04 July 2012

Ten billion dollars is a tempting target

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Today's Melbourne Age and Sydney Morning Herald, Timorese blogs, and Facebook postings are full of accusations, rumors and overheard conversations involving Olgario de Castro, the President of the Investment Advisory Board of Timor-Leste's Petroleum Fund. La'o Hamutuk has no evidence that he has committed crimes. We support his right to clear his name, and hope that he will do so.

However, La'o Hamutuk has long warned of the temptation Timor-Leste's Petroleum Fund -- $10 billion dollars owned by a small, impoverished, new nation with little experience -- offers to unscrupulous, greedy people in the "financial industry" and elsewhere. We believe that Olgario de Castro is not like now-jailed Bernard Madoff, who stole billions from U.S. investors, or the immoral investment managers at Lehman Brothers and other financial institutions who brought down Western economies four years ago. We expect that he is more ethical than the speculators who crashed the Indonesian economy in 1997.

But even if Olgario is blameless, others drool at the opportunity to get their hands on Timor-Leste's money. For many years, La'o Hamutuk has advocated that systems here should be tighter to protect against would-be thieves, with more transparency and stronger checks and balances.

We hope that the revelation of Mr. De Castro's sloppy, boastful conversation will encourage policymakers, citizens and journalists to look at La'o Hamutuk's suggestions more closely, especially since those who revised Timor-Leste's Petroleum Fund law last year rejected them all, just as they ignored the Central Bank's recommendations.

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Like many impoverished countries whose economy and state finances depend on exporting petroleum, Timor-Leste is afflicted by the "resource curse." This is the second-most-petroleum-dependent country on earth, with 97% of 2011 state expenditures from oil money. In addition to risks of corruption and maladministration, we have other symptoms:
  • Seeing money as the solution to every problem
    It’s easier to buy a few scholarships than to build a university, or to send VIPs for overseas health care than to create a quality national health system.
  • Spending without thinking
    State expenditures go up 28% per year above inflation, but no taxpayers are demanding fiscal restraint.
  • Lack of realistic long-term planning
    The Strategic Development Plan is but a dream.
  • Import dependency
    Timor-Leste's non-oil trade deficit is more than a billion dollars, importing everything from water to chickens to rice to construction workers.
  • Inflation from little local productive capacity (17% in Dili in 2011)
    Our productive economy cannot absorb the cash in circulation.
  • Ignoring non-oil development and revenues
    Three-fourths of Timorese are rural farmers, left out of state plans and budgets.
  • Acting as if the oil money will last forever
    Bayu-Undan and Kitan will be dry by 2024.
  • Borrowing today, to repay tomorrow
    TL could borrow more than $460 million in the next few years, and billions after that.
  • Wealth goes mainly to the urban elite.
    Most people don’t benefit from highways, airports and oil facilities, but will feel the pain of loan repayments.
  • The petroleum sector “captures” decision-making.
    Few creative ideas to develop agriculture, education, tourism, small industries, etc.
We hope that this blog will broaden this discussion, and encourage you to read our briefing on Rights and Sustainability in Timor-Leste's Development.

On 13 July, La'o Hamutuk published another blog about the Investment Advisory Board and the Petroleum Fund: Wading deeper into an oily swamp.

Update, November 2012: The Ministry of Finance recently circulated a report on the 2011 General State Accounts, including a list of 223 disbursements totaling almost $30 million from the Contingency Fund managed by the Ministry of Finance. Among the expenditures was $176,322 for Salario ao Assessor Oligario de Castro período Janeiro-Dezembro 2011.
La'o Hamutuk wonders why this was paid from a fund for "urgent or unforeseeable" needs, and if Mr. de Castro also received salary or consulting fees through normal budget lines. 

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