Timor-Leste: Political and Economic Development, and Government’s COVID-19 Response

Political Deadlock and Uncertainty

Over three years, since the 2017 General Election where we saw the establishment of a minority government, the country’s political situation has been chaotic, fluid, unpredictable and uncertain. It involved power struggle among political actors about who has the constitutional rights to govern. 2017 general parliamentary election brought the Revolutionary Front for an Independent Timor-Leste - Frente Revolucionária de Timor-Leste Independente (Fretilin) to win by simple majority; securing 23 out of 65 seats in the national parliament. It then formed a minority government, joined by the Democratic Party (PD). The government however did not have majority supports in the parliament. Meanwhile National Congress for Timorese Reconstruction - Congresso Naçional dae Reconstrução de Timorense (CNRT) –- People’s Liberation Party, - Partidu Libertação Popular (PLP) –-  Kmanek Haburas Unidade Nasional Timor Oan (KHUNTO) formed an alliance called Parliamentary Majority Coalition - Aliança Maioria Parlamentar (AMP) - a majority opposition in the parliament. When the newly formed government submitted its five-year programs, it did not get approved.

President Francisco Guterres, popularly known as Lu-Olo, who is also the President of the Fretilin,  called for an early election, which was held on 12 May 2018. After intense and divisive political campaign, Pre-electoral coalition, Alianca Mayoria ba Progresso – AMP - consists of Xanana Gusmao-led CNRT, Taur Matan Ruak’s Partido Libertacao Popular – PLP - and the Kmanek Hadomi Unidade Timor Oan – KHUNTO - won the election by absolute majority; securing 34 out of 65 seats contested. The government was formed, headed by the former President and head of Army, Taur Matan Ruak with the majority supports from the parliament. The election which seemed to provide political settlement after the minority of government was in disarray following the President refused to sworn in seven cabinet members; all of them are from the CNRT; the biggest party within the AMP. This affects the functioning of the executive body. This brings a new tension among political elites; involves CNRT’s president, Xanana Gusmao, and President Francisco Guterres.

The country entered another chapter of political uncertainty in 2020. The CNRT, the biggest party in the AMP coalition, voted down the 2020 proposed budget. The Prime Minister Taur Matan Ruak then publicly declared “the dead of AMP” and submitted his resignation letter on February 24, 2020. Between January until late June this year, the political development in Timor remained uncertain. During this period, multiple round of negotiations and dialogues involves party leaders to reach a solution. Led by Gusmao, the new majority alliances was established between Khunto, PD, CNRT, and other three coalition parties.

Fretilin, previously was opposition, decided to back up the government in the Parliament; and occupied key positions in the government through what is called “viabiliza”[i]. By this arrangement, the Fretilin’s leadership decided to allow the government, headed by Taur Matan Ruak to stay in power. Meanwhile, key positions, among them, Vice Prime Minister and Minister of Territorial Planning, Minister for Economic Coordination, Minister for Petroleum and Mineral are occupied by its members. This power arrangement provides a sense of government’s stability, given that the government will get majority support in the parliament. Over the last two months, the government decided to replace key positions in the petroleum sector; including the President of the State Company, Timor Gap, and the President of Petroleum National Authority Autoridade Nacional do Petroleu (ANP). Xanana Gusmao then resigned from his position as the national envoy for the Maritime Boundary.

At this point, the political tensions remain high. CNRT continues to question the constitutionality of the existing power arrangement and the government, by labelling it “de facto” government.  It also continued to question the constitutionality of the president’s decisions over the period; including the approval of the minority government, and the rejection to appoint key Cabinet members.

The power display in Dili-centric politics raised several concerns in the public on various level. At the political level, according to well-known observers of Timor’s political system, Rui Feijo, who says that the way the president exercises his presidential power throughout the period give rise to “a new configuration of presidential powers seems to have emerged with potential consequences in the mid to long term.”[i] More importantly, as top leaders are fighting for power, it undermines the efforts to address pressing development challenges, such as economic stagnation, petroleum dependency, lack of economic opportunities, poor basic infrastructures, etc.

Economic Development

Economic development particularly is very critical for the country’s future. Economic problems are the most pressing issues facing the country. According to the 2018 Public Perception Survey commissioned by the Asia Foundation; 35 percent of 1,256 respondents identify including economic diversification issue as the single biggest problem facing Timor-Leste at the national level. [ii] The IRI public perception survey consistently indicates that 55 to 60 percent of the respondents state that their family financial situation stay the same between 2016, 2017 and 2018.[iv]

For that reason, it is assumed that the nation’s attention, resources and energy should have given to the economic development agenda. Regrettably, the political uncertainty and deadlock has reversed the positive growth trend and incurred high costs for the country. It reduces the attention toward the most pressing economic development issues such as sustainable development, inclusive growth, economic diversification, and job creation, among others.  

One direct and immediate consequence of the political impasse is that the country does not have its annual budget. This inevitably affect the functioning of executive body, and the government’s ability to deliver services and the functioning of state’s bureaucracy. Given that public spending plays key roles to stimulate economy, the absence of state’s budget also reverse the economic growth trend. According to National Account Report, Timor-Leste’s economy declined by 4.8 percent in 2017 and 0.8 percent in 2018. While in 2019, the government’s budget brought the growth trend returned to positive; but the country returned to the recession in 2020, and predicted to contract by 5 percent; following the decline of the government’s spending; and the decline of tourism exports.

