More than 11,500 miles separate Timor-Leste and Venezuela, but despite the distance, the two countries have two major things in common: oil and poverty.
Venezuela is a country in crisis. According to the International Monetary Fund, inflation is expected to be more than 1,500 percent this year. In addition to extreme levels of inflation, there are food shortages, power outages, and a lack of basic medical supplies. Oil — which accounts for the vast majority of export revenues — has recently sharply decreased in price, affecting many social programs in the country.
Historically, oil revenues funded social programs such as two-cent gasoline and free housing for the poor. Ostensibly, these programs were a step toward lifting people out of poverty, but these programs came at a cost to other basic services in the economy. As oil production and exports stalled, the government continued to spend money on its people without careful planning or addressing the underlying causes of poverty. After the fall in oil prices in 2014, the mismanagement of Venezuela’s oil revenues and the under-investment in economic diversification proved disastrous.
Timor-Leste, like Venezuela, is heavily reliant on the oil sector for its economic growth. According to the independent body, Timor-Leste Extractive Industries Transparency Initiative (TL-EITI), the oil sector generated 76 percent of Timor-Leste’s GDP and 98 percent of its exports in 2013. These figures make Timor-Leste the second most oil-dependent nation on earth. Poverty in Timor-Leste is an issue that also needs addressing, but unlike Venezuela, the Timorese government has a sustainable plan to harness their resource-rich position to pull its people out of poverty.
The Petroleum Fund of Timor-Leste was established in 2005 in order to prevent mismanagement of revenues from oil production. The fund channels money in a focused way through the government budget into important development projects. Since its inception, the fund has contributed to important development projects and has helped to alleviate poverty in Timor-Leste.
Infant mortality rates have almost halved, school enrollment and access to electricity have doubled, and there has been strong economic growth and the strengthening of state institutions. In stark contrast to Venezuela, infrastructure and human capital investment have led to sustained economic development that continues to benefit the Timorese people.
Despite recent economic growth, poverty in Timor-Leste remains stubbornly high. According to 2014 data from the World Bank, the percentage of the population living below the national poverty lines stands at 41.8 percent. The government has acknowledged the need for further development, and the current Strategic Development Plan (2011-2030) outlines a macro agenda to target three key areas: social capital, infrastructure, and economic development.
Other countries are also stepping in to help with Timor-Leste’s ambition to reduce its reliance on oil and to improve its state institutions. Reducing poverty in Timor-Leste is in the interest of neighboring countries in particular because fostering development in the country opens new markets for their businesses. In March 2017, New Zealand and Timor-Leste signed a five-year cooperation agreement covering many areas including support for Timor-Leste’s organic coffee industry and assistance with government budgeting.
The Venezuelan experience is a prime example of how over-reliance on oil and under-investment in human capital can ruin an economy. In comparison, Timor-Leste has used the proceeds from this natural resource to sustain growth and invest in the Timorese people. While there is still a long path ahead, Timor-Leste is on the right track to eliminate the scourge of poverty and create sustainable development for generations to come.
— Michael Farquharson