How to stop Timor Leste from becoming a failed state

Timor Leste was the first new country of the 21st Century. May 20th will mark its 15th year of independence. If the country continues on the current trajectory of waste, corruption and fraud in public spending it will be a failed state in less than five years.

I was grateful to have the opportunity to visit Timor Leste for the first time in February. This was a visit that was long overdue. We have been supporting work there for more than six years. While colleagues of mine were regular visitors, this was my first visit.

I found a country where there were there was a fabric of heartwarming social values at the

community level. On a day trip we stopped by an eatery on the side of the road. We seated ourselves at a long, empty table. No one came to take orders from us. The eatery had stacks of plates and knives and forks in baskets on the table. The food - fried chicken, steamed vegetables, cooked potatoes - were held in bucket-like containers on the table. We helped ourselves to the food. And we went to the fridge to help ourselves to bottled drinks. When we were done, we called out to a guy who had been sitting quietly in the corner. That was the first conversation with him. He asked us what we had. We told him. He did the sums and we paid. I experienced the same thing at two other eateries, including once in the capital, Dili. I have never seen anything quite like it before. This would not work in London.

Another example: It's impossible not to notice the proliferation of goats in the country side. They are everywhere. The Timorese consider goat meat a delicacy, which is only served on special occasions.

And yet they roam freely, untethered on both roads and throughout the villages. I am used to seeing goats in my travels, in India, the Middle East and Africa and when I was a child, in Spain. But there is a reason goats are generally accompanied by a goatherd. Their owners are afraid that they would otherwise be stolen. I asked my Timorese friends about this. They were surprised by my question and said very simply: "People know not to take what doesn't belong to them." As if this was obvious.

This is a country that has retained a precious fabric of social values in at the community level. These values are not evident when it comes to public assets and public money, however. Here it is a free-for-all.

I rented a car with my Timorese friends to visit some villages to the west of Dili. We took the national highway, the country's main artery, which connects the capital city to the Indonesian border. I have never seen a major national road quite as bad as this one. The picture below cannot really do justice to how awful and dangerous this road is. This is one of the stretches that was recently refurbished, and yet a third of the road has already collapsed.

The mountain road to reach the village of Bazartete was much worse. When it rains the road is

rendered unusable for days and even weeks. A new road connecting the village to the national highway was built a few years after independence. Villagers told me that this road, built around 2007 fell apart so quickly that it was actually worse and more dangerous than what preceded it.

The village received a new ambulance from the government four years ago. Since most residents don't own a vehicle the ambulance is vital to reach in the hospital in time for births and serious illnesses. The ambulance broke down more than a year ago, however, because of damages it sustained from the road.

In the village of Bazartete I met people who have remained active volunteer monitors for more than 7 years. They also made a commitment that if they were to receive funding for the building of a new road from their village to the national highway they would be prepared to monitor this project every day if needed to ensure that it is built properly.

In Dili I spoke with a senior official of the Central Bank. He had been to visit his elderly mother who lives less than 100 km from the capital. That does not sound like a lot. But because she lives in a remote village and he cannot use his normal sedan on the road, he has to rent a 4x4 to reach her. That costs him around USD350 to 500. And that's on a monthly salary of less than USD 1,000. He also takes an extra two days off work because it takes him between six and eight hours to reach her village. He only visits her every few months. He would like to do it more often but simply cannot afford it.

We take reasonably good roads for granted in many parts of the world. But to be at the wheel of a 4x4 for most of the day was a fresh reminder of the toll it takes when such basic infrastructure is failing the people. Lives are endangered. The cost of doing business for traders and farmers and therefore consumers goes up. Even communication and interpersonal relations are affected by it.

A country on the edge

In May, on its independence anniversary, the country will be able to celebrate some impressive achievements, such as general stability, the establishment of democratic institutions and transitions in elected leadership between competing political parties, and good stewardship over its oil revenues. But these celebrations also risk being bittersweet. There is a widespread sentiment that despite public spending of $7.4 billion over the last decade (with a great deal of it spent on roads) and several additional billions in foreign assistance the country could have made far greater strides since independence had this money been more effectively spent. A great deal of money was wasted, and hundreds of millions in public funds was stolen or misappropriated.

The national Petroleum Fund currently holds ca. $15.8 billion. There was a time when Timor's sovereign wealth fund was rated the third best run in the world, after New Zealand and Norway. To remain within the threshold of what is considered Economically Sustainable Income, the government should have withdrawn no more than $600 million from the Fund in 2016. Instead, the parliament approved a budget of $1.9 billion last year, drawing down $1.5 billion from the fund, two and a half times what they should have. On the basis of current spending, the size of the Petroleum Fund and anticipated declining earnings, the country has about five years to get on track before it reaches a dangerous juncture.