This affects the business activities and the wellbeing of the people. According to the Business Activities Survey, the income of the business sector is in decline trend since 2017, and the private sector employment is also in declining trend since 2017. Local media frequently reports on the closing down their business activities; and laying off some workers. Informal sector are also impacted as the domestic demand are declining. The combination of these issue then affects the people’s livelihood in term of household income and consumption level. These automatically adverse government’s efforts to reduce poverty and increase the well-being of the citizens.

Government’s Response to COVID-19 and Economic Challenges

While the country is struggling to find political settlement, and economic recession, the world is facing a global pandemic, caused by the Novel Coronavirus (2019-nCoV). It raised a great concern among Timorese public as the public health system was under-resourced and did not have capacity to response to an outbreak.[v]

With the recognition of that reality, the Government’s response was to prevent the virus to reach the community level; which would be a catastrophic for the country.[vi] Less than a week after the first case was confirmed on March 21,  the President of the Republic, known as Lu-Olo declared state of emergency upon government’s request and approved by the Parliament on March 28. The state of emergency was renewed again on April 24 and then on May 28.  Along the process, the government periodically reviewed its measures, to adjust with the changing environment. Timor-Leste’s strategy, according to the Prime Minister, is “progressive and proportionate.”[vii]

The State of Emergency provides legal coverage for the government to adopt public health measures. Mandatory quarantine for Timorese returnees and isolation for those who develop the symptoms are the centerpiece of them. The government also suspended nonessential public activities, school activities, public gathering, and public transport, and close borders. This provides an opportunity for public health to equip itself. The establishment of “Centru Integradu ba Jestaun Krize” as the coordination mechanism body to coordinate all public health measures adopted by the government.

Despite of the political uncertainty, the government’s response was decisive and timely. Such response prevented the virus to reach to the community level. Up to date, Timor-Leste has reported 25 cases, and as per today, Timor-Leste has one active case. The last case confirmed was on April 24. Timor-Leste just reported a new case, which is imported case on 4 of August, 2020. This confirms the public concerns regarding the risk that Timor-Leste has.  As the cases in neighboring countries like Australia and Indonesia are increase on the daily basis, Timor-Leste needs to take precautionary measures.

The country’s COVID-19 response has been praised internationally.  Nonetheless, the country cannot escape from the social and economic consequences of global pandemic. COVID-19 exposes and exacerbates already existing structural problems that already existed, namely underresourced public health, high poverty rates, vulnerable employment, dependency on the petroleum exports, high malnutrition, poor basic infrastructures, etc.

Timor-Leste’s economy is directly affected by the sharp decline of petroleum price at the international market. The Petroleum Fund also suffered the lost due to international financial market; although it recovered some of the loss in recent months. The tourism export experienced sharp declined as the country closed its borders. As the international staffs left the country, it reduced the domestic consumption in the country, which at the end affects the business sector. Inside the country, restriction on people’s movement through State of Emergency leads to the decline of the domestic demand; thus affected business sector. Restrictive measures on the border also has affected domestic business activities as some local business rely on the imported inputs.  These affect the social and economic wellbeing through the decline of job losses and income of the people. Although the social and economic costs are high; it shows the complexity and the hard choices that the government has to make: saving lives or saving the economy.

Multi-dimensional and multilayers of impacts caused by COVID-19 require holistic and integrated approach as well. To mitigate the social and economic risks and protect the most vulnerable groups, Timor-Leste’s government approved an economic stimulus package. The stimulus package is total of $140 million; equivalent to 10 percent of the non-oil GDP. The centerpiece of the package is $200 subsidy for the household that earn below $500/month.[viii] Other measures of the package consists of maintaining the food supply chain around the country, incentives for the bank and microfinance institutions to lend the money through liquidity injection, and wage subsidy, and moratorium for the credit.[ix] At this point, it is not clear to what extent has the package impacted the domestic economy. But the common sense is that it should have some positive impacts on the domestic economy, particularly domestic consumption, and protects business sector and employment during the time of crisis.  

To address systemic and structure social and economic challenges, which rooted in political and economic structure Prime Minister Taur Matan Ruak established the Economic Recovery Team, led by a top economist and former Minister of Finance, Rui Gomes. Joined the team are another four members. Among them are former Prime Minister and former Minister of Health, Rui Maria de Araujo, and former Minister of Tourism, Manuel Vong. The mandate of the team was clear: to prepare and propose to the Council of Ministers the “instruments that can guarantee that essential health services are available to the whole community, help citizens to face several crises, protect jobs and income of citizens and companies, in view of the impact of the economic crisis, caused by COVID-19.”[x] The commission is expected to recommend the measures to the Council of Ministers; and the Council of Minister will decide whether to approve it or not. The short-term measures are already approved by the Council of Minister on July 29, which involved support for the household consumptions, protecting the business sector as well as the labor.

Conclusion  

Despite of the country’s political context in the last three years, Timor-Leste’s timely and decisive response to COVID  already brought positive results. However, Timor-Leste is not secure. As the has not found the vaccines and the cure, and cases are rising in Indonesia, Timor-Leste has been constantly reminded to be precautious. On the other hand,   the political evolution since 2017 has not been providing the positive environment for the country’s economic development to move forward. COVID-19 adds another layer to pre-existing social and economic malaises which rooted in its development approach. The country’s future and ability to build different, better, sustainable and resilient society depend on the policy measures being adopted by the government now.
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*Guteriano Neves is an independent policy analyst. He is based in Dili.
This article does not represent any institutions that the author is affiliated with.