Cablegate: Timor-Leste at Ten Years: To the Brink and Back

DE RUEHDT #0218/01 2330026
R 210026Z AUG 09




E.O. 12958: N/A

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1. (SBU) SUMMARY: Ten years after the August 30, 1999,
referendum that put it on the road to formal independence,
Timor-Leste remains an underdeveloped ward of the international
community. Early efforts to portray the country as a triumph of
international nation-building were shattered by violent chaos in
2006 as personal, institutional, geographic and generational
rivalries exploded to the surface, leading to a frantic call for
the return of international security forces to keep order.
Basic governance institutions still lack essential capacity and
enjoy uncertain popular credibility, and an over-reliance on
foreign experts in some cases may actually have impeded their
development. As it celebrates ten years free of hostile foreign
occupation Timor-Leste is enjoying eighteen uninterrupted months
of relative calm, the longest such stretch in its history,
raising hopes that it may have at last turned a corner toward
sustained stability and development. To avoid continued
disappointment in the years ahead, Timor-Leste must dramatically
improve the capacity of its institutions across the board;
effectively harness its petroleum revenue to build its economy
and encourage its private sector; and peacefully usher in a new
generation of political leaders. The United States has a unique
role to play in promoting economic development and reform of the
security and justice sectors so that our interest in making
Timor-Leste a more stable and prosperous democracy is achieved.

2. (SBU) Timor-Leste in 1999 had no history of governing
itself. A 24-year Indonesian occupation, which is estimated to
have caused well over 100,000 deaths, followed three centuries
of Portuguese colonization. Indonesia's scorched earth
departure destroyed approximately 80 percent of Timor's economic
infrastructure (utilities, public buildings, houses) and left
Timor-Leste without a professional class experienced in
governing. In retrospect, justified enthusiasm for the cause of
Timorese independence obscured the enormous challenge of
launching a new country basically from scratch.


Security Threat Proves to Be Internal


3. (SBU) The post-referendum violence and destruction, and the
presence of hostile militia elements across an ill-defined
border with Indonesian West Timor, raised initial fears that
Timor-Leste would face immediate external security threats, but
such fears were not realized. Vigorous early work on border
demarcation during the 1999-2002 transition period reduced the
number of potential flashpoints. Critically, domestic politics
evolved in both Timor-Leste and Indonesia to create an
atmosphere conducive to reconciliation, as Indonesia redefined
itself in the post-Suharto era and Timor-Leste acknowledged the
unavoidable imperative of repairing relations with its much
larger neighbor. The positive state of bilateral relations
between Timor-Leste and Indonesia today is a considerable
accomplishment in which both sides can justifiably take great
pride. Representative of the current warm state of bilateral
relations, Timor-Leste recently invited the commander of
Indonesia's armed forces to visit. Likely to take place in
September 2009, the Indonesian general's sojourn to Dili would
be the first since the events of 1999.

4. (SBU) The greatest threat to Timorese security proved to be
internal. As the UN presence drew down after formal

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independence in May 2002, old domestic rivalries buffeted
fragile institutions that were ill-equipped to manage conflict
peacefully. A combination of factors -- personal animosity
among political elites; institutional tensions both within the
military and between the military (drawn heavily from the
independence-era guerrilla force) and the police (populated in
part with Indonesian holdovers); regional jealousies (Westerners
alleging bias in favor of the East); and generational grievances
by the younger Timorese who felt their contributions to the
independence struggle had not been sufficiently recognized --
joined together to produce the crisis of 2006. Two months of
street violence claimed dozens of lives, brought down the
Alkatiri government, resulted in widespread property destruction
and 150,000 internally displaced persons (IDPs) and took the
country to the brink of an anarchic civil war. As in 1999,
order was restored by an international security force led by
Australia, eventually supplemented with a renewed United Nations
peacekeeping mandate that continues today. The 2006 crisis was
Timor's most serious test as an independent country, one that it
failed miserably.


Economy: Real Development Lagging Behind


5. (SBU) As it did ten years ago, Timor-Leste ranks among the
least developed economies in the world. Non-oil per capita
gross domestic product of $350 places it toward the bottom of
the rankings of low income countries. The economy is split into
two very unequal parts -- the 85 percent of the work force
devoted to subsistence agriculture (cooking with firewood and
fetching water), alongside a services sector (60 percent of the
economy by value, an extremely high level for an LDC) driven by
the needs of the large international presence in the country as
well as spiraling government spending. Timor's nominal wealth
began to increase in 2005 when revenue from a gas field shared
with Australia began to come online. The increased income went
overwhelmingly to purchasing imported goods and cash pay-outs to
resolve the political problems of IDPs and pensioners, however,
leaving domestic production little changed and poverty levels
actually worse than ten years ago. The UN ranks Timor-Leste
158th of 179 countries in terms of human development indicators.
Petroleum revenue has boosted nominal statistics like gross
national income, making Timor-Leste look more prosperous on
paper, but that stimulative demand effect has yet to filter into
the real domestic economy.

