Global Policy Forum

By Andrew Harding

East Timor's prime minister, Mari Alkatiri, scoured the maritime maps scattered across his desk like a naval commander preparing for war. "We will fight," he said solemnly. "We will never surrender."

Two years after winning independence - a painful delivery from a quarter of a century's illegal occupation by neighbouring Indonesia - the world's newest country is locked in an acrimonious dispute with its closest ally, Australia. "We only want what belongs to us," the prime minister said, referring to the vast, off-shore oil and gas fields which East Timor insists lie in its territory. Billions of dollars in potential revenue are at stake.

The fields lie in the disputed waters between the region's richest country, Australia, and its poorest, East Timor. Most of the reserves are far closer to East Timor. But Australia insists that its maritime borders should extend way beyond the half-way point, as they already do with nearby Indonesia. Canberra has declined international arbitration to settle the matter.

Demonstrators have gathered in East Timor's pot-holed, war-scarred capital, Dili, angry at what they see as Australia's "illegal occupation". A caricature of Australian Prime Minister John Howard shows him stealing bags of gold. By some estimates, East Timor could lose $10bn in revenues.

Australia has argued that it is already being extremely generous - giving East Timor 90% of revenues from much of the disputed area. But East Timorese officials point out that some of the newest, biggest fields, are not included in that deal. Now they are accusing Canberra of punishing them, by reducing humanitarian aid. "This year Australia cut its aid to us from $42m to $39m," said East Timor's President, Xanana Gusmao - a claim Australia emphatically denies.

Having spent years fighting Indonesian occupation, Mr Gusmao said his country could not afford another protracted struggle. "This is going to cause us big problems in the future - and we will end up being just one more failed state, one more country for whom independence proved to be just a dream," he said.

Under existing arrangements, East Timor stands to earn $100m a year from the offshore fields for decades to come. But even so, it remains a beggar state - utterly dependant on foreign aid to finance some 40% of its budget. Today one in 10 East Timorese children dies before the age of five, while 41% of the population lives in absolute poverty.

According to Elizabeth Huyvens, from the World Bank, "under the current arrangements in the Timor Sea, it's not enough right now...Timor does not have the resource base to exist as an independent state." So it is not surprising that Thursday's second anniversary celebrations have been rather muted.

Twenty-two year old Jose Ramos cannot afford a day off. After 12 hours paddling in his wooden canoe up the coast from Dili, he has brought home a dollar's worth of tiny, twitching sardines. "I have been a fisherman since I was 12," he said, checking his nets. "The big trawlers used to come from Indonesia, and hire us to work on them. But that doesn't happen now we're independent. So in a way life is harder."

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