“We did not expect that the elected leader of a party with an overwhelming mandate could be forced to stand down in this way in a democracy”

Fretilin press release, 26 June 2006

Backed by a foreign army, and with his country’s own army confined to barracks, the great resistance leader Xanana Gusmao finally led the charge to topple the leadership of Timor Leste’s first post-independence government. But the backing of Australia was critical.

If this appears puzzling, we must understand that, whatever the configuration of East Timor’s new government, there will be lasting bitterness amongst the major players over the handling of the recent crisis and intervention, and conflict over how to manage the new relationship with Australia. June’s palace coup has implications not just for the personalities involved, but also for the country’s development strategy. Any new government in East Timor needs to be understood alongside the country’s relationship with Australia and with the World Bank.

The current talk of a ‘more inclusive’ or a ‘national unity’ government misses the point that all recent political leadership in East Timor has been by coalition. The broadest of these, the CNRT, was disbanded after the UN insisted on multiparty elections. The Fretilin-led Government, elected in 2001, included high profile ex-Fretilin members Jose Ramos-Horta and the separately elected President Xanana Gusmao. After the coming elections the composition of the government may not be much different.

The immediate difference is the sidelining of Mari Alkatiri, Fretilin’s chief strategist, following his forced resignation as Prime Minister. Suggested charges against Alkatiri (for arming para-militaries, during the coup attempt) will go nowhere; and the ‘hit squad’ accusations, broadcast by Australia’s ABC, have no credibility. But the toppling of the leadership of an elected government, supported by both the Australian media and the Australian military intervention, flags a new political reality for East Timorese citizens.

The Australian newspaper, leader of the anti-Alkatiri charge, says his removal will be “good news for Australian companies wanting to do business in Dili”. But Fretilin remains (by a long way) the major party in Parliament. Rupert Murdoch’s flagship insists the “continuing crisis” requires a semi-permanent Australian troop presence to block what the paper calls a “Marxist revolutionary” government and because “there is no other way to keep the country from sliding back into chaos”.

Yet the ‘chaos’ was in large part fostered by Australian passive support for the rebels and hostility to the government; while the “Marxist revolution” was a rather modest economic nationalism, led by Alkatiri. In a previous article, Achievements of a ‘Failed State’ I explained the areas of tension with Australia arising from independent policy in East Timor, including the refusal of World Bank loans, differences over agricultural policy, and the acceptance of Cuban health assistance. Xanana has not expressed a distinct vision of development, remaining concerned with reconciliation. Ramos Horta has expressed a wish for closer relations with the US and Australia, and a greater privileging of foreign investment. But there is no sign yet that Fretilin will abandon the more independent course set by Alkatiri.

Herein lies the problem. An oligarchy of Australian business leaders, who consistently opposed East Timorese independence, pre-1999, have openly declared themselves hostile to the Fretilin-led project. The Howard regime gives lip service to East Timorese autonomy, but shares the hostility. This is a strategic hostility as much as opposition to any particular policy. But the ‘protectorate’ mindset certainly wants easier access to East Timorese resources, greater privileging of foreign investment, abolition of East Timor’s army and a shift in national language policy from Portuguese-Tetum to English-Tetum.

It seems likely that, even with Alkatiri sidelined, a Fretilin-led government will maintain the strategy spelt out in East Timor’s National Development Plan and sectoral policies, and backed by the Constitution. Alternatively (and if Murdoch’s scribblers have their way), a more ‘Australian friendly’ government might be persuaded to abandon its economic nationalist past, and accept protectorate status.

So what is the problem with a small country taking loans from the World Bank and becoming more ‘western friendly’? Isn’t this a legitimate way of attracting investment, improving governance and reducing poverty? Let’s examine this, in light of experience elsewhere.

The process begins with loans for essential infrastructure, usually power and roads; and in East Timor everyone has been complaining about power and roads. The World Bank would loan money to the government at low commercial interest or (in view of East Timor’s low GDP per capita) a very low IDA loan at only 0.7% interest over 35 years. This, at first glance, seems generous. But strict conditions would be attached, in the form of a ‘good governance’ contract.

An important section of the ‘good governance’ conditions would stipulate that, while the loan is public, the construction and service delivery would be private – a ‘development partnership’. This means that large foreign companies would be contracted to construct the power grid and roads, while others would meter and enforce a ‘user pays’ power supply regime. As the ‘good governance’ agreement would also stipulates no price subsidies, the only way poor families could access power would be by direct fiscal subsidy. But the government has no spare cash, which is why it would have borrowed in the first place.

