Paul Kelly – Iraq is not the only humanitarian issue facing the Howard Government today. East Timor's President Xanana Gusmao made an urgent and desperate appeal to Australia last week and failed to raise a flicker of media interest.

The crisis facing East Timor is profound. "Independence is very good," Gusmao told this paper during his Australian visit. "But without capable administration then maybe we will fail." The 2002 Human Development Report documented the scale of crisis on our doorstep: 40 per cent of the people live on less than US55c a day; life expectancy is 57 years; the infant mortality rate is 80 in every 1000 births; and the adult literacy rate is only 43 per cent with 46 per cent of people having no schooling or skills.

In a speech to the Asia Society's Australasia Centre last week, Gusmao looked with a forgiving realism upon his country: "Once fortnightly I meet with dozens of people, mothers, widows, youths, orphans, men, elderly, who raise and present their difficulties to me: be it the fact that they have no means of subsistence, or no jobs, or no roof, or mostly, they cannot pay their children's school fees. Just try to imagine: one Australian dollar per month per child in prep and primary school. Even this, they cannot afford to pay." There is no functioning economy or "mechanisms for the purchase, processing and distribution of products". Most people operate in subsistence agriculture. The conditions for foreign investment are yet to be created. As he said, maybe East Timor will fail. But is anybody listening?

Gusmao tells me he wants to focus not on human rights violations in the past but human rights needs for the future – clean government, anti-corruuption, food, housing, education.

But he made one specific request. Just one, for the moment. Could Australia, acting out of compassion, allow the 1600 East Timorese residing here to stay at least for some time? These are the Timorese who came in the first part of the 1990s and whose return home will just further impoverish a poor nation.

Gusmao knows their status as asylum-seekers is no longer relevant since East Timor is free. He appeals "to the sensibility of the Australian authorities, in particular, to the Prime Minister". It is a President to Prime Minister request.

Immigration Department figures show that, as at March 31 this year, 1229 people seeking protection visas have been rejected. None have been accepted. Another 484 people await a decision (the same result is likely). A further 182 people have either been granted another type of visa, have left Australia or died.

Our policy, implemented by Immigration Minister Philip Ruddock, is for case-by-case assessment. A final discretion rests with the minister and Ruddock says he will give residency to those Timorese who have married Australian citizens, meet the business migrant test or have other family connections.

Those whose applications fail and don't get a ministerial concession must return to East Timor. It is typically assumed this would be the majority.

But Gusmao wants a new approach. He asks Australia to take a decision on the East Timorese as a category for humanitarian reasons.

The sensitivity is obvious: it means a breach in the Howard Government's hardline stance that carried the 2001 election and has emptied the waters to our north. John Howard and Ruddock have been put on the spot – the mmoral, humanitarian and practical case for compassion is strong.

First, many of these people arrived on tourist visas due to lax arrangements in our visa system at Dili, and then lodged refugee claims. The problem arose mainly because of Australia's own incompetence.

Second, having been here eight or nine years, most are integrated into the community in paid work, many have lost contact with their homeland.

Third, if applicants had been processed when they arrived (and Indonesia ruled Timor) they would have succeeded and most would be Australian citizens now.

The main delay was because of Australia's view that Portugal be the refuge for such asylum-seekers, a claim rejected by the Federal Court.

Fourth, domestic politics suggests this is a one-off issue. The Northern Territory parliament passed a bipartisan motion for the East Timorese in the NT to be permitted to stay. The Labor Party, through Opposition immigration spokeswoman Julia Gillard, has called on Ruddock to allow the East Timorese to remain. Gillard has had the good sense (unlike others) to argue "there is no reason to fear the setting of a precedent that could be used by others". This is the key point.

Ruddock says: "Every time you grant a special concession it just leads to pressure on another front. There are 13,000 rejected asylum-seekers in Australia now. There are 4000 Iraqis on temporary protection visas. There are 500 rejected asylum-seekers in detention. On each front, I am under direct pressure to find a solution."

He's right. Many Howard critics would just exploit any East Timor concession as a precedent to weaken policy overall, thereby confirming Ruddock's worst fears. But when interviewed by this paper yesterday, Ruddock offered a distinct concession: he said the use of his own ministerial discretion on a case-by-case basis "may see a higher proportion staying than many people expect".

Maybe. We don't know. We do know, however, that Howard presented the East Timor issue to this country as a special case and most Australians still share this view. Gusmao's appeal deserves a positive response from Howard. He can both manage the domestic politics and avoid compounding the problems of an infant East Timor.