In East Timor, president-elect confronts thorny addiction to oil | Business and Economy News
Jakarta, Indonesia – East Timor’s president-elect won the Nobel Peace Prize in 1996 for his efforts to liberate his country, but Jose Ramos-Horta may find charting a sustainable path for one of the world’s most oil-dependent nations to be his toughest challenge yet.
Ramos-Horta, who will be inaugurated on Friday, beat the incumbent Francisco Guterres – popularly known as Lu-Olo – in a second-round runoff last month, claiming 62.1 percent of the vote. Ramos-Horta, a former president and prime minister, had the backing of the Congresso Nacional de Reconstrucao de Timor (CNRT) party because he would “not oppose” the party’s plan to develop the Greater Sunrise oil and gas fields.
The government of East Timor, also known as Timor-Leste, owns a controlling stake in the untapped fields, which lie in the Timor Sea between the Southeast Asian nation and Australia, but insists any resources must cross a deep seabed trench to be processed on Timorese soil, which has stalled development.
Neighboring fields in the Timor Sea, known as Bayu-Undan, contribute the vast majority of the wealth in East Timor’s $19bn sovereign petroleum fund, which finances about 85 percent of government spending.
The large proportion of state spending drawn from petroleum revenues makes East Timor one of the world’s most oil-dependent nations. The Southeast Asian country, which voted to leave Indonesia in 1999 and became an independent nation in 2002 after a United Nations transitional administration, also ranks among the region’s poorest countries, with a gross domestic product (GDP) per capita of less than $1,500.
Experts believe the “nearly-depleted” Bayu-Undan fields have already contributed 99 percent of the revenue East Timor can expect to receive and will run dry within 10 to 15 years.
East Timor is one of Asia’s poorest nations [File: Dimas Ardian/Bloomberg]
Guteriano Neves, an independent policy analyst based in the Timorese capital Dili, said the over reliance on oil and gas revenues has prevented the development of non-oil sectors and made the country vulnerable to economic shocks.
“The path that Timor-Leste is taking is a very dangerous and unsustainable path, yet it is very challenging to change the direction,” Neves told Al Jazeera.
“The economy that highly depends on petroleum … does not trigger domestic demand; it does not help the domestic economy to grow. It is unsustainable to develop on a single sector, particularly to depend on a non-renewable resource like petroleum.”
While the highly profitable Bayu-Undan fields have helped the petroleum fund earn $32bn in revenues and investment returns since 2005, East Timor produces far fewer resources than other exporters in the region: neighboring Indonesia had more than 300 times as much oil and gas reserves at hand in late 2019.
Neves said the country is “following the tendency of the resource curse.”
“This manifests in unsustainable spending, misguided policy driven by satisfying immediate needs over long-term development, poor quality of public service, various forms of inequality and low productivity [the] non-oil sector,” he said. “Timorese are aware of these and [have tried] to mitigate through various policy measures… but as we say, the temptation is bigger than the intention.”
Ramos-Horta ran in last month’s election as an independent candidate with the backing of CNRT, which has long supported the Greater Sunrise development and expects Ramos-Horta as president to endorse the legislation required to enable onshore processing.
The viability of processing the fields’ resources in East Timor is widely considered uncertain, and financing onshore development would cost almost the entire petroleum fund.
Yet Ramos-Horta and his backers have expressed interest in developing Greater Sunrise against the wishes of the outgoing government, which in East Timor’s semi-presidential system carries greater decision-making power than the president. Ramos-Horta’s office was not available for comment in time for publication.
East Timor politics expert Michael Leach said that while the president’s policy powers are limited, the ability to veto legislation – which in some cases can only be overturned by gaining a difficult two-thirds majority vote in parliament – is significant.
“The presidential veto is quite a substantial power,” Leach told Al Jazeera.
“If a president was against Greater Sunrise they could certainly veto a budget financing its development. These vetoes can be reversed by parliament, but some reversals require a two-thirds majority, which isn’t easy to mobilize.”
CNRT withdrew from the governing coalition in 2020 following a long-running dispute over ministerial appointments and has described the current Fretilin party-led government as illegitimate.
The party’s support of Ramos-Horta’s presidential campaign hinged on its controversial request for the candidate to dissolve parliament and call an early election – which CNRT believes it would win – or use his victory as evidence of no confidence in the current government and a mandate for the president to reconfigure the governing alliance in the current parliament to favor the party.
Leach warned against conflating CNRT’s support of Ramos-Horta with the president-elect’s own agenda.
“If people think Ramos-Horta is going to be a simple puppet of CNRT, they’ll be disappointed,” he said.
“Of course, CNRT was his chief backer and he’ll be mindful of that, but he’s formally an independent, and he’s a senior Timorese leader of great standing, and the president’s role is to govern for all Timorese. He also has to bring the whole country together, which calls for consultation with all parties.”
Joao da Cruz Cardoso, a Dili-based independent analyst who focuses on sustainable development in East Timor, said the government should prioritize investment in non-oil sectors, including education, tourism, agriculture and manufacturing, but a lack of political will has made change difficult.
“[There is] a lack of political incentive, at least in the short term, to develop the non-oil sectors of the economy,” Cardoso told Al Jazeera.
Cardoso said the global shift away from fossil fuels provided East Timor with a window of opportunity to maximize gains from its resources and develop its non-oil economy “before time runs out”.
“Timor-Leste understands the importance of diversifying its economy, but recognizes that it is a very difficult thing to do,” he said.