6. (SBU) Two of Timor-Leste's biggest economic decisions -- to
set up a special petroleum fund to manage its revenue on a
sustainable basis and to dollarize the economy -- remain two of
its best. By smoothing petroleum income and removing the
possibility of exchange rate appreciation Timor-Leste has
avoided the worst of the Dutch Disease that often plagues
resource-rich economies. On the negative side, Timor's private
sector remains extremely small. A major obstacle is the poor
regulatory environment for business, which the World Bank ranks
170th of 181 countries. The country's infrastructure needs,
from schools to roads, water and power, are immense. Half of
the adult population has zero educational attainment and
functional illiteracy and innumeracy are well above 70 percent.


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Accountability and Impunity


7. (SBU) Despite the suffering that took place in 1975-99, the
desire to hold Indonesia accountable for the crimes committed
during its occupation is not a pressing issue for most Timorese.
Timor-Leste views itself as the victorious party, having won
its independence. Two reports catalog the events of the
Indonesian occupation and departure. The Commission for
Reception, Truth and Conciliation (CAVR) submitted the Chega!
(Enough!) report to the Timorese parliament in 2005, describing
the 1975-99 period. The bilateral Indonesia-Timor-Leste Truth
and Friendship Commission in its June 2008 report assigned
institutional responsibility for 1999 human rights violations to
the Indonesian military. Both reports have been submitted
formally to the parliament but neither has been publicly
debated. Documenting the evidence preserves the possibility of
justice in the future, but the Timorese leadership has no
intention of pursuing Indonesian accountability now.

8. (SBU) Timor-Leste has domestic accountability issues as
well. A UN Commission of Inquiry documented possible illegal
actions from the 2006 petitioners crisis. Some criminal cases
have moved forward but the president has repeatedly proposed a
general amnesty for 2006 crimes. A group that includes former
petitioners is on trial for the 2008 attacks against the
president and prime minister, but the president indicated he may
pardon them if convicted. The reluctance to hold guilty parties
accountable for their crimes demonstrates a lack of faith that
Timorese society could hold together if stressed and creates a
culture of impunity that threatens to undermine the rule of law
and perpetuate the violent political environment that has
plagued the country.


The Challenges of Timor's Next Ten Years


9. (SBU) Timor-Leste is a long-term project with decades of
work left undone. For the first time in its history it has its
political independence and a moderate amount of domestic
economic resources. Without continued support, the right
decisions and great determination, however, Timor-Leste could
still fail. Timor-Leste's success over the next ten year period
will be shaped by its response to several key challenges.

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Ensuring an Appropriate Draw Down of UN Presence and ISF

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10. (SBU) On three occasions, in 1975, 1999 and 2002,
Timor-Leste has been ill-prepared for full sovereignty. The
timing of the fourth opportunity must be driven by a clear
analysis of the conditions on the ground as well as the
capability of Timor-Leste's governance institutions. The
security sector is the biggest and most obvious test. The

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International Stabilization Force (ISF) reduced its numbers by
20 percent earlier this year and appears poised to consider
further reductions in the near future. UN police this year have
ceded primary law enforcement responsibility back to Timorese
police in three of 13 districts. In both instances the
drawdowns are in response to improving security conditions and
fledgling improvements in local capacity.


Ushering in the Next Political Generation


11. (SBU) Timor-Leste's political history to date has been
dominated by three figures: Prime Minister Xanana Gusmao,
President Jose Ramos-Horta, and Fretilin Secretary General and
former PM Mari Alkatiri. These three elder statesmen (Gusmao is
63 years old; Alkatiri and Ramos-Horta will both turn 60 later
this year) represent the generation that remembers the
Portuguese colonial era. Over the course of the next two
election cycles, due in 2012 and 2017, they will likely be
confronted with a new generation of voters and leaders. No
figure on the horizon, however, has Gusmao's profile at home or
Ramos-Horta's abroad.

12. (SBU) While there are many with aspirations for the
country's highest political positions, including the incoming
Ambassador to the U.S. Constancio Pinto, four individuals are
likely to be involved in the next round of jockeying for the two
senior leadership positions of president and prime minister.

-- Taur Matan Ruak, Commander of the Armed Forces (53 years
old). TMR was a guerrilla colleague of Gusmao's during the
Indonesian occupation. He was a central player in the 2006
crisis and was recommended for prosecution by the UN Commission
of Inquiry. Nevertheless, he is seen and occasionally revered
as a founder of the nation due to his long service in the
military resistance. Gusmao's CNRT party could support TMR as a
presidential candidate.

-- Fernando "Lasama" de Araujo, President of Parliament (46
years old). Lasama founded the Democratic Party (PD) and led it
into the parliament as Fretilin's first opposition. He served
as interim President of the Republic after Ramos-Horta was shot
in 2008. With Ramos-Horta uncertain to stand again for the
presidency, Lasama is a leading candidate to replace him.

