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World Bank warning to East Timor E Timor ignores economic warning
(1 day later)
The World Bank has added its voice to those calling on East Timor to reconsider its economic policies. East Timor's parliament has passed a controversial budget increase of more than 120%, despite calls for it to reconsider its economic policies.
East Timor's government is currently asking parliament to approve a 120% increase in this year's budget, funded from the country's Petroleum Fund. The government plans to use much of the extra money to subsidise food and fuel prices and develop the economy.
The fund is the country's nest egg, built with energy revenues from a gas field in the Timor Sea. East Timor relies on gas revenues for almost all its income, and is trying to create other industries.
In a letter to the prime minister, the Bank warned the plans could set Timor on course for a "resource curse". However, this budget has caused a lot of noise both in East Timor's parliament and outside it.
The private letter - a leaked copy of which was seen by the BBC - says the World Bank is concerned about the precedent being set for dipping into the country's petroleum savings. It means the government now has more than $788m (£400m) to spend this year - an increase of more than 120%.
If the government continues to withdraw more than a sustainable amount, it says, it would signal that Timor is following the "detrimental path taken by many other resource-rich countries". The government says it needs the money, mainly to subsidise high food and fuel prices and to ward off instability.
The letter, sent by the regional head of the Bank, also says that government plans to spend much of the new money on subsidies are misguided. Opponents say these subsidies risk dampening East Timor's nascent non-oil economy.
The finance minister has said subsiding high food and fuel prices is essential to prevent instability.
But the Bank says it fears the subsidies may backfire, threatening economic stability, and creating uncertainty - all of which will make it much harder for Timor to wean itself off its reliance on oil and gas.
Pressure to spendPressure to spend
At the moment the country depends on energy revenues for almost all its income. Building other industries is seen as essential if East Timor is to develop as a stable country once the oil and gas runs out.
East Timor has so far won a lot of praise for the way it has handled these revenues; storing them in a special US-based fund, and withdrawing only what can be sustainably spent. But in the six years since independence, governments have struggled to spend much smaller budgets than this.
But in the six years since independence, governments have struggled to spend even those amounts. New reforms intended to speed up financial decisions have recently been put in place.
Reports from inside the ministries now say there is growing pressure to spend more and faster. But critics say the pressure to spend more quickly is leading to irregularities.
And there have also been growing allegations that proper procedure is not being followed - allegations the World Bank in its letter calls on the government to answer. The new budget will allow the government to dip into its petroleum savings by around $300m more than is sustainable.
This is the first time the government has begun to spend its nest-egg in this way.
A leaked memo from the World Bank earlier this month said the Bank was concerned at the precedent this would set.
If repeated, it would signal that East Timor was following the detrimental path set by other resource-rich countries, it said.