Foreign Aid Revisited: A Case Study of Timor-Leste

Guteriano Neves

Presented at the 10th  EWC International Graduate Student Conference,

February 18th, 2011, Honolulu, Hawaii

Introduction

High dependency on petroleum revenues, high unemployment among youth, institutional fragility, poor infrastructure, and lack of social services are various problems that Timor-Leste’s people have been facing from 1999 to the present. 

Because of this background, terms like “fragile” and “failed” state are frequently used to label Timor-Leste. In the light of the current circumstances, the question emerges among Timorese and scholars is “what happened with the billions of dollars that have been spent under the banner of peace building?” 

This paper assumes that peace is not only about the absence of the war, but also about the conditions for democratic governance, rule of law, and sustainable development. 

Based upon this assumption and looking at the current circumstance, this paper argues that foreign aid has failed to establish conditions for long-term peace and stability in Timor-Leste, which is the main objective of international community over the last eleven years. 

Among various aspects that have contributed to its failure, this paper focuses attention on three aspects: decision-making, economic development, and community development.

Who decides for whom?

Foreign aid, in Timor-Leste’s context, is used exclusively to describe all “grants,” including military assistance, technical assistance, and economic assistance given by donor countries since 1999 to Timor-Leste under the banner of “peace-building.” 

There are no precise numbers of how much foreign aid has been given to Timor-Leste because of inconsistencies in data availability, and different sources. Timor-Leste’s Institute for Reconstruction and Development, La’o Hamutuk (2009) estimates that “between mid-1999 and mid-2009, bilateral and multilateral agencies spent approximately $5.2 billion U.S. dollars on programs related to Timor-Leste.” 

According to Aljazeera Report (2009), between 1999 and 2009, Timor-Leste received $8.8 billion dollars, which means that every Timorese received $8,000 dollars. This is one of the highest per capita rates of international aid.

As the aid began to flow to the country by late 1999, alongside it, many multilateral and bilateral institutions, international Non Governmental Organizations (NGOs), and policy experts from various countries came with a noble mission, “to help Timor-Leste.” These institutions and scholars also came with their own backgrounds and expertise, along with the expectation that that Timor-Leste needed to work alongside them to build the country after its being left in ruins by the Indonesian military and militias.

 Yet these institutions and scholars had very little knowledge about the history of the country and do not know how to communicate with the local people. They will nonetheless make decisions about Timor’s future. Among various institutions, there are some that play critical roles in shaping policy, thus worthy of further discussion.

The first of all is the United Nations and its agencies. From 1999 till today, there have been four types of UN missions in Timor-Leste with different mandates. After massive destruction by the Indonesian military in 2002, the United Nations Security Council established United Nations Transitional Administration for East Timor (UNTAET) to govern the country throughout the transitional period, and also to prepare Timorese for self-government. 

In order to carry out its mandate, UNTAET was empowered with full mandate to fully govern the country as a “sovereign” entity. 

More important than that, the UNTAET also ruled as “authoritarian” regime, where all powers; executive, legislative, and judiciary, were under the purview of the Special Representative of the Secretary General. United National Mission of Support in East Timor (UNMISET) is another UN mission that was established in 2002, to continue providing support for Timor-Leste. 

UNMISET’s support covered several important sectors such as public administration, security, and law enforcement. Although its mandate was to support, UNMISET’s mission was characterized by a lack of consultation and coordination with local authorities, lack of coordination among donor partners, and some decisions were under the full control of the UNMISET. The United Nations Integrated Mission (UNMIT), which was established in 2006, continues to support Timor-Leste in critical areas, such as security-sector reform, human rights, governance and economic development until today.

Alongside the UN, the International Financial Institutions - the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) – have also played roles in the process. Right after the Indonesian military withdrew, the World Bank led a “Joint Assessment Mission” to Timor-Leste to identify Timor-Leste’s reconstruction needs. 

The result of this mission was a report, which was later submitted to First Donor Conference in Tokyo. Based on the report, the donors decided to allocate their funding. Between 1999 and 2006, the World Bank, together with the Asian Development Bank and ADB were entrusted with the management of the Trust Fund for East Timor (TFET). Through this channel, various crucial development programs, such as the Agricultural Rehabilitation Project (ARP), Community Empower Projects, Health and Education Rehabilitation Projects, were funded. 

The World Bank was also entrusted by the donor to supervise direct budget support for the Timor-Leste’s government through Transitional Support Program (TSP). From 2006 to date, these institutions are still playing roles in policy recommendations, and providing advisors to help Timor-Leste’s government.

Bilateral aid agencies such as the Australian Agency for Internatinoal Development (AusAid), the U.S. Agency for International Development (USAID), the Japanese International Cooperation Agency (JICA), and the European Commission Humanitarian Aid Department (ECHO) are also important actors in the reconstruction and development of Timor-Leste. These agencies manage various development projects in education, agriculture, private sector development, law enforcement, and infrastructure, which are funded through bilateral cooperation programs. 

