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Timor-Leste and Development Partners Meeting, Opening Statement,
3-5 December 2003
Excellency, Chairperson of the National Parliament
Excellency, Vice President of the World Bank, Mr. Jamil Kassun
Excellency, SRSG, Ambassador Sharma
Distinguished Ambassadors and Heads of the Diplomatic Missions
Representatives of our Development Partners
Fellow Members of the Government
Distinguished Deputies
Illustrious Participants
Ladies and Gentlemen
On the third of December 2002 we were amidst the pressure of
finalising the arrangements of a meeting of this nature - Timor-Leste
and Development Partners - and that of a restless political climate,
culminating with the disturbances of 4 December. At that time,
the disturbances and the consequent destruction did not move us
from holding the meeting at the scheduled period. And we did it
with success.
Today, one year later, we welcome you once more to our country,
in a climate of clearer and more encouraging perspectives, based
on stronger institutional foundations and solid principles. Thus,
on behalf of the Government of the RDTL, of all the people of
Timor-Leste and in my own name, I wish to welcome you to this
fourth meeting in Dili, so that together we may make this reunion
the most participative and productive it can be. I am confident
that together we can achieve this.
In barely 18 months after taking over the reins of governance
of the Timor-Leste, after UNTAET, the country has made considerable
strides on different fronts. In particular, the building of a
democratic state of law, developing institutions and human resources,
consolidating the base of an efficient system of good governance,
aiming for strong and participative institutions, an open life
and culture, embodying a legitimately democratic and disciplinarian
authority.
In this way we have further enhanced our dialogue with our people,
encouraging and enabling them to participate actively in the development
process.
The Open Governance carried out in the districts, sub-districts
and some sucos is an important way of providing the people with
information about the Government Plans and their execution, the
defined priorities and their origins and reasons. We try to listen
directly to the concerns of the people, ascertain their expectations
so that actions may be initiated in order to meet their demands,
without disfavouring the coherence of the National Development
Plan. In order to follow-up on the action of the Open Governance,
an inter-ministerial Commission was set up to develop longer works
in each District, organising initiatives - establishing associations
or cooperatives - of basic capacity building in areas such as
management and production skills for the market, introducing new
technologies, etc.
A follow-up technical group shall be set up to continue to provide
the necessary assistance to the population in a more integrated
fashion, i.e. involving the main activity sectors of the rural
areas.
Assuming the inclusion policy as its motto, the Government seeks
to develop other partnership mechanisms with the society in general.
Still following the same policy, we have boosted and facilitated
the establishment of a multi-stakeholder High Level Mechanism
to bring forth pluralistic perspectives on current development
concerns and evolve pragmatic options to address these.
Within the Government, which started from the debris of destruction,
with limited structures and extremely low human resource capacity,
we have tried during the last year and a half to prioritise the
institutionalisation of the State. Thus we have
i. embarked on an ambitious legislative programme, adopting laws
structuring the State, approving standards and setting up the
necessary organisational structures for better implementation
of the laws and execution of the programs;
ii. formulated sector plans, policies and strategies;
iii. adopted the Implementation Guide for the National Development
Plan, the Matrixes; and
iv. adopted procedures and guidelines to improve implementation
and controls over programme Budget execution.
Despite our progress, we still require more time and ongoing
multi-sector and multidisciplinary assistance from our development
partners, to consolidate the gains to ensure their sustainability.
Simultaneously, we have begun to build the capacities of our
public service - both the civil service and the security forces.
Together we have made significant progress. We have successfully
completed some exciting phases of this long walk through the desert;
we have launched the fundamental basis to make Timor-Leste another
oasis of sustained development in this subregion of the World.
Defence and Security
On the security front, our National Police and Defence Forces
(PNTL) are assuming increasing responsibilities as the strength
of the UN Peacekeeping Forces and the UN Police is reduced. The
National Police have assumed responsibility for policing in all
districts except Dili, which should happen next week. On January
2004, UNPOL will transfer the National command to PNTL.
This is indeed a rapid transfer and I wish to commend our Defence
Force and the National Police as well as the UN Peacekeeping Forces
and the UN Police for this outstanding achievement. We recognise
that our national security forces are still very young and inexperienced.
They need continued training and technical assistance to strengthen
their skills and gain the confidence of the people, as well as
material support to enhance their performance. I also recognise
that the security throughout most of the country has been maintained
by our services, with the assistance of UNPOL.
However, it is important not to get carried away by an arms trend
or even a militaristic trend regarding security and forget that
development is the best instrument in preventively fighting insecurity
and conflicts between groups, regions or even international ones.
