Global Policy Forum

By Dr. Tim Anderson

The International Finance Institutions (the IMF, World Bank, the ADB) present a real threat to East Timorese economic independence. Slowly but surely these banks are pursuing an agenda which will undermine East Timor's capacity to pursue what Xanana at the UN called a people's vision for development for the next 20 years, as expressed in the new Constitution and the National Development Plan. Areas that deserve special attention are: land titling, food security, privatisation of water/power/finance/agricultural support, a foreign banking monopoly and an aggravated dual economy.

Background

1. The IFIs represent the interests of international banks and large international corporations - these interests are NOT always compatible with East Timor's national interests. The main aims of the IFIs are (i) to sell money (debt/credit) (ii) to open new markets for private international traders and investors (iii) to reduce social regulation on these investors in existing markets.

2. The IFIs (supported by donor countries) have been pursuing an ideologically driven agenda in East Timor, much of which is disguised. This agenda assumes that East Timorese people have no real policy choices. Other 'technical assistance' from the IFIs refers to fairly obvious matters: that East Timor has to carefully manage a small budget, to save and invest some of its oil and gas revenue, to seek new investment, to upgrade training, to resolve conflicting land claims and to recover the costs of some services, such as electricity.

3. East Timor currently has the advantage of a debt-free start, so the IFIs are somewhat limited in their power to enforce economic policy. The strategy of joining the IFIs but NOT accessing credit may help reassure donors and investors, without seriously compromising self-governance (Ukun Rasik'an). However pressure from the IFIs is certain to build (despite the expected oil and gas revenue) for East Timor to take out low-interest loans to help finance the construction of infrastructure. Yet agreeing to such loans will invite economic policy control through an IMF-World Bank 'Poverty Reduction Strategy' - almost identical to the pre-1999 'Structural Adjustment Programs'.

4. The main threats posed to East Timor by an IMF-World Bank 'Poverty Reduction Strategy' are these: (i) enforced rationalisation and sale of land, (ii) replacement of food security policies by commercial cash cropping, (iii) the forced sale of important national assets to large foreign companies, (iv) privileging of the interests of large foreign banks, and (v) the aggravation of East Timor's dual economy. I expand on these threats below.

The major threats to self-governance (Ukun Rasik'an)

5. The World Bank has helped enforce the rationalisation and sale of land title around the world. In its report on East Timor earlier this year (March 2002: iv-v) it argues an 'urgent need' to create a registered land titling system, and for laws to allow property to be seized by creditors. The point of this is to allow foreign investors to access land and other assets, and to allow the consolidation of land holdings. The World Bank does not mention the constitutional provisions which prohibit foreign ownership of land and seek to maintain 'permanent sovereignty' over East Timor's wealth and natural resources (ss.8 & 54). Presumably the Bank has no respect for these provisions. Rationalisation and alienation of landholdings are likely to be masked by arguments of greater efficiency and productivity in agriculture.

6. The World Bank is traditionally hostile to policies of food security which provide ongoing support to small farmers. Although the Bank admits that starvation in East Timor was only averted in 1999-2000 by reliance on basic staple production and community cooperation (2002: vi), it wants commercial cash cropping (eg. organic coffee) by large landholders. It has regularly (in reports of 2000 and 2002) expressed hostility to a policy of planned self-sufficiency in grains, and argues instead for greater trade and a 'buffer fund' to provide food in time of crisis. This 'buffer fund' notion is a crazy idea which is impractical in any poor country, and is not even relied on by rich countries (the US, the EU, Japan) in their food security strategies. Successful food security strategies in poor countries rely on a strong measure of support for a subsistence sector. Simple reliance on international 'market signals' for agricultural production has helped destroy poor countries' basic grain producing capacity and has led to starvation (eg. Haiti).

7. The Asian Development Bank (in association with the World Bank) has been prominent in the forced sale of important national assets, in many countries. In East Timor, two of the ADB privatisation targets are the Microfinance Bank, and water and sanitation services. There is no mention in East Timor's National Development Plan of water privatisation, yet the ADB in its 2002 report (84-91) has water privatisation (private 'participation') in its policies, strategy and schedule. What mandate does the ADB have for such a plan? The ADB argues great success for its privatisations ('participations') in The Philippines. It does not mention the huge price rises and protests that followed this ADB privatisation. It does not mention the World Bank's disastrous water privatisation in Bolivia. The danger in East Timor is that the IFIs will encourage the Government to take out a large loan for water and sanitation construction, then privatise service provision to a large European company - East Timor would then be saddled with debt, strict conditionality and an expensive and controversial service - the worst of all worlds.

8. The World Bank and the ADB clearly support privileging of the interests of large foreign banks in East Timor. The World Bank (2002: v) argues in favour of foreign banks and against granting banking licenses to East Timorese investors, while the ADB (2002: 126) argues that donor 'aversion' to publicly owned banks, as well as 'proven principles' supports their plans to privatise East Timor's Microfinance Bank, as a profit making institution. In fact the state-community owned, non-profit Grameen Bank of Bangladesh has a far better record in microfinance than the ADB.

9. The World Bank notes the problems of an expatriate focussed dual economy, but then urges policies which would aggravate inequality in East Timor. The Bank proposes 'considerable investment' in expatriate personnel, yet removal of the 'floor' in minimum wages and expansion of wage differentials in the public service (2002: iii, xiii, xiv). Yet high wages for foreign workers is no recipe for success - on the other hand reliance on the selective investment plans of large foreign companies is a fine traditional recipe for the entrenchment of a dual economy.

East Timorese people should be aware of just how serious a threat the IFIs are to their economic self-determination. The main threat resides in the conditions these IFIs attach to their loans. It would be a tragedy if, so soon after gaining their much deserved and costly political independence, the East Timorese people took out IFI loans and gave up their economic independence.

A conservative Australian economic journalist recently said of IMF advice for Australia, which proposed tax cuts for the wealthy and welfare cuts for the poor: "this is little more than special pleading on behalf of the rich and powerful, thinly disguised as objective economic analysis - because we don't need to borrow from these notorious shylocks - unlike so many poor countries - we are free to completely ignore their gratuitous advice on how to mismanage our economy, and heighten social conflict in the process" (Gittens 2002: 46). I hope East Timor also retains such freedom.

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