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Page last updated at 14:58 GMT, Friday, 25 July 2008 15:58 UK

East Timor hit by dollar woes

By Lucy Williamson
BBC News, East Timor

File image of a woman washing clothes in a refugee camp in East Timor
Rising prices and the weak dollar are hitting East Timor's poor hard

The television blares Chinese-language programmes across supermarket shelves stacked with noodles, bottles of bleach and bags of rice.

Outside, in Dili's dusty commercial district, the afternoon heat hangs limp and heavy.

Loh Bee Choon sits in the cool of the shop, making small talk with her scattering of customers.

One by one, she tots up their purchases; the medical bleeping of the scanner marking her income, dollar by dollar.

Goods from Indonesia, China, Singapore, the US - but very few indeed from here in East Timor.

All of which makes a lot of sense, because not much is produced in East Timor. Imports are an essential part of life and 90% of goods come from overseas.

But with the US dollar - the official currency - worth less abroad now than it used to be, buying them is getting much more expensive.

"It's had a big effect," Loh Bee Choon said. "Because the value of the dollar has gone down, we've had to raise prices by around 20% to 30%."

If prices at the Loh supermarket go up by 20% or 30%, that has a huge impact on local people. There is no general social security system, and East Timor has no control over monetary policy.

When the dollar runs into trouble, as it has done recently, there is really nowhere the country's people can turn.

'Not enough'

Daniele da Conceicao knows exactly how that feels. He lives with his family in the backstreets of Dili.

Map

Ten people live in the house, but Daniele is the only one earning.

His salary - around $85 (43) a month - used to be just enough to feed and clothe everyone, send the children to school, and have a little bit left over. Now, he struggles just to buy enough to eat.

Last year, he said, $30 would buy two bags of rice - enough for the family for a month. Now it buys only one bag, which means almost three-quarters of his salary goes on rice each month.

He needs another $10 for kerosene to cook it. Then there is transport to get to work and get the children to school, and some vegetables for dinner.

Then the money is more than gone. As Daniele puts it, "It's really far away from enough to sustain the family."

Energy fund

Joao Goncalves, East Timor's minister for economic development, acknowledges there is a problem.

People like Daniele are being hit twice, he says, once by the weak dollar and again by the high global prices of food and fuel.

The government's answer is to subsidise basic goods like food and fuel.

As Mr Goncalves explained, the plan - currently before parliament - is to subsidise essential basics like rice, corn and beans, and to stockpile a 12-month supply of these staples to ensure food security.

That may ease pressure on Daniele and his children in the short-term, but it is proving harder for some MPs and economists to swallow.

That is because the government plans to pay for the subsidies by taking $240m out of East Timor's Petroleum Fund.

The fund is the country's nest egg, built with energy revenues from a gas field in the Timor Sea.

Those revenues account for virtually all the country's income and each year, careful calculations are made to determine how much the government can sustainably siphon off for its budget each year.

Now, the government says it is time to dip into the savings themselves. Not doing so, it says, risks poverty turning to instability.

But its opponents say this kind of spending will dampen private enterprise, and leave East Timor with little to show for its money - and if the oil fund is drained, it risks leaving East Timor with no economic future at all.





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