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The oil resources of Timor-Leste: curse or blessing?

2008; Taylor & Francis; Volume: 21; Issue: 1 Linguagem: Inglês

10.1080/09512740701868898

1470-1332

Mats Lundahl, Fredrik Sjöholm,

Hydrocarbon exploration and reservoir analysis

Abstract Timor-Leste is among the youngest nations in the world. It began its independence under difficult circumstances: poverty is widespread, education is poor, the industrial sector is non-existent, and political turbulence is on the rise. On the positive side, future oil revenues are predicted to be substantial, which could potentially be a great help in Timor-Leste's struggle for development. This paper examines critically the possibility for Timor-Leste to use oil revenues to achieve economic development. It describes how difficult it is to estimate the future revenues because of volatile prices, territorial disputes, and insufficient seismological mapping. It continues with a discussion of the ‘resource curse’ – the difficulty of combining natural resources with economic development. Moreover, the particular challenges for Timor-Leste's development are dealt with at some length, as are possible ways to avoid the resource curse. Keywords: Timor-Lesteoilresource curseeconomic development Acknowledgements The authors are grateful to two anonymous referees for constructive and useful comments. Sida has provided the financial support for this study. The views expressed in this paper are not, however, necessarily those of Sida. Mats Lundahl is Professor of Development Economics in the Department of Economics at the Stockholm School of Economics. His research focuses on a broad range of development issues including poverty, rural development and international trade policy. Fredrik Sjöholm is Program Director at the Research Institute of Industrial Economics in Stockholm and Professor of International Economics at Örebro University. His research covers a broad range of issues in international economics and development studies, often with a focus on East Asia. Notes 1 See Stevens (Citation2005: 28) for a discussion on structural and cyclical explanations for the oil price. 2 Australia withdrew from the section of the International Court of Justice that deals with maritime boundary disputes as late as two months before Timor-Leste's independence. 3 It should be noted that the maritime boundary between Indonesia and Timor-Leste also awaits settlement. It seems that a permanent boundary between these two countries may be affected by the outcome of the negotiations between Australia and Timor-Leste. 4 For instance, Australia receives revenues of US$1million per day from the Laminaria-Corallina and Buffalo fields that are now exhausted to at least 75 per cent (CitationBugalski 2004: 293). 5 See World Bank (Citation2005a: 306) for a summary of the literature. 6 See, for example, the comments by present President José Ramos Horta in CitationMcKenna (2005). 7 The language issue is highly controversial in Timor-Leste. The choice of Portuguese as an official language and the language of instruction in schools, instead of using the more commonly spoken Tetum or Bahasa Indonesia, seems to have increased political and social divisions. 8 Manufacturing accounted for about 22 per cent of total GDP growth during the oil boom, followed by trade with 17 per cent, agriculture with 16 per cent, and public administration with 13 per cent (see CitationHill 1996, table 2.1). 9 Inpres – Instruksi Presiden (Presidential Instruction). 10 The Venezuelan minister Juan Pablo Pérez Alfonso, quoted in Karl (Citation2003: 8).