Twenty-Two years of austerity in Timor-Leste: The IMF and rebuilding the neoliberal state from scratch By: Fernando A. T. XimenesRead Now
Timor-Leste was proclaimed by the Revolutionary Front for an Independent East Timor (FRETILIN) as a sovereign state on November 28, 1975. Tragically, on December 7, Indonesia launched a large-scale military invasion backed and supplied by U.S.-led Western diplomatic, economic, and arms support. For twenty-four years, Indonesia committed one of the “greatest genocides” in the twentieth century history. During the first three years, East Timorese under the FRETILIN leadership responded with a war of resistance and popular revolution, a “most tenacious difficulty yet seen in the colonial revolution,” per Dennis Freney.
Under the leadership of Xanana Gusmão, compromise policies emerged within the national liberation front from the early 1980s until the late ’90s. In an August 1999 referendum, the Timorese people voted overwhelmingly for independence, ending twenty-four years of Indonesian neocolonial occupation. Timorese entered into a two-year transition period under UN Transitional Administration on East Timor (UNTAET) governance, which some have referred to as the “UN’s Kingdom,” pointing to recolonization by the imperialist power under the flag of the United Nations, International Monetary Fund (IMF), and World Bank. This recolonization aimed to establish what George Aditjondro described as a “global capitalist outpost” in Southeast Asia, as a top-down “neoliberal macroeconomic testing ground.”
The implementation of neoliberal in Timor-Leste is not new, but it has been radically ramped up since 2000 as a savage policy of the ruling class against the poor, not only by the IMF, World Bank, and Western imperialist states, but also with the help of local politicians.
In 1999, UN Secretary General Kofi Annan requested that the IMF collaborate with UNTAET leadership in the reconstruction of Timor-Leste. During the two-year transitional period (2000—02), the IMF acted as an advisor on budgetary and technical issues. Due to its own regulations, however, the IMF was not allowed to provide funds to nonmember countries such as Timor-Leste. The IMF mediated between the East Timor Transitional Administration, UNTAET, aid agencies, and donor countries. Instead of offering unconditional grants, the IMF sought to make Timor-Leste take out titanic loans, aimed at creating long-term debt.
Still, the IMF mission has indelibly shaped the state economic infrastructure, in terms of budget authority, revenue, taxes, and payment regulations. The Central Fiscal Authority, which is responsible for the fiscal strategy of the East Timor Transitional Administration, was created by IMF efforts and guidance. The IMF was responsible for securing the adoption of the U.S. dollar as Timorese currency, further expanding U.S. global neoliberal hegemony based on the dollar. The IMF was crucial in the Western imperialist foreign policy of subjugating East Timorese into the imperialist world system, centered in Washington.
The IMF has advocated for Timor-Leste to have more power to administer funding from donors, which remain supervised by the United Nations in Washington. But this is not because the IMF was really preoccupied with the wants and needs of the Timorese people, but because Timor-Leste as administrator opened up possibilities for the IMF to further influence and direct funds according to its own agenda and interests.
What the IMF has done is a form of aggressive imperialism, forcing Timor-Leste to work and serve the West by hindering its own independence in foreign relations. As the IMF managing director Horst Koehler has stated, the economic difficulties of Timor-Leste, created by colonialism and imperialism, forced the country to work with the IMF as the only path forward. Ironically, Timor-Leste joined the IMF and World Bank as its 184th member and the Asian Development Bank as its 61st member two months after its restoration of independence in May 2002. Later that year, Timor-Leste became the 191st member of the United Nations.
The IMF and World Bank had already occupied a penetrative role in promoting neoliberal austerity reform and measures in Timor-Leste before the official restoration of its independence in May 2002. Even without any strong sources of revenue, oil production did not really start until 2004, but the IMF had already advocated “fiscal responsibility” during the transitional period. It advised the FRETILIN government to maintain wages at similar levels as during the Indonesian occupation, even proposing to cut salaries and wages of civil servants, as well as state expenditure on services and goods. Since 2000, the IMF has worked to ensure Timor-Leste as a new vibrant target for foreign capital to exploit cheap labor and access to a market and raw materials, encouraging policies preventing the increase of the minimum wage, subsidies, and price control.
