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Wednesday, 1 May, 2002, 23:45 GMT 00:45 UK
East Timor's economic challenge
Men barter over the price of live chickens at an open-air market in Dili
Independence will not make daily life any easier
Independence marks the end of a long struggle by East Timor to rule itself. However, as regional analyst Nicholas Nugent reports, its struggle for economic viability is only just beginning.

East Timor, one of the world's smallest nations, is also one of its poorest.

Most of its 800,000 people depend for a living on subsistence farming and fishing.

This tiny half-island - the other half belongs to Indonesia - has no industry to speak of, and hardly anything to sell abroad.

Key figures
90% of people live off land
Annual income of $431 per head
One in three households live below poverty line
Natural gas could earn $180m in royalties, from 2006

Until now it has, in effect, been subsidised. Now it needs to demonstrate that it is economically viable as an independent nation.

During 400 years of Portuguese rule, the territory's main exports were coffee beans and sandalwood, but these brought in only a modest income.

When the Portuguese abandoned the colony in 1974, it was said to be costing more to maintain an administration there than was earned from exports.

Its subsequent ruler, Indonesia, modernised the province in many ways, building roads and other facilities.

However, much of this was destroyed in the violence and wanton destruction of homes, schools, offices and infrastructure that followed East Timor's vote in August 1999 to break away from Indonesia.

Indonesian-backed militias on the rampage in 1999
Anti-independence militias destroyed much of the infrastructure
Telecommunications hubs were destroyed, as were television and radio studios and transmitters.

Timorese complain that what the Indonesians did not destroy they took. Timorese say the Indonesian army exploited timber reserves without replanting. Now there is barely enough wood left for fuel, let alone for export.

Aid workers' revenue

Since 1999, East Timor's main source of revenue has been international aid, channelled through the United Nations and the World Bank.

Even personal expenditure by international aid workers and peacekeepers has provided a significant boost to the economy - in the absence of anything else.

The world's newest nation will continue to depend on international subsidy for some time to come.

One challenge will be to find alternative employment for those East Timorese who work for the United Nations. The UN presence - and its budget to pay local staff - will reduce.

UN worker
East Timorese UN workers will need to find new jobs

Gas hopes

For the East Timorese there is one big, bright, hope, and that is the oil and gas that lies beneath the sea to the south of the island.

Under a deal with Australia negotiated on East Timor's behalf by the UN administration, Dili stands to receive the largest share of the revenue, when gas from the first of two offshore fields - Bayu-Undan - is shipped to Japan from the year 2006.

East Timor will reap an estimated income of $180m a year, a vast sum for a nation with virtually no other means of support.

If a second gas field - Greater Sunrise - is exploited, in due course East Timor could become positively wealthy, to join the ranks of small, oil-rich states.

East Timor's revenue will come in the form of a royalty, a tax on gas shipped.

Flow of the gas will not bring any jobs to the territory since the gas will be brought ashore in Australia.

And while the deal with Australia seems generous to East Timor, its new leaders believe that an earlier treaty between Indonesia and Australia should be renegotiated to assert the new nation's rights over the fields.

Even so, gas seems to be the best hope for East Timor's future - provided it can bridge the four-year gap before its starts to flow.

The BBC's Francis Markus in East Timor
"East Timorese coffee is what you could call the most organic coffee in the world"
See also:

25 Apr 02 | Asia-Pacific
Megawati 'to attend' E Timor ceremony
23 Apr 02 | Asia-Pacific
East Timor maps border with Indonesia
18 Apr 02 | Asia-Pacific
East Timor leaders look to future
17 Apr 02 | Asia-Pacific
E Timor warned of challenge ahead
04 Apr 02 | Asia-Pacific
Gusmao calls East Timor refugees home
26 Feb 02 | Asia-Pacific
Australia pledges $3m to East Timor
25 Feb 02 | Asia-Pacific
E Timor, Indonesia sign accords
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