friendly people, delicious locally grown coffee and a Portuguese-infused cuisine.  But so far the investment has failed to come.

Investment will come to East Timor only with a transparent and internationally competitive tax system, and a stable government without sovereign risk.  Ease of doing business in Timor is one of the worst in the world — it is ranked at 175 out of 190 countries.  While the country's tax regime looks relatively benign on paper, the local law requirement to have a local partner and inability of overseas investors to own private property has so far discouraged inbound investment.  Sovereign risk also casts a shadow over the economy.

A variety of local and international left-wing ideologues agitate for East Timor to tear up maritime boundaries and undermine major oil and gas investments.  This only undermines business confidence further.

With a new government and president, Timor has an opportunity to put itself on course for growth and prosperity.

The decisions made now are critical and will set up Timor for success or failure.  Let's hope it's the former.