East Timor, the world's newest nation, marked its first birthday but President Xanana Gusmao found little to celebrate.

East Timor was Asia's poorest country when it declared independence one year ago, after 31 months of United Nations stewardship and 24 years of often brutal Indonesian rule. Gusmao, in a national address Tuesday, summed up the problems bluntly.

"There is little food on the hearth; agricultural crops are either not sold or sold at extremely low prices; the price of imported goods are an insult to the purchasing power of the population," he said.

"There is no prospect for employment for the youth and both the legal and the infrastructural conditions of the country do not attract investors."

Half the population lacks any formal education, youth unemployment is high and two out of five people live on less than 55 cents a day.

The former anti-Indonesia guerrilla chief, in a progress report, said East Timor's 800,000 people are facing "enormous difficulties." He took legislators, bureaucrats, politicians and the people themselves to task.

Parliament should assert its independence from the government, Gusmao said, and debate the people's problems. "Some members of parliament have been wasting time airing their dirty laundry there, as if the parliament was a public sanitary facility..."

Many local administrators were unaware of problems because they never left their offices. Freedom was the greatest gain from independence but "we are not making good use of democracy" and politicians are "not yet fully mature."

Every political act must respect the constitution, he said. "And this means that there must not be any reason for violence, there must not be any desires to stage coups d'etat and, not least, there must not be any intention to shut down the port, the airport and the borders."

It was unclear what Gusmao was referring to. But organised riots in Dili last December, in which two people died and many buildings were destroyed, were described by one minister as an attempt to topple the government.

The riots were followed by attacks on civilians near the border in January and February in which at total of seven were killed. The attacks were widely blamed on pro-Jakarta former militiamen crossing from Indonesian West Timor.

The president also urged people to stop relying on foreign aid and to help themselves. "We have lost the sense of duty to participate and we expect the state to do it all."

He called for a move to grassroots democracy including the holding of local government elections. "It is necessary that the people start to participate, that they also start to solve their own problems, that they start to feel, individually or as a group, that they are also actors in the development of the country," he said.

Speaking later at a ceremony to mark the anniversary, Gusmao said policies in the coming year "must take into account the fact that the difficult living conditions of our people are the weakest link of this increasingly more difficult process of nation-building."

Oil and gas developments in the Timor Sea will provide a lifeline in the future. Under a treaty with Australia in March, the country in two or three years will receive revenues of around 50-100 million dollars a year – almost enough to cover the national budget.