Fabio Scarpello, Dili – Democracy is taking hold in East Timor, but the inconclusive result of recent parliamentary elections is raising the specter of new political confrontation rather than resolution.

The June 30 polls were held against the backdrop of last year's political violence, which saw then-prime minister Mari Alkatiri step down in the wake of political violence after the army split on regional lines and international peacekeepers were called in to restore calm.

Alkatiri's Fretilin (Revolutionary Front for an Independent East Timor) party won 29% of the vote, more than the 24% earned by former president and rebel leader Xanana Gusmao's party, known as the National Congress for the Reconstruction of East Timor (CNRT), and which has since the election formed a coalition with three more parties, representing a parliamentary majority. However, vague election laws have left both Fretilin and the CNRT-led alliance claiming the right to form the next government.

So far neither side has budged and it appears that President Jose Ramos Horta could eventually be called on to mediate the electoral deadlock. Although the situation is currently calm, there are concerns in some quarters whether both sides' supporters would peacefully accept a decision in the other's favor.

Despite the lingering doubts, East Timorese and the political actors can so far pride themselves for their healthy display of democratic will. An estimated 81% of the 548,000 registered voters cast their ballots across roughly 700 polling stations nationwide. The 3,000 national and international election observers indicated that the polls were free and fair.

The new political landscape presents a more diverse set of ideas and personalities than it did in 2001, when the country's first Parliament was formed under the administration of the United Nations. Then the Fretilin party dominated the electoral process, controlling 55 of the 88 seats.

One way or another, East Timor will have a coalition government and a strong opposition, healthy signs of a budding democracy. To be sure, memories of the anti-Indonesian resistance war and the cult of personalities it gave rise to still played heavily on voter's minds, shown by Fretilin and the CNRT placing first and second.

Yet both parties received fewer votes than expected and several smaller parties consolidated their support bases. In particular, the strong performance of the coalition of the Timorese Social Democratic Association (ASDT) and the Social Democrat Party of East Timor (PSD), collectively known as ASDT-PSD, which won 16% of the vote, and the Democrat Party (PD), which won 11.3%, signals a new sophistication of the young country's politics.

Fringe parties are also expected to play a significant role in government. The National Democratic Unity of Timorese Resistance, a coalition of three small parties led by the Sons of the Mountain Warriors and the National Unity Party (PUN), are the other parties that won seats in the 65-seat chamber.

Among these, the PUN is arguably the one to watch. Led by Fernanda Borges, the party managed a respectable 5% of the vote on its first attempt, and Borges' mix of new political ideas and the support she enjoys from the local Catholic Church could see her party transform itself into a major contender in the future.

In the immediate future, Fretilin and the CNRT will still dominate the political scene – either as coalition leader or in opposition. Although it won the largest number of votes, Fretilin emerges from the democratic ballot badly bruised. It is still East Timor's largest political party, but the 29% of the vote it garnered is a far cry from the 57% it won back in 2001.

Fretilin has so far failed to win the support from other parties to join a ruling coalition, and party secretary general Alkatiri appears bent on forming a minority government based on its winning the largest number of votes. His legal argument is based on an article in the electoral law, which appears to require that any coalitions must be formed prior to the actual vote.

On the other hand, the constitution says, "The prime minister shall be designated by the political party or alliance of political parties with parliamentary majority and shall be appointed by the president of the republic, after consultation with the political parties sitting in the National Parliament."

The CNRT, which won a lesser 24% of the vote, contends that the constitution should legally override the election law and therefore the newly formed coalition has the right to form the next government. Such a position is backed by certain independent legal experts.

However, the final decision will rest on President Ramos Horta, who has already said he will choose a coalition on the basis that it will ensure a stable government. It is widely expected here that Ramos Horta will offer Fretilin a window of time to present its case, but then revert to the CNRT-led coalition.

The CNRT coalition also includes the ASDT-PSD and the PD, and also has the indirect support of the PUN, which, however, decided not to join the group formally.

Some political analysts contend that putting those disparate groups under one political umbrella will make a CNRT-led government wobbly, not to mention short on governing experience. Yet it will also likely enjoy a window of goodwill from the electorate and more clearly represents a fresh political start.

So far Gusmao's party has been shy on voicing detailed policies but rather has articulated new grand visions. The CNRT aims to stimulate economic growth and fight poverty by injecting money into the grassroots economy. The funds will come from the national Petroleum Fund, a US-based account where East Timor has saved its oil and gas revenues since September 2005.

The party has stated that, if needed, it is willing to use all of the US$1.4 billion saved so far to kick-start the economy. What the CNRT has not yet sufficiently explained is how this windfall will be implemented and monitored. Doubts persist as to whether East Timor has the institutional capacity and integrity to absorb large cash infusions efficiently at the grassroots level without major seepage.

At the same time, the CNRT is strongly advocating more decentralization of power and says that if it is in power it will aim to devolve decision-making to local leaders and local government – though it is unclear how this will be achieved and over what time frame.

On the foreign front, a CNRT-led government is also likely to ask for an extended UN mission in the country and continue with the current policy of reconciliation with Indonesia, the island nation's former occupier. However, the CNRT is also seen as closer to Australia than Fretilin, which, critics say, could see East Timor taking a softer stance in ongoing negotiations with Canberra over disputed oil and gas fields.

The two countries still must decide who will get the downstream contract for the Greater Sunrise oil and gas fields in the Joint Development Area. Fretilin drove a hard bargain in the past, and made overtures to China to help develop the area, when it was decided to share the upstream revenue equally. That policy could change with a CNRT-led government.

[Fabio Scarpello is AdnKronos International's Southeast Asia bureau chief.]