East Timor, oil, and the challenge of nation-building

Vafa Ghazavi, The University of Sydney

In January 2006 Australia and East Timor signed the Treaty on Certain Maritime Arrangements in the Timor Sea in Sydney. This event draws attention to another vital question: how will the world’s newest democracy (and Asia’s poorest country) use petroleum revenues to promote social and economic development? For the many Timorese (and Australian) activists who had long focused on the controversial Timor Sea negotiations, the link between oil revenues and Timor’s long-term development may prove even more difficult to get right.


The ‘resource curse’ has plagued many resource-rich societies, intensifying economic stagnation, conflict, income inequalities, and political suppression. This is a complex phenomenon with diverse factors operating in each case. In oil-dependent Nigeria, for instance, a lack of transparency and endemic corruption (both private and public) has prevented billions of dollars being spent on development (see Sala-i-Martin & Subramanian 2003, pp. 14–15). Despite the generation of significant oil revenues since the late 1950s—about $350 billion between 1965 and 2000 alone (Sala-i-Martin & Subramanian 2003, p. 4)—the vast majority of the population lives in poverty with life expectancy in 2003 averaging 43.4 years (United Nations Development Programme 2005, p. 221). It is unsurprising, then, that the poor distribution of natural resource wealth in Nigeria has also triggered divisive social tensions.

Since conflict ended in 1999, East Timor has been relatively stable.

Looking beyond oil, diamonds in Sierra Leone fuelled a rapacious civil war and state collapse, undercutting any potential for economic or social progress. Although possessing abundant natural resource wealth, Sierra Leone currently has a Human Development Index (HDI) ranking of 176, the second lowest of all countries listed by the United Nations Development Programme (2005, p. 222).

These historical experiences, along with many others, stand as the strongest possible warning of how the mismanagement of natural resource revenues, or over-dependence on them, can lead to a vicious trap of social breakdown and declining human development. For East Timor the historical lessons of this ‘paradox of plenty’ could not be more relevant.


Since conflict ended in 1999, East Timor has been relatively stable. Having achieved this basic precondition, several other factors see East Timor strongly positioned to prevent the problems experienced elsewhere and to channel its natural resource wealth into poverty alleviation, health, education, infrastructure, and broad-based economic development.

First, East Timor is a nascent democracy. Parliamentary and presidential elections planned for 2007 should help entrench democratic norms at the highest political level. Accountable political structures that guard against a narrow concentration of power, and allow for political choice and expression, can help ensure that economic policy is managed in the public interest and particularly to the benefit of the most vulnerable and disadvantaged (see Sen 1999, pp. 152–153).

Second, the current leadership has created a transparent legal framework to ensure revenues are tightly regulated, particularly through the Petroleum Fund established in 2005. This Fund is based on strict principles of transparent and prudent management of petroleum revenues. East Timor has vigorously pursued this policy of transparency, committing itself for instance to the UK-based Extractive Industries Transparency Initiative (EITI). Endorsed by some twenty countries, EITI represents a broad coalition of governments who recognise the need for effective management of natural resource revenues to achieve sustainable development and poverty reduction. Bringing together in dialogue a diverse range of actors, including governments, companies, multilateral organisations, and civil society, the Initiative has been able to outline a set of ‘criteria’ which EITI-supporting countries are expected to implement (Extractive Industries Transparency Initiative 2005). The Initiative’s primary focus is the full and accessible publication of company payments and government revenues from extractive industries, a goal which East Timor appears strongly committed to achieving.

East Timor’s commitment reflects a desire to see the money used responsibly and in the interests of the Timorese people, focusing on social and economic development. These are moves in the right direction that have been absent in many other countries where corrupt governments, crime syndicates, and corporate interests have exploited natural resources with scant regard for the interests of ordinary citizens. To date, the situation in East Timor can be described as so far so good.


Challenges, however, still loom large. For East Timor nation-building is still very much a work in progress. Embryonic policy and social systems are being drawn up, human resources are being trained and laws are being written. Much of this important work is being done by, or with the support of, international advisers, multilateral organisations, and donor countries through their aid programs. ‘Capacity building’ (that is, of the Timorese by foreigners) remains the buzz word of the development industry, and is seen by many in the industry as crucial to long term development.

Challenges still loom large for East Timor.

Foreign assistance has been integral to ensuring stability since 1999, and can continue to play a constructive role. But primary responsibility for consolidating nascent political structures and shaping socio-political norms falls to the Timorese themselves. Capacity building is thus imperative, but must be rethought to adequately address this question of who ‘owns’ the process of nation-building. The limitations of capacity building as currently practised make it difficult to penetrate beyond the superficial transfer of skills or advice. Norms against corruption or in favour of accountable governance, for example, must be genuinely valued by Timorese leaders and citizens rather than imposed from outside. Recognition of this fact will enable international actors seeking to assist in East Timor’s development to contribute constructively to the long term sustainability of good governance, institutional integrity, and social stability.

