Jakarta – East Timor's economy has rebounded strongly after violence destroyed the tiny half-island territory nearly two years ago, with 15 percent growth forecast for 2001 and 2002, the Asian Development Bank said on Thursday.

But the Bank cautioned the growth was from an extremely low base and the fledgling economy was still dependent on external financial support.

"Real GDP grew by 15 percent in 2000, largely due to initial reconstruction works and the gradual restoration of commerce and basic services," the Bank said in its Asian Development Outlook for 2001.

"The economy is expected to continue its 15 percent growth momentum in 2001 and 2002, respectively," it added, saying agriculture, construction and services would be the main engines of growth.

Prices are expected to stabilise and inflation, measured by the consumer price index in Dili, is forecast to be three percent in both 2001 and 2002.

Pro-Jakarta militias demolished East Timor in response to its overwhelming vote on August 30, 1999 to end Indonesia's harsh 23-year rule.

"The violence and unrest associated with moves toward independence shook the entire foundation of the economy," the report said. The Bank said early reports suggested a 40 percent decline in GDP in 1999.

It said unemployment remained high, with comparatively high wages paid by international aid organisations and the inflexible wage structure of the UN – currently running the territory – distorting the labour market.

In other key forecasts, the ADB said the current account deficit would remain high at around 55 percent of GDP in 2001 and 33 percent in 2002. Last year, the current account deficit was 51.7 percent of GDP.

East Timorese plan to hold their first elections for a fully independent territory, in August.