Its Wednesday and only a short blog post day. I have been following the disaster unfolding in Timor-Leste over the last few days as I continue to compile research material as part of the development of a plan to increase the resilience of the Island state. We know that accumulating new public infrastructure is a key to the growth process. It crowds-in private investment, which leverages off the capacity provided by such infrastructure. A lack of essential public infrastructure is a major aspect of poverty and exclusion. While natural disasters impact on all nations when afflicted, the problem for Small Island Developing States (SIDS) like Timor-Leste is that they regularly face major capital destruction as a result of natural disasters and do not have the capacity to defend themselves and reduce the consequences of the events. Climate change is rendering this problem more severe. This is where the creation of a new multilateral agency to replace the corrupt IMF is necessary.
Last week (October 7, 2019), the ILO released its latest report on Timor-Leste – Timor-Leste labour force surveys 2010-2013-2016: Main trends based on harmonized data. I have been waiting for this publication as it provides the most coherent labour market data for TL. I am working on a detailed Job Guarantee proposal and I needed the ILO data. In this vein, I have also been reviewing the most recent fiscal statement from the Timor-Leste Government to see what direction of policy is taking, which will further help me understand the opportunities. TL is one of the poorest nations. It has a very fast growing and young population. Around 70 per cent of the workforce is ‘self-employed’ in the agricultural sector despite that sector enjoying only modest growth (9 per cent between 2000 and 2017) which has seen it slip in importance from 24.5 per cent of total GDP in 2000 to just 9.2 per cent in 2017 (latest data). The growth in employment in TL has been largely confined to Dili and is mostly in self-employment with limited job security and capacity for wages growth. There are two factors constraining the growth of quality employment: (a) the lack of investment in education and skills development; and (b) the lack of diversity in the structure of the economy, with the oil and gas sector accounting for 43 per cent of total output (2017) but generating very few employment opportunities. Governance issues (rule of law, contractual enforcement, political uncertainty) also contribute to a lack of capital formation, which, in turn, constrains employment growth. What is needed are policies to diversify the economy both in industrial structure and in spatial terms (promote growth outside of Dili), strong investment in education and health, and job opportunities that are suitable to the unmet needs in regional areas and the skill levels of the citizens who live there. Once I investigate the data more deeply I will publish a Job Guarantee proposal. But here are some necessary thoughts that condition my approach.
This is Part 3 (and final) of my mini-series analysing some of the challenges that the newly elected majority government in Timor-Leste faces. In Part 2, I discussed the progress of the Strategic Development Plan and the challenges ahead in terms of poverty, unemployment, and other indicators relating to the development process. In Part 2, I focused more on the currency debate – documenting how the IMF and World Bank had infused its ideological stance into the currency arrangements that Timor-Leste set out with as a new nation. I made the case for currency sovereignty which would require Timor-Leste to scrap the US dollar, convert the Petroleum Fund into its stock of foreign exchange reserves, and to run an independent monetary policy with flexible exchange rates, mediated with the capacity to use capital controls where appropriate. In this final discussion I consider specific policy options that are required to exploit what is known as the ‘demographic dividend’ where the age-structure of the nation generates a plunging dependency ratio. To exploit that dividend, which historically delivers massive development boosts to nations, the shifting demographics have to be accompanied by high levels of employment. That should be policy priority No.1.
This is Part 2 of my mini-series analysing some of the challenges that the newly elected majority government in Timor-Leste faces. Yesterday, I documented how the IMF and World Bank had infused its ideological stance into the currency arrangements that Timor-Leste set out with as a new nation. That infusion is still apparent in the major commentary on Timor-Leste’s future options – specifically that the dollarisation should continue and that fiscal austerity should be pursued (relative to the current fiscal stance) because the nation will run out of money. What they mean is that the Petroleum Fund will eventually run out of money. There is a major difference in those statements although under the current currency arrangements they are identical. The ‘run out of money’ story is only applicable as long as the new government resists adopting its own currency. I also showed how the development process has been stalled by the austerity bias. In Part 2, I explore the currency issue directly and make the case for currency sovereignty which would require Timor-Leste to scrap the US dollar, convert the Petroleum Fund into its stock of foreign exchange reserves, and to run an independent monetary policy with flexible exchange rates, mediated with the capacity to use capital controls where appropriate. In Part 3, which will come out next Monday, I will discuss specific policy options that are required to exploit what is known as the ‘demographic dividend’ where the age-structure of the nation generates a plunging dependency ratio. To exploit that dividend, which historically delivers massive development boosts to nations, the shifting demographics have to be accompanied by high levels of employment. That should be policy priority No.1. I will also complete some Petroleum Fund scenarios to complement the policy advice.
The citizens of Timor-Leste went to the polls on Saturday in an effort to elect a government. The reports last night indicate that Xanana Gusmao’s Party, in a three-party coalition Parliamentary Majority Alliance (AMP, which includes Taur Matan Ruak’s group) have toppled the incumbent Fretilin leadership. At the last election (July 2017), the Fretilin Party led by Mari Alkatiri was able to form minority government (with Democratic Party support) after a third party (KHUNTO) pulled out. A stalemate emerged. Some commentators called it a ‘constitutional crisis’, in that, the minority government could not function effectively. After some years of stable politics, Timor-Leste has been going through a period of political volatility as a new generation of politicians enter the scene and replace the older stagers who were dominant at the formation of this tiny island state in 2002. I won’t go into the politics of the election battle but both major parties promised to fast-track economic development to make some dent into a growing poverty problem. This is a country that has been enduring decades of foreign occupation and before that more than 250 years of colonial servitude. The latter (Portugal) imposed Catholicism on the people while the former (Indonesia) spat-the-dummy when they were finally forced out in 1999 and destroyed vital public and private infrastructure as they marched back across the border.
I am hosting a workshop in Darwin today, the first CofFEE event since we established a branch of our research group here at the University in October 2012. The topic is the Economic Prospects for Timor-Leste and the discussion is oriented to broaden the economic narrative beyond the rigid and growth-restricting fiscal rules that the IMF and the World Bank have pushed onto the Timor-Leste government. The aim of my work generally is to develop more inclusive and equitable approaches to economic development, which emphasise full employment, poverty reduction and environmental sustainability. A complete understanding of Modern Monetary Theory (MMT) allows one to see the agenda of the multilateral organisations in a clear light. So while Timor-Leste has a major struggle ahead to achieve its strategic goals of becoming a middle-income nation by 2030, it would be advised to scrap its present currency arrangements and use its massive oil wealth to introduce unconditional and universal job guarantees as the starting point for a more coherent and inclusive development path.
I am in a quandary … as usual! I thought along the same lines when Australia was stricken with drought recently and there was a national urgency to provide both government assistance and support from the private sector (national appeals and such). At present the world’s media is focused on the events following the natural disaster in the Indian Ocean. Not without some justification given the extent of the calamity. Nation’s (some) are rushing to provide aid and our Prime Minister John Howard quickly committed $35 million in aid and has said more funds will be made available. He is quoted on ABC news today as saying “The amount will be added to significantly in the time ahead … We have a moral obligation on the basis of pure humanity to help and we will help.” Say that again John: “We have a moral obligation on the basis of pure humanity to help and we will help.” But try this logic out: the citizens who have been ravaged by the earthquake and subsequent tsunamis could have taken steps to avoid their exposure. Why didn’t they educate themselves enough to ensure they knew about the dangers and why didn’t they build better houses and why, why, why?