PRIME MINISTER'S AND PRESIDENT'S SPEECHES EMPHASIZE ECONOMIC

UNCLAS SECTION 01 OF 03 DILI 000161

SIPDIS

SIPDIS

DEPT FOR EAP/MTS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV KDEM TT
SUBJECT: PRIME MINISTER'S AND PRESIDENT'S SPEECHES EMPHASIZE ECONOMIC
GROWTH, ELECTIONS

REF: A) DILI 35, B) DILI 21, C) DILI 101, D) DILI 134

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1. Summary: Prime Minister Mari Alkatiri and President Xanana
Gusmao on April 4 addressed the annual Timor-Leste Development
Partners Meeting. Alkatiri used the forum to announce a new
approach to economic growth and poverty reduction. He stated
that the "fight against poverty must be seen by all as a
national cause" and presented an aggressive public investment
strategy aimed at raising the annual economic growth rate from
the current 2.3 percent to seven percent. According to
Alkatiri, this strategy is reflected in the Government's
proposed Fiscal Year 2006/2007 budget, which at $230 million
will be approximately $100 million more than the 2005/2006
total. (Note: The fiscal year runs from July 1 to June 30. End
note.) President Gusmao, in a speech that followed Alkatiri's,
touched on a broader range of topics. Of particular note were
his comments regarding the investment strategy described by
Alkatiri, which he praised while cautioning against the
potential for corruption, and the concerns he expressed about
the upcoming elections, particularly with respect to the need
for a powerful and independent oversight mechanism and for
public consultation and debate on the Electoral Law. End
summary.

New economic growth strategy emphasizes government
"investment" with international contractors
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2. In a speech titled "Decision Time", delivered at the opening
session of the annual Timor-Leste Development Partners Meeting,
Prime Minister Alkatiri presented a new strategy for achieving
accelerated economic growth, stating that, "the fight against
poverty must be seen by all as a national cause." Alkatiri
began by defending the Government's record of development
achieved to date, citing improved statistics in a number of
areas. However, he then stated that maintenance of the current
rate of economic growth, especially given the population growth
rate, is unacceptable as it will essentially guarantee the
continuation of extreme poverty. In order to actually alleviate
poverty, he argued, it will be necessary to achieve an economic
growth rate of seven percent a year. "[W]e now stand at a
crossroads: on one side we have the sustained strong economic
growth as a driving force to take us away from poverty; on the
other, we have the maintenance of the current growth
levels~should annual economic growth remain at 2.3%, it will
lead to the increase of the number of poor people in
Timor-Leste."


3. To achieve the target of seven percent annual economic
growth, Alkatiri stated, "we have no choice but to try to turn
the State into the engine, the locomotive of the Timorese
economy." The Government's budget proposal for FY2006/2007
therefore includes a 75 percent increase in public investment to
over $82 million, most of which is targeted for infrastructure
projects (schools, roads, electricity, etc.) Noting that the
Timorese private sector does not yet have the capacity to absorb
the volume of work that this budget allocation represents, he
said that the Government will therefore "open the doors, by way
of international public tenders, to foreign investors who wish
to operate here." However, he emphasized that the procurement
conditions will be designed to ensure that a large proportion of
the jobs created by the investment go to Timorese and that the
Timorese private sector is developed in the process. To this
end, he stated, the Government's construction contracts with
foreign companies will require that 50 percent of the workforce
be Timorese and that large projects have a minimum of 30 percent
of the value subcontracted to Timorese companies.


4. In connection with the public investment plan, Alkatiri also
briefly mentioned the Millennium Challenge Account (MCA) as a
potential source for "consolidating the effort being made by the
State Budget," reporting that the Government hopes to negotiate
a $350 million MCA Compact.


