Lincoln Wright – Risking possible friction with Jakarta, the Labor Party has backed a policy of funding an autonomous or independent East Timor using Indonesia's share of the oil and gas revenue from the Timor Gap.

Oil analysts have forecast that the annual revenue from the Gap's Bayu-Undan oil and gas field could reach $100 million a year after 2002, revenue Labor sources said could finance an independent East Timor government.

Labor's foreign affairs spokesman, Laurie Brereton, raised the stakes yesterday on the Howard's Government's historic announcement that it would support greater autonomy and an act of self-determination for East Timor.

After an isolated and controversial 20-year recognition of Indonesia's sovereignty, Foreign Affairs Minister Alexander Downer said the Federal Government had made a significant adjustment to its East Timor policy.

The official line on East Timor was now to support a substantial period of autonomy for the troubled province, followed by an act of self-determination that would help to reconcile the conflicting parties.

But Mr Downer made it clear that the Australian Government would still prefer that East Timor remained part of Indonesia. He did not specify exactly what "autonomy" would entail, nor explain what method the East Timorese could use to determine their future, but he mentioned 10 years as a possible period of autonomy before a referendum.

Unlike the Labor Party, Mr Downer has not called yet for a referendum, and made it clear the Government for now still recognised Indonesia's sovereignty over the province, and independence would be a second-best outcome.

Labor's policy is for Indonesia to hold an internationally monitored referendum. A more controversial position is that Labor seems to be strengthening the momentum for formal independence by pushing for the transfer of Indonesia's oil and gas revenue from the Timor Gap to East Timorese groups.

This would provide crucial funding and collateral for international loans to a fragile and newly formed East Timor government. Labor sources said yesterday that a Labor government would rewrite the 1989 Timor Gap Treaty if East Timor became independent.

However, Mr Downer said a referendum entailed the risk of civil war, and the Government's preference was still for East Timor to remain part of Indonesia, albeit with more autonomy, but if there was a vote for independence, so be it. "If you just thought the solution to the East Timor issue was to hold a referendum tomorrow, all I can say is I think it would cause more bloodshed than solution," he said.

Defending his Government's decision to support East Timor remaining within Indonesia, Mr Downer played down concern about the economic benefits of the Timor Gap Treaty, and openly doubted "how much anybody will get from the Timor Gap". Ministerial sources, as well, said there was a concern that a referendum in the current political climate of military repression would not reflect East Timorese opinion.

Mr Downer's move, which some see as a response to the Labor's Party's changing policy on East Timor, has been greeted positively by East Timor activist and Nobel prize winner Jose Ramos Horta.

Indonesia reacted bitterly yesterday to the Government's decision, as a damaging new rift emerged between the two countries. An Indonesian Government spokesman said it could have an adverse impact on international negotiations under way aimed at finding a solution to the East Timor problem.