Editorial
Independence for East Timor
by Fred E. Foldvary, Senior EditorThe Democratic Republic of East Timor became an independent country on May 20, 2002. The United Nations transitional administration turned over control to the East Timorese government. Occupying 24,000 square kilometers on the eastern half of an island in the Timor Sea between Indonesia and Australia, East Timor has a mostly Catholic population of approximately 800,000 people. With Dili its capital, East Timor raises the number of countries on earth to 193 (including Taiwan).
The people of East Timor voted for independence in a referendum in 1999. In the election for its constituent assembly, over 90% of the voters cast a ballot. Independence came after many years of struggle. The 1996 Nobel Peace prize went to two East-Timorese, Bishop Carlos Ximenes Belo and Joséé Ramos-Horta for their work towards a just and peaceful solution to the conflict in East Timor.
Following the 1999 referendum, the Indonesian army invaded and caused much damage. With little development under Indonesian occupation, East Timor is one of the poorest countries on the planet, with a 60% illiteracy rate, a per capita gross national product of $340, and life expectancy of only 57 years. About 10 percent of the East Timorese are still being held in refugee camps in Indonesian West Timor.
When the Netherlands occupied Indonesia, East Timor remained a colony of Portugal. During the 1970s, Portugal let its colonies go. In 1975, Indonesia invaded East Timor, ending 400 years of Portuguese rule. Many East Timorese were killed during the Indonesian occupation.
The U.S. dollar has been the official currency of East Timor. The new government should continue using the U.S. dollar as a more stable alternative to having its own fiat money.
East Timor's best chance for rapid development is to avoid taxing its labor and capital, and get its public revenue from the land rent. The U.N. administration already had a "withholding tax" on real-estate rentals, starting in January 2001. The amount of the withholding tax on the rent from land and buildings is 10% of the gross rental payment for both the land and the buildings. The new government should totally exempt buildings from the tax and only tax the site value or land rent, increasing it to 80%.
East Timor has a tax on wages, which should be repealed. It is unfortunate that in the country's constitution, Section 55 states that citizens with income have a duty to pay taxes. The workers are poor enough, and the tax adds to labor costs, reducing employment. There is also a tax of 10% on renting vehicles. This tax too should be repealed. Like other taxes on capital and labor, it stifles the provision of such services and reduces investment.
The Timor Gap is an area in the Timor Sea between northern Australia and East Timor which contains proven petroleum resources. Potentially much revenue can be obtained from the extraction of oil from the seas around East Timor via the rent tax, which can replace taxes that stifle the development of the country's economy.
The web site Practical Politics (issue 99, 2000), published by the Land Value Taxation Campaign in the UK, declared, "The poor, fledgling nation of East Timor could get a multi-billion pound windfall from oil and gas exploitation rights held by Australia" (Barbie Dutter, "Daily Telegraph", 14th. April). The new government could renegotiate the Timor Gap Treaty of 1989 "in which Australia and Indonesia carved up the lucrative oil and gas reserves in . . . the Timor Sea."
One cause for concern may be the official name of the country, the Democratic Republic of East Timor, as inscribed in its Constitution. In the past, countries that named themselves "democratic" were anything but that in substance, as was the case, for example, of the German Democratic Republic, the former East Germany. Let us hope East Timor will be different.
With respect to land, Section 54 of the Constitution states that "only national citizens have the right to ownership of land." If most of the rent were collected by the people of the nation, then it would not be harmful for foreigners to have possession. At any rate, if one can have long-term leases, that might be sufficient for foreign investment.
Let us welcome East Timor to the world's family of independent countries and hope that they will follow the path of grassroots democracy, civil liberties, and economic freedom.
Copyright 2002 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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