In a similar move, after regained independence, FRETILIN governed the country from 2002 until 2007. In early 2006, the country faced a political crisis. FRETILIN secretary general and center-left politician known for his opposition to the IMF, World Bank, and Western imperialist debt policies, Prime Minister Mari Alkatiri was ousted by mass protests organized by right-wing sectors and liberal democrats backed by imperialist powers such as the United States and Australia. At the time, he had had a dispute with president Xanana Gusmão and the destabilization of his government was also rooted in his opposition to Australia and Western oil corporations in the maritime delimitation and oil-gas dispute. In the end, he was temporarily replaced by the neoliberal technocrat Estanislau da Silva until Jose Ramos-Horta, a pro-Western politician, was appointed as the new prime minister.
Amid the political crisis of 2006—08, the new cabinet favored the agenda of IMF-sponsored reform. In 2006, Horta called for the reduction of taxes and promoted national and international investor-friendly fiscal policies. In the meantime, a joint comparative study by the IMF, World Bank, Asian Development Bank, and global consultants laid the groundwork for new policy recommendations that would set up a new reform and fiscal strategy of the Timorese state.
In 2008, the new coalitional government headed by Gusmão comprised of four right-wing and pro-Western political parties: The National Congress for Timorese Reconstruction (CNRT, founded by Gusmão), Democratic Party, Social-Democratic Party, and Timorese Social Democratic Association. They formed a coalitional government and adopted the name Aliança de Maioria Parlamentar (Alliance of Parliamentary Majority), typical of right-wing coalitional governments in Latin America backed by U.S. imperialism.
Gusmão and his new government enjoyed the revenue gained from the oil boom, which created a new upper class tied to a patron-client relationship. From 2008, the government promoted a “Referendum Packet” as a national strategy for rural revitalization and the promotion of “autonomous” development of local/national capital through seven hundred infrastructure projects, precisely designed to offer government contracts to Gusmão-CNRT clients and loyal veterans. There were two ultimate results of this. First, sectors of veterans became part of the local and national bourgeoisie; second, the veterans were incorporated into the national ruling historical bloc as the social forces promoting reactionary ideology. Indeed, the project aimed to create a new comprador class with a counterrevolutionary culture. The effect was that the right-wing neoliberal turn of public economic policies widened social inequality, and increased authoritarianism and clientelism in Timor-Leste.
Despite the global capitalist crisis of 2008, Timor-Leste enjoyed considerable growth and stability, and was generally safe from economic contractions. The CNRT government sought to use much of the money made from petroleum funds for broad national investment. The IMF, however, insisted that it would jeopardize the national economy and cause rising inflation. The IMF contended that the government had chronic expenditures problems, and that its inability to spend the money was due to “inadequate budget planning and poor implementation capacity” rather than the structural barriers imposed by the IMF.
From 2000, any big budgetary proposal from the Timorese authority was described by the IMF as ambitious and as exceeding its administrative capacity. This has been a constant IMF policy since the beginning, promoting fiscal austerity to discourage any big public investment while encouraging small fiscal responsibility. At the same time, the IMF sponsored monetary austerity centered on dollar revaluation while reducing money supply, in favor of few national capital and foreign investors—policies that were responsible for constantly chipping away at the bargaining power of Timorese workers to resist and struggle against capital.
Since the assault against the social reform government of the FRETILIN in 2006, there has been a steep rise in new legislation favoring international capital, the free-market economy, and neoliberal austerity reform such as labor market deregulation. IMF-sponsored policy reforms have been well received by all major parties and political figures without strong resistance from popular or left-wing political parties or civil society since 2008. It is the price the traditional political left such as FRETILIN had to suffer for ignoring the revolutionary mass struggle and project.
2022 marked two decades of neoliberal offensive in Timor-Leste, assaults that aimed to deepen the neoliberalization of the bourgeoisie national state of Timor-Leste. Timor-Leste represents a new case in the dawn of the twenty-first century on how the IMF imposed a top-down neoliberal macroeconomic infrastructure and reform project from scratch. Neoliberal-oriented fiscal and monetary austerity has been implemented and designed to keep Timor-Leste from having no economic and political sovereignty.
To end, the capitalist-imperialist’s monstrous strategy of neoliberal austerity has haunted the Timorese people for over two decades. IMF-sponsored policy reforms have shaped national development and economic policies and strategy centered on austerity that favored global capital and imperialism since the beginning—economic policies responsible for maldevelopment, poverty, unemployment, and deep inequality, but also the impasse of left-wing and working-class movements in Timor-Leste.
Our proper task is to create a new anti-neoliberal, anti-imperialist front fighting for popular democratic sovereignty and the construction of a new socialist economy.
Fernando A. T. Ximenes is a Timorese writer, educator, and history researcher. He is a member of Komite Esperansa, East Timor.
This article was republished from Monthly Review Online.
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