Mark Dodd, Dili – United Nations economic planners have launched a campaign to ensure the US dollar is the sole legal tender in East Timor. To back it up, heavy fines will be imposed to deter the unlicensed importation of all other foreign currencies, including the Australian dollar.
It has been more than 12 months since the US dollar was decreed as the country's legal tender, and it has made only a small impression in a market place dominated by the Indonesian rupiah and Australian dollar. An executive order signed by the head of the United Nations Transitional Administration in East Timor (UNTAET), Mr Sergio Vieira de Mello, will change all that, imposing stiff fines for illegal money changers, scores of whom can be seen daily outside the UN headquarters waving wads of dollar bills and rupiah.
Under the new prohibition order, signed on April 26, unlicensed traders and their customers, most of them UN employees, will face fines of up to $US5,000 ($9,540) if caught. Diplomats and economic experts fear that without an effective public education campaign, "dollarisation" could be doomed and could trigger short-term economic hardship and public anger – two conditions to be avoided with national elections scheduled for August.
The first test of the success of the campaign could come as early as next week.
For the first time, East Timor's coffee growers will be paid in US dollars instead of rupiah. A massive logistical exercise is under way to fund the purchase of this year's coffee crop, estimated to be in the order of $US10 to $US15 million.
Ironically, it was the drastic depreciation of the rupiah that prompted the coffee co-operatives to seek payment in US dollars. Coffee is East Timor's biggest export earner and provides employment for about 200,000 farmers representing about 25 per cent of the country's population. They are now doing a crash course to familiarise themselves with nickels, dimes and quarters.
After an earlier, failed attempt to introduce the Portuguese escudo for little more than nostalgic reasons, the dramatic depreciation of both the rupiah and Australian dollar have underlined the need for the adoption of a stable currency to bolster East Timor's economic recovery.
The IMF's resident representative, Mr Jan Van Houten, told the Herald the present currency confusion, in which traders quote prices in three currencies, had to be halted. Residents and visitors alike are faced with an absurd situation in which they are compelled to carry at least three currencies: US dollars for official transactions and Australian dollars or rupiah for shopping and entertainment. "This is a market economy, but there is great inefficiency if goods are marked in three prices. It's time to say this chaos must stop and we're trying to get some consensus to move forward," Mr Van Houten said.
Nationalistic motives are also playing a part.
Independence leaders are known to be dismayed at the continuing widespread popularity of the rupiah. By contrast, the US dollar has stability, strength, universal acceptability and is politically neutral, attributes not fully shared by other candidates, especially the rupiah. While the rupiah is the currency of choice in the countryside and local markets where stallholders can freely exchange small denomination notes, in Dili the Chinese-run supermarkets and expatriate-run bars and restaurants favour the Australian dollar.
Money changing has become a lucrative business. Young Timorese men armed with calculators and cheap travel bags stuffed with rupiah and Australian dollars compete to quote the best rates to buy US dollars. The UN wants to see these money changers off the streets and the exchange to be conducted by vendors licensed by the Central Payments Office.