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Economics

Promoting Good Economics Through Good Governance

Timor-Leste leads by example

Prime Minister Xanana Gusmão has made investing in human capital a priority.

After emerging from genocide and a 24-year conflict, Timor-Leste has beaten the odds, posting double-digit economic growth, higher enrollments in primary school and accountability structures that are the model for other countries. “In reality, we’ve solved many problems,” said Deputy Prime Minister Jos&ecute; Gutterres.

Timor-Leste’s citizens are not the only ones who have noticed these changes.

In January 2012, the International Monetary Fund published a report that lauds Timor-Leste for its public financial management and accountability mechanisms, bolstering hopes that the island nation will join the ranks of developing countries sooner than expected.

The IMF report, which included a visit in-country in November 2011, noted that in a relatively short time span, the government has made strong progress in moving forward as a secure and stable nation, constructing the basic foundations for government institutions and adopting good governance practices. The IMF also recognized the positive results of the government’s Strategic Development Plan, which had laid out ambitious plans to develop and diversify its economy, invest heavily in human capital and build more roads, hospitals and schools.

Transparently Focusing On The Future

Early on in Prime Minister Gusmão’s tenure, the government understood the need to focus on improving the country’s infrastruc-ture, particularly in electricity and roads that would in turn pave the way to economic development and enhance growth potential. This was a huge task given the widespread destruction the country experienced in the 1999 civil conflict. But poverty levels are trending down, as a recent World Bank study confirms which attrib-uted the “sharp decline in poverty” to increased public spending on social protection programs and public works projects. Since 2007, average economic growth has been a startling 12%.

To manage large public investment programs, the government established new agencies responsible for project assessment, procurement and monitoring. One noteworthy example was the launch of several transparency portals that publicly monitor transactions that involve the government.

Investing In Social Programs

Investing in human capital has been at the center for the Gusmão administration. The administration has prioritized smart investing, i.e., spending to create foundations for further development.

Timor-Leste introduced a wide range of social safety net programs, including benefits for veterans and the elderly, and public works programs have provided jobs, particularly in the rural areas. Human development indicators have also improved, particularly in the health area. Timor-Leste’s social policies are among the most wide-ranging in the world.

When Timor-Leste was faced with the problem of resettling internally displaced per-sons, international organizations predicted the process would take 10 years. Timor-Leste took two.

The government pledges to transform Timor-Leste into an upper-middle-income country by 2030. To achieve this goal, it plans to dramatically increase public investment to improve poor infrastructure. The proposed 2012 budget scales up capital spending so total government spending would rise to $1.8 billion, an increase of about 45 percent from 2011 spending.

To reduce poverty further, the government is focusing on rural development, better targeted transfers and improved databases for safety net programs.

Looking Forward

In March 2012, an Economist article noted that the Gusmão government’s initiative to give its citizens “a stake in the cash economy,” appears to have averted the fabled resource curse common to so many other countries.

Timor-Leste has come far–very far–in a short time, and wants to help other post-conflict countries overcome the unique challenges they face. Its leaders have recognized early on that the country’s success would require courage, determination and optimism. “Nobody wants to fail,” said Minister of Finance Emilia Pires.

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