Bronwyn Curran, Baucau – In a good month Carlos Bovida makes 20 dollars selling sweet potatoes and bananas on a lonely road, winding through the sparse mountains of this half-island nation.

Barely enough to feed his five daughters, it puts him at the poorest but most resilient end of the three-tiered economy that is operating in East Timor as it inches towards full independence.

"There's a rural subsistence economy which was disrupted in 1999 but has recovered and is relatively resilient," said Michael Francino, the finance minister in East Timor's Transitional Cabinet. "There's a sort of urban service-oriented economy ... then there's a third economy that's quite artificial, which arrived with us." "Us" are the 1,300 foreign civilians employed by the United Nations to temporarily administer East Timor, plus the 9,500 international peacekeepers and police keeping it safe.

The UN has been jointly running and rebuilding the territory with local leaders since October 1999 after East Timor voted to end Indonesia's 24-year rule in August 1999 and was subsequently devastated by departing troops and local militias.

"It creates demand for hotels, restaurants, transportation services ... and is a bit of a bubble economy that will disappear as the number of internationals winds down," Francino said.

Further down the road in Baucau's Bucoli village, Mariano grows enough sweet potatoes to enable him "to eat and drink." His teenage nephew Vasco makes 20 dollars a day selling mobile phone cards to foreigners on the streets of the capital Dili. Vasco is typical of the bubble economy, where earnings are wildly enhanced by the massive presence of foreigners on plentiful UN salaries.

The "bubble" economy has many people anxious, with only a few months left until the UN starts winding down its presence ahead of its mandate's expiry on January 31. "Foreign civilian staff will drop from 1,300 to 20 percent of that by this time next year," Francino says. "Managing that withdrawal is going to be a problem for the next 12 to 24 months."

Francino predicts a "disjuncture" as the real urban economy, still in recovery, attempts to absorb those employed in the artificial economy. "There is almost bound to be what amounts to a slump," the minister said.

Most of East Timor's 737,000 people live outside the cash economy, with only 25,000 on a regular wage, mostly on less than 200 dollars a year on average, and 85 percent living in rural areas.

The rural subsistence economy, in which most East Timorese live, has bounced back faster than the urban service economy because it had only lost a few physical facilities in the destruction that followed the 1999 vote, while swathes of towns and cities were torched to the ground. "As you walk around Dili you can see the ruined stores. Some have been rebuilt, but there's a long way to go," Francino says. "That economy was completely devastated, and will recover more slowly."

Some 300 million dollars of foreign donor money is propping East Timor up in the meantime, of which 55 million pays foreign staff. Running East Timor's fledgling civilian administration is costing 65 million dollars this financial year, and is projected to reach 103 million dollars by 2004-2005.

The nation is four years away from financing its own budget, when profits from the Timor Sea oil fields start rolling in, according to official projections. It is projected to raise 25 million dollars in revenue over 2001-2002, mostly in taxes and fees for using facilities like ports.

"We see a financing gap of four or five years with extensive donor support for recurrent government spending," Francino says. "But then suddenly about 2005-6, rather large revenues from the Timor Sea for the first time would allow the budget to be self-financing."

The authority have factored in 92 million dollars in taxes from Timor Sea projects for 2005-6, pushing East Timor's revenue to 114 million dollars that year. Self-sufficiency for the world's newest nation is on the horizon.