Developing the capacity of public and social institutions remains crucial to ensuring the resource curse does not set in. Well-written legislation as embodied by the Petroleum Fund demands capable and transparent public institutions to take full effect. Building the capacity of the state, and strengthening an independent judiciary, thus become imperative in East Timor. The link between governance that respects collective and individual human rights (including social and economic rights) on the one hand, and sound management of oil revenues on the other, is a direct one. Corruption and the breakdown of the rule of law, for instance, can quickly prevent national revenues being used in the interests of the poor.

The roots of an open and democratic society, however, extend deeper than the realm of formal politics. With their history of resistance to foreign occupation, the Timorese people can draw on an intangible reservoir of social democratic ideals. These include a genuine commitment to international human rights standards, an underlying ethic of justice, and principles of self-determination. In its statehood these values can underpin broad-based social and economic development, and ingrain public expectations that oil revenues will be channelled to that end. Entrenching norms against corruption will also be crucial to the success of any policy efforts.

Strong public institutions and good public policy must also be underpinned by the less widely acknowledged role of a dynamic social climate. These form inseparable, and reciprocal, elements in guarding against the resource curse. A vibrant public discourse in which the disadvantaged have a voice contributes to the creation of social and economic policies that promote human security and poverty-alleviation.

Vibrant public discourse depends on the informed engagement of diverse social actors and citizens themselves. Thus, an independent media and an active civil society are indispensable tools for ensuring effective spending of petroleum money. Since independence these two social forces have not been as crucial as they might have been, due to the significant international presence in East Timor, particularly of the United Nations. As the UN withdraws, and the international spotlight gradually fades, the local media and civil society must be strengthened and nurtured.

In any society, an independent media plays an essential role in informing public opinion and ensuring responsible governance and economic management. In East Timor the challenge is to develop the capacity of journalists to be able to report incisively on complex economic, legal, and political issues surrounding the use and regulation of oil revenues, even though the media often lacks resources. International non-government organisations (NGOs) such as the Open Society Institute’s ‘Revenue Watch’ initiative and the Publish What You Pay NGO coalition, official and NGO aid programs, and high quality education and training, can all help the indigenous media to prosper.

As the UN withdraws, the local media and civil society must be strengthened and nurtured.

An active and intellectually-engaged civil society is also crucial. The Catholic Church has historically been a key player in Timorese society, and is likely to remain so in the foreseeable future. Beyond this, however, a plurality of informed voices should be cultivated from amongst students, academia, business, workers, local NGOs and think tanks. This requires co-ordinated leadership to provide a neutral setting in which different, at times diametrically opposed, views can engage productively with each other. Overriding national development goals must not be obscured or hijacked in this dialogic process by sectional interests or narrow agendas. The umbrella provided by the various UN missions, and the more permanent UNDP, has to some extent been a source of this leadership, providing fora for diverse actors to contribute to decision-making and to consult on a wide range of issues, for example achieving the UN Millennium Development Goals (see United Nations Office of the Resident Coordinator Timor-Leste 2005). The government has also recognised the need to have an engaged civil society, as demonstrated by its initial support for and co-operative relationship with the fledgling East Timor NGO Forum (FONGTIL), an umbrella organisation for all NGOs operating in the country. These are small steps in the right direction, with room for still wider participation.


Preventing East Timor experiencing the resource curse that has afflicted so many other countries will require a multi-faceted strategy that engages the whole of Timorese society. It will require an emphasis on aspects of nation-building not traditionally associated with economic development. The strategy must effectively ensure core values such as justice, transparency, and public dialogue permeate the country’s overall social and economic objectives. The potential exists for East Timor to become a world-leading model of development, where natural resources are a blessing, not a curse.


Extractive Industries Transparency Initiative 2005, EITI London Conference 2005 – 17 March: Statement of Outcomes, Extractive Industries Transparency Initiative [Online], Available: http://www.eitransparency.org/docs/statementmarch172005.pdf [2006, Apr 6].

Sala-i-Martin, X., & Subramanian, A. 2003, Addressing the natural resource curse: An illustration from Nigeria, IMF Working Paper, WP/03/139.

Sen, A. 1999, Development as Freedom, Alfred A. Knopf, New York.

United Nations Development Programme 2005, Human Development Report 2005, International Cooperation at the Crossroads: Aid,Trade and Security in an Unequal World, UNDP, New York.

United Nations Office of the Resident Coordinator for Timor-Leste 2005, UN forum on support to civil society organizations towards achieving the Millennium Development Goals, Media release, 18 August [Online], Available: http://www.unagencies.east-timor.org/latestnews/un_forum_on_support_to_civil_society.pdf [2006, Apr 6].

Vafa Ghazavi is a student of Government & International Relations, Political Economy and Law at the University of Sydney. He recently completed an internship with the Ministry of Foreign Affairs and Cooperation of East Timor based in Dili. The views expressed here are completely his own.