Taming the “Banana Republic”

Many individual USAID projects are harmless and sometimes sorely needed, e.g., NDI’s lobbying to ensure civilian control of the military. But step back and what emerges is a U.S. political hegemony over civil society spread by USAID’s check book. From generous project grants to prominent positions in USAID-backed NGOs, the U.S. is grooming a set of domestic political elites and subtly co-opting the radicalism of the independence movement.  

In the fortress-like U.S. embassy, now tastelessly located in the former Indonesian governor’s house, an “unnamed diplomatic source” discusses the underlining tension between the U.S. and Prime Minister Mari Alkatiri’s government. “Timor is at a crossroads...I feel that Alkatiri is trying to follow the Malaysian model of development,” with the attendant “weakening of democratic institutions,” he comments. 

Yet Alkatiri’s Mahathir-style posturing is mostly just that. The government is on the tight leash of an international donor community that continues to wield quasi-sovereign power. However, even with its limited space for maneuver, the government has frustrated U.S. attempts at policy engagement, especially in the justice sector, which the U.S. views as incredibly weak. If the standoff continues, comments my diplomatic source, “We will direct our resources into other areas such as building civil society and increased support for IRI and NDI.” 

Structural Adjustment of Independence 

T he irony of promoting democracy in Timor is that all major decisions since independence have been made by a coterie of U.S., international donors, and Bretton Woods institutions. State utilities have been partially privatized. The IMF effectively controls a non-interventionist central bank. The entire economy has been thrown open with all tariffs, save on luxury goods, set at 6 percent. The government, restricted to 17,000 staff under structural adjustment-style conditionalities and a miserly $75 million budget, is unable to make any impact on living standards beyond the city of Dili. The Ministry of Agriculture, for example, has an annual budget of just $1.5 million, yet 85 percent of the country relies on agriculture for their livelihood. In contrast, the former Indonesian occupiers had 33,000 people on the government payroll managing $135 million in 1997. That was just to administer what was then a distant province, not a nation-state. 

Radical liberalization of the economy, combined with the inflationary pressures of a well-funded international donor elite, has rendered most Timorese economically unviable. With just under half of its 925,000 inhabitants living in “extreme poverty” as defined by the UN, Timor is already the poorest nation in Asia and getting worse. For each of the last 2 years the economy has shrunk by 2 percent and a further decline of 1 percent this financial year is predicted. At the same time, the population has grown by 17.5 percent since 2001, adding at least 15,000 people to the workforce each year. Add these pressures together and even the IMF concedes that this is “reinforcing widespread poverty and serious underemployment.” 

With the national budget already facing serious shortfalls, it’s hard for the government to get the courage to deviate from donor policy orthodoxy—especially as they fund a little under half of it. “Put bluntly,” opines a U.S. Congress memo on activities in Timor, “it seems likely that assistance levels will decline if East Timor’s government pursues economic or budgetary policies which were unacceptable to donors.” 

At the May 2004 donors’ meeting the IMF summarized donors’ solutions to Timor’s economic malaise: “Development of a dynamic private sector is key to attaining higher economic growth, generating increased employment opportunities, and alleviating poverty.” It’s a pervasive and unchallenged idea in Timor.  

Looking at Timor, with its crumbling roads, UNHCR tarpaulin-covered markets, low-skilled workforce, and comparatively high-waged economy, talk of creating “enabling environments” for the private sector or attracting Foreign Direct Investment (FDI) looks like a dance to the rain gods. “The start up costs here are 30 percent higher and the operating costs are 50 percent higher than the rest of the region,” says Jose Goncalves, the U.S. government-funded Senior Investment Advisor with the Ministry of Development and Environment. “There aren’t too many areas for investment in this country,” he adds, pausing. 

Low levels of investment are a common story among the Least Developing Countries (LDCs). Indeed, according to the United Nations Commission on Trade and Development (UNCTAD), the LDCs in Asia experienced a decline in annual FDI investment from an average of $786 million from 1995 to 1999 down to just $339.7 million by 2002. 

Yet the U.S. continues to push heavily for foreign private sector-led growth. It is funding a number of studies on FDI promotion, agribusiness development, a finance sector framework, and developing a land law regime friendly to the private sector. My unnamed diplomatic source sees this last policy as Timor’s only option to attract investors. “The government has tons of land, about two thirds of the country,” he proclaims, “some of which of course is tied up in Adat [traditional title]. This is one incentive they can offer. They can give out land for FDI.” 

Assuming this strategy succeeds, and whole villages don’t mind being thrown off their land, will it actually be beneficial? UNCTAD, in their latest report on LDCs has asked why “there is no guarantee that export expansion will lead to a form of economic growth that is inclusive.” UNCTAD’s former secretary-general Rubens Ricupero blames what he labels “enclave-led growth” and paints a classic picture of colonial capitalism: “A relatively rich commodity-exporting sector, well connected to roads and ports and supported by ancillary services, existed side by side with large undeveloped hinterlands where the majority of the population lived.” If donor plans for building an export processing zone (EPZ) in the town of Baucau happen, Ricupero’s description is probably the best Timor can hope for. However, the “build it and they will come” faith behind EPZ promotion is a gamble that has failed in other LDCs. 

Yet with a decent flow of oil revenue expected over the next 20 years, Timor has one chance to “cross the desert” of underdevelopment, as Goncalves puts it. It is a critical choice. Does Timor gamble on EPZs or instead use the revenue to strengthen rural communities and economies and create mutually beneficial linkages between domestic and international markets? Is it even a choice Timor has the political space to make? 

Baseless Rumors? 