-- Jose Luis Guterres, Deputy Prime Minister and former
Ambassador to the U.S. and UN (54 years old). Guterres is an
estranged member of Fretilin who allied himself with Gusmao's
CNRT party in the 2007 parliamentary elections. He led the
"Mudansa" (reform) element within Fretilin and unsuccessfully
challenged Alkatiri for party leadership in 2006. Guterres
could return to lead Fretilin, still the best-organized and most
national of Timor's parties, should Alkatiri decide or be forced
to step aside.

-- Aniceto Guterres, head of Fretilin's parliamentary caucus (42

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years old). Guterres is spearheading Fretilin's preparations
for the upcoming local elections. He chaired the CAVR
commission that investigated crimes during the Indonesian
occupation and is a human rights lawyer by profession. Guterres
is a possible replacement for Alkatiri as leader of Fretilin.


Building Institutions Across the Board


13. (SBU) Timor-Leste's basic governance institutions are still
works in progress. The country needs but still lacks police
that can combat criminal activity, serve the people and keep
domestic order; a professional, disciplined military that
carries out a well-defined national security mission; political
parties that institutionalize the peaceful transfer of power; a
justice system that credibly and expeditiously punishes the
guilty and resolves disputes; an educational system that
delivers basic literacy and numeracy; and a health system that
reduces infant mortality and extends life expectancy.

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Reaping Real Benefit from Petroleum Revenue

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14. (SBU) Timor-Leste's known oil and gas resources provide a
one-generation window to build the country. The total value of
reserves is estimated to be between $14 billion and $20 billion,
to be expended on a sustainable basis if the government
continues to abide by the strictures of the Petroleum Fund. To
date, petroleum revenue has financed a massive ten-fold increase
in government spending. Recurrent expenditures such as wages
and salaries still make up the majority of the budget, but the
share allotted to capital expenditure and development projects
is growing. Among other tasks the increased revenue enabled
Timor to buy its way out of two sources of instability by
offering one-time buyouts to the petitioners and resettlement
bonuses to IDPs. Additionally, it has also enabled the
government to establish a very popular welfare system for the
elderly, veterans, and the infirm; to make an enormous purchase
of rice to guard against food riots that occurred in the past;
and to afford a large number of overseas scholarship programs
for Timorese students.

15. (SBU) Timor-Leste must generate substantial labor-intensive
activities to soak up a pool of unemployed that is poised to
grow massively in the years ahead. Close to half the population
is under the age of 15 and the birth rate is among the highest
in the world. Unemployed youths have fueled Dili's street
violence and unrest in the past, drawn to the city without the
job creation needed to sustain them. Sectors such as coffee,
processed foods, handicrafts and tourism offer potential for
growth but even in optimistic scenarios the likelihood of
substantial manufacturing activity is low. Government
investment in badly-needed infrastructure projects offers the
best opportunity to create the employment that is needed to keep
Timor-Leste's coming generation gainfully occupied. There is
broad support to bring a gas pipeline to Timor-Leste as a future
offshore field is exploited. While proponents of the pipeline

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hope it will provide the basis for a small petro-chemical
industry, there is considerable skepticism regarding its cost
and viability.


U.S. Strategy


16. (SBU) The United States has a unique opportunity to play a
positive role in Timor-Leste's continued development as a
country. We do not have the same historical baggage as
Timor-Leste's other major international partners, such as
Australia, Indonesia, Portugal and the United Nations. It is
easier for the Timorese to accept us as an honest broker
supporting the development of Timorese democratic institutions.
Our fundamental interest here is to extend the period of
stability that began 18 months ago and ensure that this is
merely the beginning of a new, more positive phase of
consolidation, stability and development.

17. (SBU) To achieve this, the United States will continue to
engage and assist the Timorese pursue their priority goals,
including developing and strengthening essential institutions.
Our development assistance strategy focuses on accelerating
economic growth, strengthening good governance, especially
security sector reform, and improving health. U.S. programs
have produced significant achievements in coffee production,
land and property rights, private sector development, elections,
independent media, and public health, results that help to plug
yawning gaps that threaten the foundation of Timor-Leste's
future success. Anti-corruption and judicial assistance will be
crucial in the years ahead to ensure that the rule of law takes
hold and that the public's faith in its political institutions
is not squandered. Growing military-to-military engagement will
help to professionalize Timor-Leste's armed forces and keep them
from being a spoiler on peace and stability issues. The return
of the Peace Corps would be a dramatic sign of support of
Timor-Leste at the grassroots level, one which would have great
resonance in the country from the top of the country's political
leadership on down. Ten years after the start of Timor-Leste's
road to independence there is much left to do -- and much that
the United States can do -- to ensure that the next ten years
achieve the promise that all friends of Timor-Leste hope and
believe is possible.

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