Moreover, they also manage to hire, and pay international advisors, who assist capacity-building in important state and public institutions. Some bilateral projects were co-implemented with the UN agencies, such as UNDP, UNOPS, and others. The structure of these agencies is embedded with their respective governments. Therefore, the donor’s agenda determines how these agencies operate in the field rather than the realities on the ground determining how they function. In other words, it is not the reality on the ground that will shape how these agencies operate, but the policy from Washington, New York, Canberra, Tokyo, and Lisbon that affects development policies on the ground.

Spend in Timor-Leste, but not for Timorese

Another approach to understanding how foreign aid has failed in Timor-Leste is to look at how the aid is spent. Although by GDP, foreign aid in Timor-Leste is one of the highest, the reality on the ground hardly corresponds to the amount of money that has been spent. 

According to La’o Hamutuk (1999), from the more than 5 billion dollars that have been spent, only 10 percent of it has been inserted into the local economy. 90 percent of it was spent to pay international advisors and consultants, researchers, foreign soldiers, police, overseas procurement, imported supplies of automobiles, computer equipment, and others. 

Foreign aid perpetuates and strengthens inequality between local staff and international staff. The salary of the international staff members is ten times higher than that of their local counterparts who graduate from local or Indonesian universities. This perpetuates the notion that local staff is less capable than international staff.

Along with the flow of aid, foreign businessmen and imported goods also entered the country easily. Beginning in 1999, many businessmen came to East Timor to start their business. These businessman owned hotels, floating hotels, restaurants, bars, and coffeehouses in Dili. 

Timorese can only become cleaners, security guards, or at best cashiers in these businesses. Imported vegetables, meat, alcohol, etc also entered the country without any restrictions. These imported goods are merely to satisfy demands from international staff that have high salaries. 

International staffs do not go to buy their meals from local restaurants or local markets. Local people who sell their agriculture products in the street, or popular markets under poor conditions cannot compete with imported goods from Australia, Singapore, or Indonesia. Foreign aid also failed to develop productive economic sectors such as agriculture or micro-industry that will generate employment opportunities for Timorese citizens. Lack of investment in the productive sector still affects Timor-Leste’s overall economy today as it imports everything from bottled water to computer hardware.

Half-Hearted Rural Development

The claim that international aid has failed is quite obvious regarding rural development. Development in rural areas should have been the priority, given that 80 percent of Timorese live in rural areas. Since 2000, there have several projects implemented by the World Bank, UNDP, and other bilateral agencies to empower rural communities both economically and politically. 

Community Empowerment Project Community Empowerment Project (CEP), The Recovery, Employment and Stability Program for Ex-Combatants and Communities in Timor-Leste   (RESPECT), Ainaro-Manatuto Community Activation Program (AMCAP), and Agricultural Rehabilitation Projects  (ARP) are some of the projects that were designed to empower rural communities. 

However, despite this noble mission, these projects have some structural flaws, which affect their outcome. In general, these projects were designed by experts from outside who have limited knowledge about the rural context in Timor-Leste. 

Consequently, these projects were designed based on false assumptions about the structural and systematic problems that people face. Thus, they failed to address the real structural and historical problems that the people in the rural area are facing. To some extent, these projects reinforced these problems.

Most rural development projects were carried out without proper mechanisms involving the rural communities they were designed to serve. Adding to the lack of participation of local population, these projects are lacked transparency in their management, and the absence of mechanisms to hold people accountable. 

Thus, instead of solving problems, some rural development projects created additional conflict within the community. Creating multiple parallel structures is another problem with foreign aid. In these rural development projects, instead of using existing local structure, those programs bypassed national government, local legitimacy, and local knowledge by creating other parallel institutions. 

Finally, rural development programs are also designed with very short term objectives. Indeed, these projects failed to address the structural and systematic problems that people face. Moreover, due to lack of community involvement, people do not have sense of ownership of these projects. Consequently, after donors stop funding them, the community does not know how to continue these projects into the future. 

To sum up, most community development programs implemented by institutions like the World Bank, UNDP, or other development agencies are characterized by lack of coordination with local government, lack of long-term vision, and rather than support local government structures, these projects tend to weaken and established new ones.

Conclusion

Since foreign aid is provided under the banner of “peacebuilding,” foreign aid, has failed to create conditions for long-term peace and stability in Timor-Leste. Lack of mechanisms involving local authorities in the decision-making process, lack of investment in the productive sector, and half-hearted rural development are the factors that contribute to its failure. The Timor-Leste case is only one more case that illustrates the failure of foreign aid in post-conflict countries.