Preventive Development
As you may be aware, the heavy equipment used by the UN Peacekeeping
Forces damaged some of the roads through the country, but mostly
in the border Districts. The development of these areas has been
hitherto neglected, despite the fact they are considered zones
of major military influence. In order to correct this delay we
will formulate a Special Preventive Development Plan or SPDP for
the border Districts of Covalima, Bobonaro, Oecusse and parts
of Ermera and Ainaro. The SPDP will focus on the twin areas of
enhancing security and promoting development in the risk-prone
areas. For this it will be necessary to rehabilitate the damaged
infrastructure, thus rendering easier the movement of goods and
people, it will also make the people feel less vulnerable to external
forces and threats, give them improved access to the markets.
The SPDP shall also favour the component of community development,
so as to improve the living conditions of the populations. The
intention is for the SPDP to be constituted into an integrated
development plan and into a pilot initiative reconciling the immediate
creation of jobs and the intensive use of manpower with the development
of the local capacities and institutions, targeting the sustainability
of the programs and the gradual decentralisation of administration.
We hope that you fully support this initiative which we intend
to present in our next meeting.
Justice and Development
Justice is the sector that needs the most assistance for its structures,
capacity building and to make it consistent with the rule of law
and a democratic state. The issue of language as a communication
instrument is one of the many issues that make the interpretation
and application of the law difficult.
The development of the training programme for interpreters and
translators beginning in January 2004 and the programme for training
Magistrates and their necessary evaluation, will surely contribute
to better performance in this sector.
Legislative Measures
We have made considerable progress on the legislative package
for creating the enabling environment for attracting investment
and promoting the private sector. Also, we are initiating the
preparation of legislation on fisheries and tourism, as well as
the legal regime for resource exploration in our exclusive economic
zone, in the territorial sea and to explore hydrocarbons and other
minerals on-shore.
Soon after the meeting with Development Partners in June, we
finalised arrangements with ConocoPhillips and the Australian
Government to permit the Bayu-Undan gas development in the Timor
Sea to go ahead. The negotiations were delicate and difficult,
especially for us with limited experience in these areas. Nevertheless,
we believe the agreement delivers real value to the Timorese people.
The National Parliament passed the Bayu-Undan tax legislation
that is consistent with international standards. We are proud
of what we have achieved. The Bayu-Undan development is expected
to deliver three billion dollars to our country over its 20-year
production life.
I should emphasise that the Bayu-Undan field will not yield significant
revenues until after FY2007-08. Even then, it will not provide
enough income or surplus to allow us to save sufficient sums for
the benefit of future generations. This is one of the reasons
why the delimitation of permanent maritime boundaries in the Timor
Sea is an urgent priority of my Government.
If Timor-Leste and Australia are able to agree on permanent maritime
boundaries that are consistent with international law, we shall
set up a stable and attractive environment for the investors.
This way, all our sea resources may be explored so as to better
serve our people.
In order to protect Timor-Leste from the large fluctuations in
petroleum revenues, and utilise the Timor Sea revenues to benefit
present and future generations, the Government proposes to establish
a Petroleum Fund. Surveys have already been commissioned to different
institutions, with the version presented by the IMF being the
most significant.
Private Sector
Still in order to attract investors, we have initiated steps
to establish industrial parks. Also, we are in the process of
finalising a tourism venture around the "Areia Branca"
beach area, in Dili, and in Com, in the Lautem District.
In the context of the private sector development, many cooperatives
were established. This was a significant increase compared with
last year - around 77 - the majority of which are credit unions
and coffee cooperatives. They cover an area that goes into the
districts and sub-districts, providing critical intermediation
services such as credit and marketing.
In the power sector, surveys and explorations for on-shore gas
and oil are being initiated, with the assistance from China Oils.
We have signed a Management Contract with CEM (Companhia de Electricidade
de Macau/Power Company of Macau) to manage EDTL for a period of
three years. We expect that the performance of the power sector
will improve considerably in the coming months. Meanwhile, measures
like cuts and rationalisation in distribution have already been
carried out, following my clear instructions of never going beyond
the level of daily consumption of fuel foreseen and financed by
the current Budget. Initiatives have already been carried out
in order to explore new sources of energy production, such as
water, the sun and the wind.
The initiatives under the first Small Enterprise Development
project funded through TFET have been encouraging. With the direct
involvement of the Government in the project management, the levels
of repayment of debts have increased, and further effort to collect
the overdue loans are being made.
The micro-finance schemes in the country have been relatively
successful in reaching out to small entrepreneurs, with the Micro-Finance
Institution collecting savings approaching a million dollars.