T he grandeur of U.S. plans to spread democratic capitalism over the world is bettered only by Pentagon delusions of achieving global “full spectrum dominance.” Indeed, the two crusades are intimately and contradictorily linked, as the residents of Fallujah can attest. 

While Timor isn’t being bombed into freedom by the U.S., the frequent visits of U.S. warships and Marines to Dili place Timor under the U.S. military umbrella. It’s a tricky bind for Alkatiri. The U.S. military presence reinforces an already distasteful U.S. “democracy promotion” agenda, yet also provides a perceived counter to an Indonesia that looms large in all of Timor’s foreign policy calculations. Dili recognizes their vulnerability towards their former oppressors across the border. Jakarta would only have to halt imports of instant noodles into Dili to starve them. 

But the U.S. could be staying for more than just the weekend. One of the most persistent rumors in Dili is U.S. plans to build a military base on Atauro Island, about 20 km north of Dili. The official U.S. response is denial:  “We have no interest in Timor whatsoever —zero,” responds my unnamed diplomatic source, making a zero sign with his left hand. 

Many well placed government sources privately contradict this, as do the U.S.’s own historical strategic interest in the submarine passages lying north of Timor. This was a key reason for the U.S. giving Suharto the green light to invade Timor. The U.S. needed “the continuing good will of the Suharto Government,” to guarantee “American security interests,” writes John Taylor. “Paramount in these interests was the use of the Ombai-Wetar Straits for deep-sea submarine passage.” These straits have increased their significance for the Pentagon since the recent identification of Southeast Asia as a zone of “instability.” The Straits are also critical trade routes, especially for Australia and New Zealand who are rumored to be investigating setting up facilities. 

For Timor’s Independence Day on May 20 this year, the navy ship USS Vandegrift anchored off the coast of Dili to pay a diplomatic visit. Republican-appointed Ambassador Joseph Rees commented on why the ship’s visit was important: “Timor Leste wants a close relationship with the U.S., not only because they believe it enhances their security, but also because they share our commitment to freedom and democracy.” 

But the hundreds of Timorese that protested two months earlier outside the old U.S. embassy on the first anniversary of the U.S. occupation of Iraq didn’t share what Rees’s definition of freedom or democracy meant in reality; nor do the Timorese who have long lamented the U.S. backing of Indonesian atrocities committed against them. 

One body that could have deterred or perhaps punished such genocide—had it been formed earlier—is the International Criminal Court (ICC). Created in 1999, it is designed to catch those committing crimes against humanity who would otherwise slip through the gaps of politically compromised national jurisdictions. This is exactly the problem currently facing both the Indonesian and Timorese legal systems responding to the atrocities of 1999. 

The U.S. has waged a campaign to undermine the ICC. It has been twisting the arms of dozens of poor and weak nations into signing Article 98 “non-surrender” agreements committing them to never handing over U.S. citizens to the ICC. In the case of Timor, the U.S. didn’t twist Dili’s arm, they broke it. “If Timor hadn’t signed those agreements then we would have pulled out any military from here,” comments the diplomatic source. U.S. Secretary of State, Colin Powell, went further, writing to the incoming government in April 2002 urging them to sign the agreements, otherwise the U.S. Congress would find it difficult to continue giving aid. According to diplomatic sources in New York, the U.S. engaged the Timorese government in some “special coaching,” as Anett Keller puts it, “during the weeks preceding East Timor’s signature to the bilateral agreement.” In June 2002, they threw a tantrum at the UN Security Council, threatening not to replace their three UNMISET (UN Mission for East Timor) members if they couldn’t secure immunity from the ICC for all UN peacekeeping missions. 

The Timorese quickly buckled. Timor’s strongly pro-U.S. Foreign Minister Jose Ramos Horta, perhaps needing U.S. backing for a suspected stab at the UN’s highest job, signed the ICC Article 98 exemption and a Status of Forces Agreement (SOFA) on October 1, 2002. One year later, Timor’s Council of Ministers approved this Article 98 with the United States, binding East Timor to never surrender or transfer, “current or former government officials, employees (including contractors), or military personnel or nationals” of the United States to the International Criminal Court. Forcing a nation that barely survived genocide into a campaign to undermine the ICC is a truly tragic example of who calls the shots in the world’s newest nation. 

In addition, the SOFA gives diplomatic immunity to U.S. military personnel in Timor from any criminal matter and an economic agreement between the two governments also exempts U.S. staff from paying taxes and bothering with immigration requirements. It also makes their property “inviolable” and makes them immune from civil suit. For all the U.S. complaints about Timor’s justice sector with its weak “rule of law,” U.S. citizens seem to be exempt from every law in the country. 

The Quiet Americans 

P ressured on the issue of military bases, the unnamed diplomatic source adds, “Timor is just not a factor in the strategic thinking of the United States. It is really a question as to what Timor becomes. If it is a failed state like PNG, then it has no importance to the United States: we’ll walk away. If it is a prosperous and democratic state then it could have important symbolic value for the region, ‘Look here, Timor did it, so can you’.” But which of those options are U.S. actions contributing to? 

Perhaps Timorese elites can avoid failed statehood by walking the fine line between placating local constituents while following the flawed prescriptions of their international overlords. But there is a more likely scenario. Imagine an anxious Prime Minister Alkatiri at his office desk, painstakingly searching for more funds in his flimsy national budget to silence the din of angry protestors outside his window. Crowding out his thoughts and his policy options would also be the groundwork laid by the Quiet Americans—no control over a dysfunctional economy, Venezuela-style moves by the IRI, and that U.S. warship with its 1,800 Marines sitting in Dili Harbor. On deck unnamed U.S. officials are no doubt muttering something about yet another “failed state.”