Sian Powell, Dili – Pigs nose about in the flooded playground of Rumpia primary school in Caecoli, a poor suburb of Dili. None of the classroom windows has any glass, some of the children have no shoes.

"Pity them," says teacher Carlota Morilius da Silva. "There are those families who can afford shoes and books, and there are those who can't."

East Timor, long held up as a successful example of UN intervention and foreign aid, now has more to deal with than grinding poverty. The UN and the US State Department both recently documented unchecked police abuses, the deliberate hampering of political opposition and government refusal to listen to open criticism. It is ominously reminiscent of 1980s and 90s Indonesia – the nation that ruled East Timor until 1999.

Meanwhile, all 22 East Timorese probationary judges have failed their evaluations, and most can no longer hear cases. It is thought all East Timorese prosecutors and public defenders will soon also fail their evaluations, leaving the judicial system near standstill.

Observers are concerned that this potent mix of poverty, police abuse, a stumbling justice system and the emergence of oppressive leadership is a harbinger of worse to come, and a sign of a nation on its knees.

"Progress has been made but much more needs to take place before you could have any confidence East Timor will make it," says one international observer who has had a long association with the nation. "The Government operates in secret and can't stand criticism or even questions."

A frightening level of dysfunction is one matter, he says, but of more concern are the increasing police abuses and government crackdowns.

In the Dili district court last week, Emiliano Nosolini, a judge from Guinea Bissau, was hearing a case involving a police officer who had allegedly attacked a colleague. Nosolini is one of four international judges hired to tide East Timor over until the local judges can be trained - an expensive option the nation may not be able to afford for much longer.

On the other side of Dili, a hearing connected with the savage violence of 1999 was presided over by two international judges and one failed East Timorese probationary judge. Four of the failed East Timorese judges are still hearing special cases because some trials must by law have a national judge on the panel.

East Timor's Chief Justice, Claudio Ximenes, says he hopes proper funding for training will lead to a fully functioning judicial system by 2006.

"We are trying to get the funds," he says, explaining that if the resources are not available, all the failed judges will have to become probationary judges again. But these judges have failed a test he terms "not difficult at all", and if they return to the bench, they could be sending people to prison.

"The main problem for us is money," Justice Ximenes says. "Even if we didn't have these problems we need the money."

Like many other officials and politicians in East Timor, Justice Ximenes hopes Australia and East Timor will come to an agreement soon, and resources from the disputed Timor Sea oilfields will start rolling in. The money is desperately needed for training and to pay salaries.

Police abuses have soared, and a former MP and human rights lawyer, Aderito de Jesus Soares, blames the lack of resources. He says the three-month preliminary training of police recruits is inadequate, and a monthly salary of $US80 ($100) is asking for trouble.

"Something I keep criticising is training and education," he says, pointing out that problems riddle the institution. "The mechanisms for people to complain are not sufficient at this stage. We need to take measures against those who abuse their powers, including the big guys in charge of the institutions."

Funds are needed to shore up the police force, he says, and like others, he looks to the Timor Sea oil. "The money is there. We need the money. We keep begging, begging, begging," Mr Soares says. "We need to be independent, not dependent for 10 to 15 years on a rich country like Australia."

The white hope of aid agencies and the UN, and the recipient of billions of dollars in international aid, East Timor seems to be foundering. The vision of vast wealth from oil to help establish the infant nation is receding as the needs of the people multiply.

In Dili's markets last week, there were plenty of vegetables and meat, but this is the "hungry time" of year, before the harvests, and many of the poorer families are subsisting on rice and sago, especially in the districts outside Dili.

The children in the Rumpia school are not starving, but many of them are painfully thin. "They are poor," says Ms da Silva. "There is no work here, their parents have no work." And with a tiny annual budget, East Timor cannot afford unemployment benefits or food aid.

International assistance might soon begin to wane, exacerbating the problems. The UN has to decide whether to extend its mission in East Timor, and by how much. The armed peacekeepers are the most likely to be pulled out.

Five years ago, Australia led an intervention force into a devastated nation, where a wave of violence from the Indonesian military and its militia proxies had left 1400 people dead and whole towns destroyed.

Australia still has 105 armed peacekeepers stationed in its tiny northern neighbour. But in recent weeks, Australia and the US opposed UN Secretary-General Kofi Annan's recommendation to extend the mission of the peacekeeping troops in East Timor. Altogether 438 peacekeepers are now deployed in the new nation.

Although Mr Annan says the numbers can be reduced, he stresses that a residual force is essential. He told the UN there have been recent sightings of former militia groups, the border remains porous, and clashes, smuggling, illegal border crossings and crime are escalating. Pulling out the peacekeepers would leave the border in the hands of the much-criticised local police.

The deputy force commander, Australian Robert Van Kampen, says the Australian troops in East Timor mostly provide logistical support by maintaining the main border roads. Peacekeepers from other nations are stationed at three points along the border, about 5km back, and do some limited patrolling. Unarmed military liaison officers help East Timor's border patrol police negotiate with the Indonesian military and settle any difficulties that arise.

