Mark Dodd – East Timor is in danger of imploding into civil conflict, with corruption likely to erode the benefits of the billions of dollars that will flow to the fledgling nation from the development of gas fields in the Timor Sea.
The World Bank, in a brutal and frank report on the prospects for the world's newest country, warns of emerging high-level corruption and of a Government increasingly out of touch with the people.
The restricted report – dated July 25 and titled The International Development Association: Country Assistance Strategy for the Democratic Republic of Timor Leste – says East Timor is at a "crossroad" and the establishment of a functioning democracy will probably take decades.
Emerging from the ashes of the bloody 1999 independence referendum, the half-island state of East Timor was a country in ruins.
Under six years of UN stewardship and generous assistance from international donors, the tiny state of almost 1million people has taken huge steps to rebuild.
Australia is a leading donor to East Timor. In May 2000 the federal Government committed $150million for the reconstruction and development of the country – a commitment it met in full, or even exceeded, last year.
The World Bank report, obtained by The Australian, says East Timor has performed "considerably better than that of other post-conflict countries."
"Yet East Timor is at a crossroad and progress remains fragile," it says. "Establishing a well-functioning state will take years, if not decades."
Among its biggest concerns is the re-emergence of corruption, endemic during the harsh quarter-century rule of Indonesian occupiers.
"Governance and corruption problems are beginning to emerge," the report says. "Communication between the Government and the population is inadequate and often ineffective, resulting in limited mutual understanding.
"Timor Leste is at a juncture where it can consolidate gains and create conditions for sustained growth and poverty reduction, or descend down a path of poor governance, continuously increasing poverty and inequality and possibly renewed conflict."
It warns that over-reliance on earnings from Timor Sea gas and oil could lead to a resource curse the bank calls "Dutch Disease" – a failure to properly manage the exploitation of natural resources.
A UN study three years ago – before the oil price spike – estimated East Timor stood to earn up to $US30billion ($39.5billion) from the oil and gas reserves in the Timor Sea.
Despite stunning progress in reconstruction, peace and stability in East Timor remain fragile, the current danger posed not by armed anti-independence militias but what the bank called "internal fault lines".
"More significant than external factors are internal fault lines contributing to the risk of renewed violence, including declining income, increased poverty, high unemployment and emerging corruption," it says, noting an ominous increase in the prevalence of youthful martial arts groups.
Corruption is on the increase, particularly in procurement, as detailed in a report in The Australian earlier this month linking the Prime Minister's brother to lucrative ammunition purchasing contracts.
Other areas tainted by corruption include Customs, the justice system and the private sector. Despite the Government referring 10 cases of corruption for prosecution, none so far has proceeded, it says.