Canberra – Economic prospects for East Timor remained low in the medium term, the World Bank said ahead of a two-day meeting of donors to the emerging nation that began in Canberra on Thursday.

Donor support would be needed for many aspects of life as the former Indonesian province transforms to independence in 2002. The World Bank points out that building state institutions will take years, not months.

Civil servants are still gaining experience in new jobs in a fragile and evolving system and there is a lack of legislation in crucial areas such as land titles and property rights.

With independence approaching – after constituent assembly elections on August 30, the development of a constitution and the holding of presidential elections – medium-term development priorities must be examined, the World Bank said. "While the realization of oil and gas revenues mid-decade can provide relief from dependence on external financing for core budget support, East Timor will still be a very poor country in the medium term," the Bank said in a paper prepared for the donors conference. "It will require strong direction from the Timorese leadership and continued coordinated support from external partners to make progress against development goals."

The Bank also notes that oil and gas revenues are expected to be totally absorbed by recurrent budget needs. It also called on donors to ensure the funds they have already pledged are delivered ahead of independence.

Austalian Foreign Minister Alexander Downer and two key negotiators for East Timor were to meet on Thursday to discuss an agreement on sharing oil and gas reserves in the Timor Sea. The meeting comes after two days of negotiations between officials of the two nations as the last areas of difference are resolved ahead of the proposed signing of a framework agreement in July.

East Timor interim economics minister Mari Alkatiri and United Nations Transitional Administration in East Timor (Untaet) political officer Peter Galbraith will talk to Downer on the framework agreement.

Last week, interim East Timorese foreign minister Jose Ramos Horta said he could not allow the negotiations to fail as his country would not begin its independent life by scaring off investors. Galbraith said he was in Australia to try to conclude negotiations.

A new treaty could be signed once East Timor established its first government, probably in 2002. In the meantime, the framework agreement would enable exploitation of oil and gas in the sea. The July deadline has been demanded by prospective gasfield developer Phillips Petroleum.

After East Timor voted for independence from Indonesia in 1999, Untaet collected royalties that had previously gone to Indonesia. While oil royalties total only a few million annually, exploration suggests gas reserves are considerably larger and could net East Timor more than $A100 million ($US52.95 million) a year if exploited.