World Bank warning to East Timor

By Lucy Williamson
BBC News, Jakarta

File image of a woman washing clothes in a refugee camp in East Timor
Rising prices and the weak dollar are hitting East Timor’s poor hard

The World Bank has added its voice to those calling on East Timor to reconsider its economic policies.

East Timor’s government is currently asking parliament to approve a 120% increase in this year’s budget, funded from the country’s Petroleum Fund.

The fund is the country’s nest egg, built with energy revenues from a gas field in the Timor Sea.

In a letter to the prime minister, the Bank warned the plans could set Timor on course for a “resource curse”.

The private letter – a leaked copy of which was seen by the BBC – says the World Bank is concerned about the precedent being set for dipping into the country’s petroleum savings.

Map
If the government continues to withdraw more than a sustainable amount, it says, it would signal that Timor is following the “detrimental path taken by many other resource-rich countries”.

The letter, sent by the regional head of the Bank, also says that government plans to spend much of the new money on subsidies are misguided.

The finance minister has said subsiding high food and fuel prices is essential to prevent instability.

But the Bank says it fears the subsidies may backfire, threatening economic stability, and creating uncertainty – all of which will make it much harder for Timor to wean itself off its reliance on oil and gas.

Pressure to spend

At the moment the country depends on energy revenues for almost all its income.

East Timor has so far won a lot of praise for the way it has handled these revenues; storing them in a special US-based fund, and withdrawing only what can be sustainably spent.

But in the six years since independence, governments have struggled to spend even those amounts.

Reports from inside the ministries now say there is growing pressure to spend more and faster.

And there have also been growing allegations that proper procedure is not being followed – allegations the World Bank in its letter calls on the government to answer.

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