Guteriano NevesDepartement of Research, Analysis and DocumentationPresidency of the Republic

This presentation intends to deploy “Rentier State” paradigm to explain current Socio-economic and Socio-political dynamic, and state-society relations in Timor-Leste.”

Through this presentation I argue that “Understanding socio-political and

socio-economic dynamic of Timor-Leste, one cannot ignore the impacts of Petroleum Dependency. Petroleum revenues forms a state of Timor-Leste becomes a “Rentier State” even the extreme one, in which, it determines current political economy, public institutions characteristics, and state-society relations. It will be still the case for one or two decades to come.

Rentier State Political Economic Concept that

explain political, economic and social dynamic in a state where high percentage of its revenues are derived from extrenal rents.

Hossein Mahavy, Hazem Beblawi no Giacomo Luciani are well-known

Statism/Developmental State: State not only functions as regulatory body, but it is the main entity of development. It lays down the long-term plan, and orient other entities to follow.

In Third World Countries, it is a pragmatic decision, given that private sector is lacking of capacity.

It fortifies state’s presence in the society and fortifies state’s legitimacy

In some case, because state is too powerful, the regime turns into authoritarian regime.

State’s independent from domestic economy Government plays down importance of Taxation Dutch Disease hurts domestic production Employment in Public Sector: Bigger, more

attractive, more Secure. Other Sectors are to service petroleum or public

sector State institutions are to distribute resources and

not to extract revenues from domestic economy Relations between Elites – Business – Voters

characterized as Patron-Client Relations Middle Class: Centralized in Urban and Highly

Consumption imported goods

80.5% of GDP is from Petroleum 93.6% of state’s revenues are expected

to come from Petroleum (2013) 88.47% State’s annual budget is

transferred from Petroleum Fund (2013) 54% of household wage income and

57% of percapita monthly wage income paid by the government

Domestic Economy activities takes place due to recycle of Petroleum Money

Pragmatic and and Unavoidable Strategic Development Plan Public Sector is expected to lay down foundation for private sector and

economic diversification. Capital Development Increased in extreme way (Between 2008 and

2013, it increased 775%, without inflation). Recurrent Expenditure increased 136% from 2008 level (Without

Inflation) Macroeconomic Policy: Injecting capital into domestic Market through

wage and salary, public transfers, PDD, PDL, and Goods and Services Increased in the Public Servants: 54.4% of national household wage income and 57% of percapita salary

income is from Government Expansion of Social service: Education, and Health

This expansion regardless of quality, happens because only petroleum

revenues. It takes place independently from domestic economy. Or in other words, domestic economy does not

contributes to this expansion as 2013 state’s Budget is 113% of non-oil

projected GDP and it contributes only 6.7% of state’s revenues this year

alone .

Inflation between December 2010 and December 2012, CPI increased 26% or 13% annually. Right now, inflation in Dili still at 13%.

Expansionary fiscal policy does not match with domestic productivity

Makes it hard for local industry to take place ISI becomes impossible as imported goods and

services are more attractive It hurts 50% of population who live with $40 or

less/month

Without Petroleum Fund, it would have been worse

Public Sector employs around 40,000 Job in Public Sector: more attractive, more

secure Private Sector Employs 58,000 (30% in

construction sector, and 80.5% of it are in Dili)

Outside of these sectors are: Self-Employed, subsistence agriculture.

Around 50% of productive age population (15 – 64) are considered to be economically inactive

2008 Government reform tax policy upon recommendation from IMF

It was based on the fact that petroleum revenues was already flowing into Petroleum Fund

Therefore, even without domestic economy, state still exist.

Fiscal contract, and constructive roles of the society to the state is very small.