5. Alkatiri also addressed "regional asymmetries" in wealth
distribution, that is the gap between incomes and quality of
life in the capital versus the mostly rural rest of the country.
Noting that "poverty in Timor-Leste is clearly a rural
'illness'" he stated that, "a substantial part of the projects
we intend to execute during the coming years will be directed to
the interior districts." The emphasis of these projects, he
said, will be to create stronger regional capitals or "poles of
attraction" so that people will be able to sell their products
within their regions rather than by travelling all the way to
Dili. To this end he emphasized the importance of local

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governance structures and also stated that the Government plans
to establish a Rural Credit Bank to expand access to credit in
rural areas.


6. Alkatiri also touched on several hot-button political issues.
He noted that recognition and compensation for veterans remain
a top priority and that the Government stands ready to implement
the new Veterans' Law as soon as it is promulgated. He also
commented on the recent dismissal of nearly 600 striking members
of the armed forces (FDTL) saying that in the decision to
dismiss the soldiers "the principles of legality and discipline
prevailed" but that "this does not mean that no attempts will be
made to correct the alleged root causes". Alkatiri also touched
on the Penal Code and the criticism it has received for its
criminal defamation provisions (see Ref A),commenting that "The
last few months were also besmirched by an intense campaign to
discredit our Penal Code, subtly transforming it into a mere
defamation law."

President emphasizes election oversight structures
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7. In his speech following the Prime Minister's remarks,
President Gusmao touched on a broad range of topics, including
the need for continued UN assistance after UNOTIL departs in
May, the 2007 elections, veterans issues, the Commission for
Reception, Truth and Reconciliation (CAVR) report, the
Government investment program announced by Alkatiri, and the
dismissal of 591 soldiers from the FDTL. The President
responded positively to the new Government investment program
announced in Alkatiri's speech. However, he called attention to
the need to ensure access to information for both investors and
the public in the process, stating that procurement "must be
structured in a way that provides transparency and public
scrutiny".


8. Regarding the national elections required by the Constitution
in or before May 2007, the President took this high profile
opportunity to reiterate concerns that he has previously
expressed regarding the Government's approach to election
planning to date. Specifically, he emphasized the need for a
National Election Commission (CNE) "with appropriate
competencies, operating in total independence and with the
necessary funds to efficiently oversee and cover the process."
He also stressed that the Electoral Law must be developed
through a process of intensive consultation and debate to
"ensure a truly democratic process". (Note: During last year's
local elections, the CNE received very limited resources to
carry out its oversight work. As regards the Electoral Law, it
is so far being drafted by the Government with no public
consultation. See Refs B, C and D. End note.)


9. Reaction from international participants toward the Prime
Minister's new economic strategy was generally positive.
Several international participants also expressed agreement with
the President's concerns about the national elections.
Particularly noteworthy were the frank remarks of the
representative of the European Union, who expressed the view of
many international participants in the conference when he asked
that Prime Minister Alkatiri "please not be defensive" about
suggestions for ensuring the fairness and openness of the
election process.


10. On behalf of the United States delegation, Ambassador Rees
said that the United States shares the Government's concerns
about poverty in East Timor and welcomes the Government's
renewed commitment to strategies designed to reduce poverty.
Ambassador Rees congratulated East Timor on its selection as an
MCA eligible country and noted that addressing obstacles to
poverty alleviation is the central goal of the MCA process. He
added that U.S. democracy and governance programs in East Timor
will be focused primarily on the elections, including activities
to enhance the capabilities not only of government institutions
but also of non-government actors including independent news
media. Ambassador Rees added that U.S. assistance for the
elections would be directed not only to the
Government-controlled electoral administration but also to the
independent oversight commission, and that it would be designed
to promote not only technical capabilities but also "the policy
environment that will ensure a fully free and fair election."


11. Comment: The Prime Minister's new economic program got a
far more enthusiastic reception from the conference participants
than it subsequently got from Timorese observers, who generally

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dismissed it as "an election year speech for an election year
budget." Whatever the motivations behind the proposed dramatic
increase in government spending on programs to help the poor and
build East Timor's infrastructure, the country will be fortunate
indeed if these measures are the only ones the Government takes
in an effort to increase its advantage in the elections. As
President Gusmao and the EU representative suggested, however,
the Government may well have some far more problematic
election-year ideas up its sleeve. End Comment.
REES