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East timor statehood { May 20 2002 }

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U.S. Faces Calls for Untied Loans to Help Launch East Timor's Statehood
Fri May 10, 3:39 PM ET
Oroke Garut,OneWorld US

The United States and other major donor countries will next week face heavy pressure to come up with enough money to spare the world's newest country from having to apply for loans from international financial institutions.

Advocacy groups and members of the U.S. Congress plan to lobby the administration of President George W. Bush (news - web sites), and government officials from elsewhere around the world, to pledge money towards a budget gap of between US$154 million and $184 million which is expected to open up during East Timor (news - web sites)'s first three years of legal existence.

The international donor community "should pledge in grants (with no strings attached) enough to cover the gap in its entirety for all three years," the East Timor Action Network (ETAN) said in a position statement. "Otherwise, East Timor may have no choice but to resort to loans with terms dictated by the IMF (news - web sites) [International Monetary Fund], World Bank (news - web sites), and Asian Development Bank."

East Timor will gain formal independence just five days after donor governments and international agencies conclude their meeting in the country's capital, Dili, Tuesday and Wednesday next week. May 20, 2002, will mark nearly a quarter-century since Indonesia occupied the territory--after Portugal's 1975 withdrawal from the island--and prompted a wave of fighting, repression, and upheaval which killed one-third of the population and wrecked the entirely agrarian economy.

ETAN--with support from other groups who have joined it in lobbying and writing letters to officials at the State and Treasury departments, is calling for the U.S. government to commit funds, in the form of untied grants, to meet 25 percent of East Timor's revenue shortfall. The groups are also urging Congress to appropriate at least $25 million in economic assistance for reconstruction, civil society development, and education and healthcare.

Some 48 members of the House of Representatives wrote to Secretary of State Colin Powell (news - web sites) last week in support of those recommendations, saying that such a move would help to provide a more stable footing for East Timor's fledgling statehood.

"East Timor represents a rare opportunity to foster debt-free development in a country emerging from conflict and poverty," said the legislators, among them Democrats, Republicans, and Independents. "Grants provided free of restrictive macroeconomic policy conditions will offer East Timor the opportunity to establish a fresh approach to development, one which may also serve as a model for other countries."

Conditions attached to past loans from the IMF have attracted widespread criticism from grassroots development and rights groups for their effect on health and education services in some of the world's poorest countries. The Fund's "structural adjustment programs"--which have spread throughout South Asia, Africa, Latin America, and the Caribbean--have typically required sharp reductions in government spending, privatization of state enterprises, reduction of tariffs on trade, and tax and other breaks for foreign investment.

So far, international donors and creditors have dispensed grants only under the umbrella of the Trust Fund for East Timor due to a lack of central authority within the territory to sign loan documents. The advent of sovereignty changes this.

ETAN and anti-debt campaigners at the U.S. 50 Years is Enough Network and Jubilee USA have welcomed the Bush administration's basic approach on providing grants to the poorest countries, but have raised concerns about official statements from the Treasury that the grants would be tied to how well recipients perform at promoting private investment, not only their progress in improving living conditions.

Were East Timor to begin borrowing, its meager national income--about $500 per capita, according to the World Bank--would almost certainly qualify it for access to soft-loan windows, such as the Bank's International Development Association, which offer low- or no-interest financing.

East Timor's government is likely to be able to plug its budget gap after 2005, when it is due to start receiving royalties from offshore oil fields, according to the Bank. But until then its main export will be coffee.

Previous donors' meetings were held in Oslo (December 2001), Canberra (June 2001), Brussels (December 2000), Lisbon (June 2000), and Tokyo (December 1999).

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