Within the scope of the stability program we have included the
RESPECT project, which, up to the present time, despite being
still at the stage of institutional development of its regional
capacities, has started to produce positive impacts on the rural
community. Allow me to express here the full commitment of the
Government towards this project, and to ask of all the Development
Partners to let go of their doubts, in order to contribute to
it.
It is also with pleasure that we may say that in the formal financial
sector, total bank deposits have reached about 90 million dollars,
with private deposits accounting for about two-thirds of the total.
Bank lending to the private sector, especially to business enterprises,
has increased to around 13 million dollars or about 22 per cent
of private bank deposits by the end of September 2003.
Aiming for a better control of the revenue collection services,
we have recently started the Automatic System of Customs Data
Management, or ASYCUDA. With this we intend to prevent fiscal
evasion and fraud, as well as to increase considerably the collection
of revenues at customs.
Internal Audit
During the past year, the Inspector-General has investigated at
my request and that of other institutions, numerous allegations
of irregularities. Between the situations he investigated, there
are at least two cases pointing to practises of a criminal nature,
referred to the Attorney General to be handled by the competency
of the courts.
Human Resources Development
Concerning the recruitment of staff, we are close to reaching
the number of twelve thousand. Some senior positions remain unfilled
due to the need and the difficulty in finding qualified candidates.
The draft Civil Service Act has been approved by the Council of
Ministers and will soon be sent to the Parliament for consideration
and approval.
The capacity of the civil service has been improving gradually,
although not as fast as we have hoped for. Many of the staff members
are starting from a very low knowledge base and with very limited
experience. The organisational structures, systems and procedures
are still being evolved and consolidated.
The UN assessed contribution for the 100 posts administered by
UNMISET, of which only 82 have been filled, and most of these
recently (third quarter of this year) and the bilateral assistance
for the 200 Development Advisers project administered by the UNDP,
and other advisers and consultants provided by our Development
Partners have been valuable in strengthening the capacities of
our civil staff.
Since capacity building is an integral part of the institutional
development, we have already started the procedure to formulate
capacity building strategies to deal with our countries' requirements
in the short, medium and long terms. We have invited our Development
Partners to assist us in this exercise, in a spirit of true partnership.
As I indicated at the last Meeting in June, my Government recognises
service delivery to meet the immediate needs of our people, including
security, to be a high priority. About a third of the State Budget
is allocated to service provision in education and health, with
a fifth devoted to security. Also, Education, Health, Agriculture
and Infrastructure receive the largest shares of the combined
sources budget.
We have continued to prepare and implement the Annual Action
Plans and monitor progress through quarterly monitoring reports.
The Annual Action Plans are nothing more than the annual execution
of the National Development Plan. We have also initiated the preparation
of the second National Human Development Report, whose main focus
will be to evolve options to adapt the Millennium Development
Goals (MDGs) to the situation of Timor-Leste and reconcile the
National Development Plan objectives with the MDGs.
Building upon the draft Road Map, and based on discussions with
several Development Partners in June 2003, we have prepared sector
expenditure packages (SEPs) for a few sectors:
Education and Training;
Healthcare;
Agriculture and Livestock;
Natural Resources and the Environment;
Communications;
Power;
Transport;
Water Supply and Sanitation; and
Private Sector Development.
The draft SEPs have been presented to the representatives of
Development Partners in Dili by the concerned Ministers and preliminary
discussions with them took place during the past two weeks. In
tomorrow's Meeting brief presentations on the SEPs will be made.
We plan to continue the discussions on the SEPs with you during
the next four months, with the objective of reaching a broad agreement
on the SEPs including the funding arrangements in time for us
to be able to set up the bases for achieving agreement at the
next Annual Meeting with Development Partners in June 2004.
Budget execution during the last fiscal year has improved over
the preceding year, both on the revenue and expenditure aspects.
The pattern has continued in the first quarter of the current
fiscal year. In drawing up the budget for the current fiscal year
in June, we were already concerned about how to bridge the fiscal
gap of more than $70 million in the medium term. The outlook deteriorated
by September, when we received the disturbing news that the projected
flow of significant revenues from the Timor Sea oil and gas is
being delayed. This has resulted in almost a doubling of the fiscal
deficit in the CFET budget over the next four years, beginning
with the current year.
