Economist says East Timor must boost spending
AFP April 1, 2010 — East Timor should rethink the way it spends its oil wealth by increasing investment in key areas to boost its long-term growth prospects, a leading economist said Thursday.
Jeffrey Sachs, a best-selling author and special adviser to the UN secretary-general, said the government of Prime Minister Xanana Gusmao should stop buying low-yielding US bonds and start spending.
“I believe that the government can and should spend more in the future using the oil fund to make high benefit investments,” he told reporters during a visit to Dili.
He said there should be an increase in investment in “high-priority areas” such as health, education, roads, power and agriculture, but that any spending must be carefully planned.
“It’s not simply putting money in a budget,” he added.
“It requires an implementation strategy, a management team, control mechanisms, and those don’t exist right now, so they need to be part of any plan for sure.”
East Timor has so far amassed more than five billion dollars in oil and gas revenue, which is invested in US government bonds, giving a steady, albeit low, rate of return.
The country’s Petroleum Fund Law includes an Estimated Sustainable Income, which outlines how East Timor can safely withdraw three percent of its total petroleum wealth each year.
But Sachs, an expert on development issues and key architect of the UN’s millennium goals, said it was time to rethink that model.
“I think that the interpretation of that formula is not correct right now,” he told AFP.
“If the interpretation is about consumption or recurrent costs it has some merit, but if it’s about total spending, including investment spending, then I don’t think it’s the right formula.”
Sachs is in Dili to hold high-level meetings with UN representatives, senior officials and donors.
East Timor, with a population of just 1.1 million, is one of the poorest countries in the world and has relied heavily on foreign aid since voting to break from Indonesia in 1999.