Challenges for the Xanana Alliance by Tim Anderson

Below Tim Anderson gives a good analysis of the present situation in Timor-Leste.

Seems to me that part of Tyneside East Timorese Solitaries work should be to highlight how the World Bank plans to influence the coalition government led by Xanana Gusmao. We also need to raise awareness of the Australian governments plan to put pressure on ‘Xanana’s AMP government to abandon the plan to process gas from the Greater Sunrise Field in Timor Leste, and allow it all to be piped to Darwin. If Australia gets its way Timor-Leste will lose a great deal of the revenue it is entitled to, thus making it harder the resist the World Banks neocon agenda and undoing all of Alkatiri’s and the Fretilin Government’s good work.

We also see in Tim’s analysis a possible reasons for Reinado remaining at large. If he was arrested it could prove very embarrassing for Xanana – perhaps this is the reason Xanana and Horta are preaching the message of impurity for Reinado.


Challenges for the Xanana Alliance by Tim Anderson

Challenges for the Xanana Alliance

by Tim Anderson

The outcome of Timor Leste’s parliamentary
election could be seen as a political victory for
former President and now Prime Minister Xanana
Gusmão. Some factors are running in his favour;
but there are substantial challenges.

Xanana has managed to sideline Fretilin (still
the strongest political force in the country) for
the time being. His Parliamentary Majority
Alliance (AMP), created after the election, has a
new constellation of Ministers and Secretaries of
State. Fretilin still regards the process by
which the AMP was installed as unconstitutional,
but has abandoned the idea of a legal challenge.

Xanana’s alliance inherits a budget which has
more than doubled, thanks to increased petroleum
royalties. Further, the Howard Government has
rewarded with increased aid what it sees as a
more pro-Australian regime. A Rudd Government has
already committed to increased aid and scholarships for the entire region.

In a clever move, Xanana has contracted the
services of former Victorian Labor Premier Steve
Bracks, as an adviser. This will give him an
excellent line of communication with the likely
incoming Labor Government in Canberra.

However an increased budget and Australian
support may not be enough. Xanana has used up
much of his political capital in coming to power.
He has undermined the political parties he helped
create and now dominates and relies on a
disparate group with little collective political will.

The strongest group in the new Ministry is the
conservative Social Democratic Party (PSD), with
links to the old UDT. Xanana’s National Congress
for Timorese Reconstruction (the new ‘CNRT’),
despite being the major party in the AMP, remains
more an umbrella group than a party. The
Democratic Party (PD), formerly the major
opposition party, now has less influence.

Nationalists are thin on the ground. Two of the
new ministers and at least three of the
Secretaries of State backed the 1999 ‘autonomy’
option with Indonesia. Graffiti in Dili reminds
them of this, and of their links with militia violence.

Autonomists in, nationalists out. Xanana’s main
post-independence theme of reconciliation has
contributed to this re-alignment. This political
shift, more than the somewhat associated
‘east-west’ ethnic divide, reflects the divisions
that destroyed the police and damaged the army in 2006.

Former army Major Alfredo Reinado, an escapee
wanted for murder, remains at large and a
potential embarrassment to the new government.
Xanana is widely believed to have backed
Reinado’s armed rebellion. The UN investigation
into the 2006 crisis diplomatically labelled the
former President’s connection with Reinado as
unwise (“increasing tensions between the
President and the army”) but not criminal.
Reinado might yet have his say on this matter, if
he faces trial. However in view of the failure to
arrest and prosecute the high-profile escapee,
resolving the ‘Reinado problem’ is now
universally seen as Xanana’s responsibility.

Fretilin, the former government leader, has worn
its share of blame for the crisis. Its vote fell
from 56% in 2001 to 29% in 2007. However Xanana’s
fall was hardly less dramatic. As a
Fretilin-backed independent he gained over 80% in
the 2002 Presidential vote. His new political
party gained just 24% in the 2007 elections.

The new ‘CNRT’ (using the initials of an earlier,
genuinely broad coalition) has little by way of
policies or party structure. On one view this new
CNRT, with refugees from Fretilin, PD and
elsewhere, is little more than a political
vehicle for Xanana. He certainly has all
authority in both the CNRT and the AMP.

After the breakup of the original CNRT, in the
name of multi-party elections, Xanana encouraged
the formation of the PD. This party became the
main opposition and the potential beneficiary of the attempted coup in 2006.

However in 2007 Xanana bypassed the PD,
attracting some of their support into his new
CNRT. As a result, PD’s vote only increased a
little over that of 2001 (from 9% to 11%). PD was
offered just two ministries in the new
government, plus the Presidency of the Parliament
for PD leader Fernando ‘Lasama’ de Araújo. Many
PD members are dissatisfied with this outcome.
Lasama seems to have gained little influence, remaining dependent on Xanana.

In sum, Timor Leste has acquired a weak and
disparate government, dominated by a
Presidential-style Prime Minister, with few
policies. Its vulnerability to external pressures is plain.

What are these pressures? First, the struggle
with Australia over energy resources, having
reached some form of compromise over royalties in
the shared JPDA zone, is likely to move on into
issues of gas processing and new explorations.

The Fretilin-led government was developing plans
and finance for onshore LNG processing and has
allocated some new exploration contracts. There
is more money in gas processing than gas
royalties; and the benefits from new fields are likely to be substantial.

The immediate Australian pressure on Xanana’s AMP
government will be to abandon the plan to divert
and process gas from the Greater Sunrise Field in
Timor Leste, and allow it all to be piped to
Darwin. Canberra will also seek to exclude new,
non-Australian energy development partners. The
failure to conclude proper maritime boundaries
has already allowed Canberra to play on that
ambiguity, suggesting Australian consent for new
exploration is required. Nevertheless, the Indian
Reliance group begins drilling in 2008.