Whether an armed international presence is still needed on the border is a delicate question that is resonating in the corridors of the UN in New York. "The UN mission's point of view is that an international military presence is needed because there's no surety being provided by East Timor for the security of the military observers and other UN personnel," Van Kampen says.

Joaquim Fonseca, a human rights activist and one of the leaders of the 1999 resistance, says many of East Timor's problems are the legacy of an Indonesia ruled by former despot Suharto.

"It should have been clear from the beginning that given the history of this country, every single person who lived in East Timor needs to unlearn things," he says. "It's more urgent for those working in vulnerable areas, like the armed forces."

Like most East Timorese, he wants the Timor Sea money to start coming in, and believes that with more cash in hand the nation can solve problems and get to work. "That's a very important resource for our country," he says.

"We need to establish the conditions for the money to be effectively used, both for the best interests of the people now, and also the best interests of future generations."

The US State Department's recent report on human rights in East Timor found "numerous reports of excessive force and abuse of authority by police officers". In his report, Mr Annan warns of the recent increase in reported cases of abuse of police power, rarely properly handled, and a new tendency to use the police to hamper political opposition.

About 1700 police officers completed the first phase of UN skills training last December, but half failed to achieve the desired level of competence.

By the end of last year, there was a backlog of 75 cases of severe misconduct that had been reported to an interior ministry committee, according to the State Department.

"In March a district police commander was suspended after he refused instructions from his superiors to stop a rally in Suai held by an opposition party," the report found. In July, a member of an opposition movement was arrested after he hung up anti-government banners.

"Who trusts them? No one trusts them," says Jose, a hotel worker who declined to give his last name, and who curled his lip when asked about the police.

Australia partly funds a large police training program in East Timor, but supporters of retaining peacekeepers point out that fostering professionalism and accountability takes time, and they are both qualities still in short supply in the police service.

Strains have also emerged between elements of the armed forces. Ominously reminiscent of similar dramas in Indonesia, about 20 armed soldiers attacked a local police station in December, injuring two officers.

Despite the manifest problems, criticism of political leaders is unwelcome. Irritated by one newspaper, the Government cancelled subscriptions and banned interviews with its journalists. Parliament has still failed to elect a provedor (ombudsman) for human rights, and there are reports of low-level corruption beginning among port officials.

Difficulties have emerged in other areas: imposing Portuguese on a nation accustomed to speaking the local language of Tetum and Indonesian has become a major obstacle.

Trainees at the justice training centre, run by the UNDP and funded in part by Australia, asked for a translator because they were having trouble keeping up with the Portuguese instruction. None was provided, because the Government felt this would militate against thorough teaching in Portuguese.

Sophia Cason, international adviser to the program monitoring the judicial system in East Timor, says many of the problems besetting the judiciary stem from the complete lack of training for local officials in court administration and case management.

"The Ministry of Justice and the president of the Court of Appeal need a plan as to how they can fix all the fundamental problems," she says. With a backlog of perhaps 3000 cases, the judicial system is in trouble.

The courts' phone bills are sometimes not paid, Ms Cason says, which hampers communication. Far more seriously, dangerous criminals are sometimes set free. For example, a man who allegedly raped his young daughter was released because no judge could be found to extend the 72-hour detention period. Ms Cason says the man was later found by police threatening his neighbours with a machete, accusing them of informing on him.

On another occasion, police took a case of a young girl assaulted with a rock to the Dili district court. Despite the girl's head wound, which needed five stitches, police were told by the judge, through the prosecutors, this was not a serious enough crime to warrant the court's attention.

Money is needed everywhere. Of nearly a million people in East Timor, as many as three-quarters still rely on subsistence agriculture. Health and education are desperately underfunded. About a quarter of primary school-age children are not in school. One in 10 never begin.

More than half of all children under two have never been vaccinated, and at least four died of measles recently in the enclave of Oecussi.

Parasites are rampant, but a comprehensive worming program has only been undertaken in one district. With pigs in the playground, the children of the Rumpia school are in constant contact with animals, leading to a cycle of parasite reinfection that is hard to break.

Keryn Clark, Oxfam's director in East Timor, says unemployment is a big problem, and many of the rural poor are drifting into Dili, straining the city's resources. East Timor has one of the highest birth rates in the world, and almost half the population is under 15. Unemployment, especially rural unemployment, looks set to worsen.

"We recognise a lot more needs to be done," the Australian aid worker says. "But for it to be sustainable it needs this period of time."

To begin with, she says, aid was poured into rehabilitating the physical infrastructure of the nation, which was devastated in 1999. Now more can be done with long-term plans for fostering employment in the rural economy, and improving health and education across the board.

Joaquim Fonseca says the East Timorese will eventually overcome all their difficulties, given time and some assistance from the oil wealth under the sea. "There are so many problems," he says with a grimace. "But I refuse to be pessimistic."

[Sian Powell is The Australian's Jakarta correspondent.]