Such ‘partnership’ schemes have seen even water supplies become unaffordable in major cities from The Philippines to Bolivia. The small middle classes who can afford the fees might get a better service, but the government will still have to intervene to ensure quality and contain the corruption that privatisations generate. Poor families’ access to water or power would depend on their capacity to pay.

‘User pays’ regimes, urged by the Bank across all services, damage access to education and health services. The evidence on this is conclusive. neo-liberalism in the 1980s redefined the global consensus on the right to education, so that only primary education is regarded as a full right and is therefore subsidised in poor countries. Secondary education, essential for social mobility but subject to ‘user pays’ principles, became unaffordable for the children of most poor families. In oil rich but neo-liberal Venezuela, in the late 1990s, only 20% of children reached senior high school. More than half the children in today’s Bali, flush with tourist dollars, do not reach senior high school. This is the pattern across the world. neo-liberal regimes have denied a whole generation of poor children their future. With World Bank ‘good governance’, secondary school enrolments in East Timor would go backwards.

Health services are linked to education. With no mass training of health workers, services are scarce and expensive. Despite three decades of Australian aid and World Bank programs, Papua New Guinea has shocking infant and maternal mortality figures. There are simply no doctors outside the provincial capitals. PNG has outstanding export performance in oil, gas, gold, copper, and logs. Exports have made up over 40% of PNG’s GDP for two decades. But there has been no ‘trickle down’ in health benefits. If Australia and the World Bank displace the 100 Cuban doctors in East Timor, and send off that nasty ‘communist’ system that has offered 600 free medical scholarships to young East Timorese, the country’s health standards would match that of PNG.

Then there is agriculture and land, still at the core of livelihoods for most poor people. The neo-liberal preference here is clear: export oriented cash crops and individual, saleable land title. This is why the World Bank and the Asian Development Bank, after the Asian Crisis and under their ‘structural adjustment’ programs, backed clear fell logging (disregarding their claims of ‘sustainable forestry’) and oil palm development over more than 2 million hectares in Indonesia; an environmental catastrophe which has trampled on the land rights and livelihoods of forest peoples. Abolition of rice and kerosene subsidies led to food riots in Jakarta.

In Morocco, where land was rationalised for export crops, people were driven off the land, and the subsistence sector was damaged. In Peru under Fujimori in the 1990s, land holdings under ten hectares were banned as agriculture was rationalised. Thousands of small farmers were pushed off the land. In Lima, removal of fuel subsidies led to a cholera outbreak, causing 2000 deaths in six months when poor people could no longer afford to boil water.

Public institutions, so important in defining the identity of a new nation, are repeatedly blocked by neo-liberal forces. Food security was of deep concern to the East Timorese, when they went to the World Bank in 2000, asking for help to rehabilitate their rice fields, to strengthen their subsistence sector and to establish public grain silos. The World Bank and Australia said no. Agricultural aid was only available for export crops. East Timor was advised to import rice. Despite this, the independent government proceeded to develop its rice industry, without World Bank help.

This ideological commitment to export cash crops explains sustained World Bank, ADB and Australian subsidies to the oil palm industry in Papua New Guinea, even though this industry is dominated by large foreign companies. Small farmers get few benefits from this industry, but suffer substantial environmental costs. Infrastructure development is also focused on monoculture cash crops.

Often the ‘transition’ to a western friendly regime is accompanied by promises of aid and foreign investment, which can bring wider benefits. But here many poor countries face the ‘Nicaraguan dilemma’. After getting rid of the Sandinista government in 1990 (with guerrilla war and an economic blockade), the US reneged on its aid promises and foreign investment failed to materialise. Just because investors are offered tax-free access to a country’s resources, does not mean they will come.

So why do the leaders of developing countries participate in neo-liberal programs, when they are so damaging for ordinary poor people? Sometimes they have been obliged to cut political deals, for independence. Sometimes it is due to policy weakness and a desire to accommodate the big powers – some elements of this are now visible in East Timor. But very often leaders (such as Indonesia’s Suharto) enter the business elite themselves, taking commissions, rents and other benefits from cashed up aid and privatisation programs. neo-liberal ‘good governance’ (previously called ‘structural adjustment’) has most often enhanced this corruption, rather than preventing it.

The Australian role in undermining East Timorese independence is difficult to see now, with a barrage of media influencing the desire to see ourselves as the little country’s ‘saviours’. We are nothing of the sort. Australian friends of East Timor should recognise the shocking prospects of neo-liberal protectorate status, and maintain their support for an independent nation.