The World Bank (WB) is similarly positioning
itself to influence the new administration. In
August the World Bank together with the Asian
Development Bank (ADB) – bodies which function as
effective lobby groups for private foreign
investors – produced a report called ‘Healing the
Nation’. This report reinforced several themes of
importance to foreign investors.

In the absence of clear, independent policies to
defend national assets and build public
institutions, the development banks and their
privatisation agendas will have greater
influence. Reinforcing this position, two senior
ministers in the new cabinet have worked for the World Bank and the ADB.

On the question of prudent use of the Petroleum
Fund, the World Bank and Fretilin were in
agreement, albeit for different reasons. The
World Bank wants limited government expenditure
so as to maximise the opportunities for private
investment; the Fretilin-led government simply
accepted the need for cautious and sustainable fiscal policy.

This is one area where Xanana has proposed a
policy departure, through more rapid use of
petroleum revenues. However the expanded budget,
increased aid and the fact that parliamentary
approval is required to draw extra revenue from
the Petroleum Fund might help modify Xanana’s position.

On the other hand, the World Bank and Fretilin
leaders clashed on questions of capacity building
and, in particular, public institutions. In 2000
the World Bank (and AusAID) opposed the use of
aid moneys for reconstructing East Timor’s rice
industry, and opposed public grain silos and
public abattoirs. They also pushed for
privatisation of Agricultural Service Centres and
the newly created Microfinance Institution.

In ‘Healing the Nation’ the World Bank comes out
strongly against any new public banking
facilities, arguing for reliance on the
established private banks, such as the ANZ. This
is probably a reference to discussions around a
possible Rural Bank, or at least a regulated line
of credit from the private banks to farmers.
Privatisation of the Microfinance Institution of
East Timor (MFIET) also remains on the ADB’s agenda.

The Banks and the new administration seem to
agree on tax cuts, small as Timor Leste’s tax
base is. President Jose Ramos Horta has floated
the idea of radical tariff and income tax cuts,
and ‘Healing the Nation’ supports such an
approach. The objective is increased private foreign investment.

However Timor Leste has no highly competitive
industries, so slashing taxes is unlikely to
result in increased foreign investment. New
investment, e.g. in tourism, will be far more
dependent on political stability, improved
infrastructure and improved public health.
Experience elsewhere shows that market access,
clear rules and the above mentioned conditions
are far more important than low tax rates.

On the other hand, abolishing corporate income
taxes (while popular with corporations) will
place greater reliance on the Petroleum Fund and
aid programs. Nevertheless, it seems the new
government may be headed in this direction.

Xanana’s alliance faces the challenge of
maintaining and developing the very sound
initiatives of the country’s first independent
government in education and health. These
initiatives include the abolition of school fees
at primary and lower secondary levels and the
introduction of school meals. These meals are
important for undernourished children, so they can concentrate in class.

This program, which began in three districts in
2006, needs further investment and development.
However pressure from within the alliance to
divert funds into a range of pet projects, plus
World Bank advisers arguing for greater reliance
on ‘user pays’ regimes, could subvert the modest
but steady growth in enrolment numbers.

The World Bank supports the idea of using revenue
for ‘Conditional Cash Transfers’ (CCT), a sort of
micro-dispersal of state funds to families, with
social objectives attached. The macroeconomic
idea is to provide an stimulus to effective
demand. However, such moves are likely to be
wasteful, undermining state investment in badly
needed education, health and infrastructure.

There are many ways in which public moneys can be
wasted. There are demands from a wide range of
veterans and their families, which might either
be sifted through carefully or conceded en masse.
The Church is likely to demand public funds for
its social projects. The diverse members of the
loose alliance will have their own demands. With
an anticipated narrowing of the tax base, greater
reliance on the Petroleum Fund and wasteful
expenditure could push the country down the
‘resource’ curse’ road. A small country should
invest its limited income carefully.

Cuban assistance in health and adult literacy has
been remarkable. Apart from the 300 Cuban health
workers in Timor Leste, 800 Timorese students are
now studying medicine with the Cubans, 700 in
Cuba and 100 in Timor Leste. The current Cuban
offer is for up to 1,000 medical scholarships.
This collaboration, which began in 2003, is the
largest health aid program in the entire
Asia-Pacific region, and very good deal for the
country. Within ten to fifteen years, East
Timorese graduates will replace all the Cuban doctors.

An associated Cuban literacy program (currently
in Portuguese but moving to Tetum) began in 2007
and is due to spread to the more than 400
villages of the country. Those attending so far are mostly women.

While the Cuban connection has been opposed by
the US and sections of the Catholic Church, these
programs are now very popular and have been
supported from their inception by Xanana and Jose
Ramos Horta. They seem likely to continue. In a
sign of continuity, the new Health Minister has
the former Health Minister as an adviser.

A final challenge emerging from the World Bank’s
recent report is pressure for land registration.
It is a common demand of World Bank and AusAID
that land should be commodified and that secure
title be made available for investors. At first
glance this might seem an attractive proposition
for a country with many land disputes, arising
from distinct colonial periods. However land
registration is a process which historically
dispossesses small holders and advantages large
corporate interests. The likely prizes are
fertile land for export crops and prime coastal land for tourism.

Timor Leste’s constitution does not permit
foreigners or corporations to own land. The World
Bank contests this, and is urging the new
administration to remove ‘obstacles’ to the
commercialisation of land. This could mean
changes to the constitution, or contractual means
to avoid the constitution. Both the US and
Australian governments are believed to be pushing
for amendments to the constitution, to allow
foreigners to own land. This presents yet another
challenge for the Xanana Alliance.


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