Timor-Leste slid into a complex crisis in April 2006, triggered by over a third of the army going on strike to protest alleged discrimination and their subsequent dismissal by the Government. Â The ensuing violence was centered in Dili, (although the rest of the country remained comparatively peaceful), and left about 160,000 internally displaced, 35 dead and about 1,200 houses burnt in Dili. Â The violence has exposed tensions within the military, between the military and police, and between eastern and western parts of the country. The country was forced to call for international forces to restore order. Â The unrest subsided after the arrival of troops from Australia, Malaysia, New Zealand and Portugal, but underlying tensions remain and sporadic incidents of violence have continued. Â Resources on Timor-Leste | | Country Overviews | |
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The security crisis led to a political crisis, forcing the resignation of former Prime Minister Alkatiri, and the arrest of the former interior minister on charges of distributing arms. In mid-July, former Foreign Minister Ramos-Horta was appointed as the new Prime Minister. A United Nations Commission of Inquiry is expected to release its findings on the events leading up to the crisis. Previously scheduled parliamentary and presidential elections are now due to take place in the spring of 2007. The crisis paralyzed the government and the Dili economy. Between May and June, with the exception of the Ministry for Labor and Social Reintegration, Ministry of Health and a few departments in the Ministry of Planning and Finance, all public offices and private business in Dili were closed. The districts were less affected, but suffered from supply disruptions, decreased demand for their products, and the need to accommodate an influx of refugees. The offshore oil and gas sector was undisturbed, however, as was most family farming. Overall, non-oil GDP growth may be close to zero in 2006, notwithstanding an expected end-year boost from higher public spending and international aid. CPI inflation spiked to nearly 7 percent in the year to June 2006, driven by higher transportation costs. Until April 2006, Timor-Leste had made considerable progress in nation-building, maintaining peace, converting its petroleum wealth into a sustainable source of revenue for future generations, and restoring public services. Fiscal and current account surpluses have increased sharply on account of rapidly growing offshore revenue from oil and gas, and the Petroleum Fund had accumulated deposits amounting to US$650 million by June 2006.  While petroleum GDP has grown rapidly, developments in the non-petroleum sector have been much weaker. After declining by about 6 percent per year during 2002-03, non-petroleum GDP is estimated to have grown modestly during 2004-05. But with population growth of around 3.9 percent, non-petroleum GDP per capita likely declined even in the recent period, and is estimated at about US$350 in 2005. Non-petroleum exports, consisting largely of coffee, are estimated at US$8 million in 2005. The country has encountered difficulty and delay in executing its capital budget, and private investment and job creation have also been disappointing. Unemployment in Dili, where about a quarter of the formal labor force resides, is estimated at 27 percent, and youth unemployment is a particular problem that appears to have exacerbated the intensity of the recent conflict. Unemployment rates in the rest of the country are much lower, with the national rate estimated at 8.5 percent, reflecting the prevalence of self-employed and subsistence workers, and a relatively small formal labor force. The country now faces the challenge of rebuilding trust and addressing the security situation and the rule of law. At the same time it needs to jump-start the economy and respond to basic humanitarian needs and development requirements. A large increase in spending for FY06/07 has been approved by Parliament, in particular for emergency assistance, wage bonuses for civil servants, and an increased subsidy to the state-owned electricity company (offsetting a reduction in electricity prices). The budget directs more spending to development expenditure (44 percent) than had originally been planned. Although more than double the previous fiscal year levels, the new spending remains within the “sustainable” levels allowed under the country’s savings policy. A critical challenge is to improve budget execution so that spending priorities can be better realized. The government has revised its procurement law, allowing delegation of procurement up to US$100,000 to those line ministries with the capacity to assume this responsibility. The first phase of the process covers the ministries of education, health, agriculture and finance, to be followed by 4-5 other ministries and agencies before June 2007. The core objective is to revamp the delivery of basic services and generate some 4-5,000 sustained jobs.
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