Independence and oil

May 19, 2002

AT THE STROKE of midnight tonight, East Timor will become the world's newest nation, and one of its poorest -- that is, until its off-shore oil and gas reserves are tapped and flowing.

After Portuguese rule for 400 years, Japanese occupation for three, Indonesian domination for 24 and interim U.N. administration for another three, the importance of this moment cannot be overstated for this half-island nation at the eastern end of the Indonesian archipelago.

East Timor lost a third of its population under Indonesia's brutal rule. Right after the East Timorese approved independence in a 1999 vote, Indonesian troops went on a horrific spree of destruction, looting and murder.

For human rights activists who relentlessly sought to publicize East Timor's long- neglected plight and for U.N. peacekeepers, this is a victory, too. Former President Clinton, invited by President Bush to represent the United States at the independence celebration, should make much of that.

East Timor's independence comes as the consequences of its recent history -- for the Indonesian military -- remain unsettled. A landmark human-rights trial of 18 officials, including three generals, opened last month in Indonesia to assess their actions in East Timor. Top Indonesian military officials are not on trial, and the United States, worried about Islamic terrorists operating out of Indonesia, is moving to restore some ties to its military, which were cut off after its East Timor rampage.

A greater source of East Timor's problems in coming years may turn out to be its own finances, for which its offshore oil and gas fields north of Australia seem the only solution. Independence dawns with the new country as poor as Bangladesh and Angola. Its timber was stripped by Bangladesh. Half of its population of 800,000 is living on less than 55 cents a day. Right off, the country is predicting a budget shortfall of about $100 million over the next few years.

Last week, multinational donors stepped forward to raise their pledges of direct aid to more than $400 million. Presumably this would buttress the new government until 2006, when the first oil and gas field is projected to begin bringing in almost $200 million a year from sales to Japan. In all, potential revenue from just the first field over the next 17 years is estimated as high as $3 billion -- this for a nation that now has an annual budget of just $63 million.

With these riches flowing in to a small population, some believe East Timor could evolve into the next Brunei, the tiny Southeast Asian sultanate drenched in oil wealth. But given East Timor's history of being ravaged and the corruption endemic to much of Southeast Asian business culture, it would be even more astounding than independence itself if the new nation's oil and gas were to lead to such dramatically improved lives for its long-suffering people.

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