When I met officials from the National Petroleum Fund Advisory Council I was told of an official who was promoted to a new, relatively senior position. Within three months of his promotion he was able to buy a new car for himself and his wife; to purchase motorbikes for his children; and to start refurbishing his home. I put it to the official that one way this man could steal money so quickly was if he had created a ghost project. In other words, a project for which there is a budget but that is never actually implemented. The official told me that this was quite likely.

The next day I met with the staff of the Anti-Corruption Commission. I shared the story with them and asked if they had also come across ghost projects. They said that they had but that it was very difficult to catch them. Most of the ghost projects, they explained, are implemented in villages in remote and mountainous districts and cannot, therefore, be inspected easily. It turns out that bad roads have one more function: to hide ghost projects from public view.

Because it's their own funds and assets the Timorese are stealing it hardly makes any headlines. But it will be tragedy for its people if the country collapses and that would, in turn, have repercussions for its two immediate neighbours, Indonesia and Australia. Australia is surrounded by failed, dependent states, with the exception of New Zealand and Indonesia. It would be awful if Timor Leste joined this group of failed countries.

There are no serious short-term prospects for Timor Leste to increase revenues. Timor Leste may have additional offshore gas reserves, and some modest mining resources. But it can take seven to fifteen years before such resources generate new income. They could introduce income tax but the tax base would be miniscule. Most of the population very poor. Timor Leste is ranked 133rd in the UN Human Development Index (and 101st out of 176 countries in the Corruption Perceptions Index). For reference, in richer, more advanced, neighbouring Indonesia out of a population of 255 million, only 27 million are registered tax payers and less than one million citizens are estimated to be paying the taxes they owe.

The government will need start reducing public spending over the next years. But this must be combined with efforts to make the government more efficient and seriously curb fraud, waste and corruption in order to improve the developmental and economic outlooks of the country.

How to stop Timor Leste from becoming another failed state

South Sudan, the world's youngest country, has already collapsed. Like Timor, South Sudan is an oil-dependent country where corruption became rampant after independence. How can Timor Leste avert such a fate?

Thanks to Luta Hamutuk, a long-standing partner of Integrity Action, I had a meeting with the Prime Minister of Timor Leste, Rui Maria de Araújo. The Prime Minister is familiar with DevelopmentCheck, which he has consulted regularly to assess whether projects were being properly implemented. In 2016 Luta Hamutuk was invited by the Prime Minister to present DevelopmentCheck to the cabinet.

In my meeting with the Prime Minister and a subsequent letter I outlined a few suggestions to stem the losses the country is incurring. These suggestions would build on the country's strong social fabric and values at the community level and engage citizens more actively in ensuring that their own resources are deployed for the sake of the current and future generations.

The Prime Minister only has a few more months left in office. Presidential elections are due in April and parliamentary elections in July.

The next 5-year government will be the last that can turn the fate of its country around.

The country has a population just over 1 million. And most them are young. I witnessed intact, beautiful social values in communities. One need not idealise these values and practices to picture how they could form the basis for a strong and resilient future for the country. But that will only happen if those same value and people are harnessed to stem the widespread losses and leakage incurred in the current system of government. This cannot be achieved by technocratic, top-down administrative measures.

Of the five suggestions identified below, the first three do not require any prior approval from governmental authorities. Although it is always be preferable to work in partnership with government, these activities are not dependent on the state:

  1. Complement top-down government oversight with nationwide bottom-up community monitoring and oversight of public projects and services, supported by technology (DevelopmentCheck), training and the Fix-Rate to scale up Community Based Monitoring and to hold it to account for solving problems, not just reporting them.

  2. Use the Fix-Rate to measure effectiveness of regulatory, oversight, enforcement and complaints handling mechanisms of government.

  3. Use annual awards to create a positive reward for good contractors, service providers and community monitors.

The next two proposals would require government buy-in:

  1. Engage citizens in detecting and deterring ghost projects early to stem the enormous losses incurred from such projects.

  2. Amend the Access to Information law to take into account the learning from the Indian Right to Information Act provision of 2005 that levies an administrative financial penalty for non-response to information requests.

How would such an approach be financed?

We roughly estimate that it would cost between $750,000 and $1,5 million per annum for communities to monitor all projects beyond a certain threshold and all key public services like health, education and energy provision across the country. This would need to be scaled up gradually and to be sustained for a minimum of five years.

Australia and Indonesia are the two countries with the most evident short-term interest in preventing Timor Leste from collapsing into a failed state. But other international donors, like the Asian Development Bank and the World Bank, should also have an interest in averting failure.

This may also be a case a Development Impact Bond could be a financing mechanism worth exploring because it could make it possible to front-end investments and ensure that results are thoroughly tracked and measured.

Over the next weeks and months we will be exploring whether we can work with our friends and partners to turn these suggestions into reality.

#Statefailure #TimorLeste #Resourcecurse

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