It has come to our attention that in a few instances, the civil
servants have been trying to short-circuit the existing financial
and procurement systems. In light of the above developments and
to ensure a sound management of scarce available resources, I
have instructed our Ministers, Vice Ministers and Secretaries
of State in mid-October to take over the control of their respective
departments, with a greater focus on expenditure procedures. The
measures already taken in this regard also include:
1. The successful enforcement of the state vehicle access and
usage policy since the beginning of this year;
2. Consideration of strategies for rationalising the vehicle fleet,
within the context of the UNMISET asset hand-over, including the
possible disposal of vehicles that are not required. We are considering
the creation of a Public Entity for the management of state assets,
including allowing the leasing of the vehicles;
3. Establishment of a joint UN / Government committee to manage
UNMISET asset hand over, including assessment of Government needs
and priorities and identification of all recurrent costs. The
committee's report to the Council of Ministers has been received
just this week; and
4. Blocking access to the Timor Telecom's network of cell phones
which have spent beyond the established limit and blocking access
to international calls or to calls made from land lines to cell
phones in many of the fixed phones that belong to the public services.
The lower Timor Sea revenues have widened the overall CFET budget
deficit in the current fiscal year to around $10 million. However,
in the context of the recent Mid-Year Budget Update exercise,
we have taken measures to contain the CFET expenditures and realise
cuts or savings amounting to about $4.5million dollars. The measures
include stringent guidelines on use of official telephones and
cars and curtailment of non-essential domestic and international
travels. These cuts or savings will not affect allocations to
the priority service areas of education and health, which are
protected. In addition, the anticipated donor assistance under
the Transition Support Program is likely to be higher largely
due to the depreciation of the US dollar. These and some modest
drawdowns from the accumulated CFET savings or balances from previous
years will be adequate to eliminate the CFET budget deficit during
the current fiscal year. We are doing our part to control expenditures
and balance the budget. We ask of you, our Development Partners,
to help us with rationalisation of the allocations and expenditures
in the combined sources budget to ensure that the delivery of
essential services to our people will not suffer.
For a better coordination in budgetary execution, a budget execution
Monitoring Office shall be set up to perform its activity across
different sectors, under the direct dependence from the Prime
Minister.
Further, the Ministries and Secretaries of State must present
to the Prime Minister up to December the plans regarding the execution
of the Capital Fund budget. The goal is to discipline and guide
the budget execution, drawing experiences on the capacity of each
agency, thus serving as a basis for the drafting of the budget
for the next fiscal year.
It should also be made clear that executing the budget does not
mean the act of spending alone. It is imperative that the expenses
are translated into service delivery to the public.
Looking ahead, the downward revisions to the Timor Sea oil and
gas revenue estimates increases the CFET financing requirement
over the next three fiscal years (FY2004-05 to 2006-07) from about
$79 million to $133 million. A number of potential options have
been identified to meet the emerging CFET budget deficit. The
options include:
1. An increase in budgetary support in the next fiscal year (FY2004-05),
which is the final year of the ongoing three-year TSP, to meet
at least half or about ten million dollars of the about 20 million
dollar deficit, with the Government meeting the remainder through
improved efficiency in expenditures, and revenue measures including
asset sales; and continuation of budgetary support under TSP-like
arrangements for the subsequent two fiscal years (that is FY2005-06
and FY2006-07) at roughly the same level as in the next fiscal
year;
2. Redirecting, as far as possible, bilateral and multilateral
funds towards priority programs;
3. Raising additional domestic revenue, although the scope for
any significant expansion in domestic revenue generation is limited
given the low income and tax base;
4. Raising additional revenue through asset sales, including intangible
assets owned by the Government and other goods, equipment and
supplies that are not essential for the Government's operations;
5. Constraining growth in CFET expenditures, through increased
focus on consolidating and improving existing services with any
additional funding directed to the highest priority areas in-line
with the priorities in the National Development Plan and the Road
Map. However, constraining CFET expenditure may have significant
deleterious impact on the effectiveness of complementary development
expenditures by bilateral donors off-CFET, in the combined sources
budget. Also, it is likely to impact negatively on the economy;
6. Utilisation of a portion of the accumulated Timor Sea First
Tranche Petroleum (FTP) royalties, which will require first the
establishment of the Petroleum Fund for management of Timor Sea
revenues, including the enactment of necessary legislation, with
any change in the FTP savings policy and regulations, procedures
and safeguards governing the utilisation of the savings forming
an integral part of the legislation.
7. Drawing up a feasibility study, already requested to the World
Bank, to examine the pros and cons of borrowing from the concessional
windows.
There may be other options that we are not aware of. We recognise
that a combination of options will be required to fill the medium-term
budgetary gaps. We wish to explore the options in full consultation
with you, our Development Partners, during the coming months.
The Minister of Planning and Finance will provide details on the
fiscal developments in her presentation to the Meeting tomorrow.
In conclusion, let me express the gratitude of our people and
the Government for your support during the past four years. I
would also like to reiterate our desire to continue to work closely
with you. In this way we shall move forward, assured that we will
tread successfully through the great avenues of sustainable development.
Thank you.
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