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IMF warns of too rapid aid to East Timo

DILI: Aid set to pour into ravaged East Timor could end up damaging the economy if it is not kept under control, a senior International Monetary Fund official warned.

Last December, the international community pledged $520 million to help East Timor recover from the wave of Indonesian military-backed destruction after the impoverished territory voted to break from 23 years of Jakarta rule.

"That is huge money and if it is properly used will have an enormous impact on the economy...so the question is, how to effectively use those resources," IMF deputy managing director Shigemitsu Sugisaki told Reuters in an interview on Tuesday night in the East Timor capital Dili.

"If that money comes in at once then there will obviously be inflation and we don't want to have such disorder in the economy."

The former Portuguese colony, now under United Nations control as it moves towards independence for the first time in over three centuries, will remain reliant on aid for some time, he said.

"At least for some years to come, they need to depend on foreign assistance... The level of economic evolvement is still low."

One of the first steps to get domestic money moving will be to impose some kind of tax, he said.

On a two-day visit to review the IMF's operation in East Timor, Sugisaki described the destruction caused by pro-Jakarta militias after an independence vote last August as "enormous", and said the Fund would move faster than it had in other post-conflict situations.

"The task ahead of us will be no smaller than we have experienced in other areas but we will have to move very quickly now," he said.

"The tax registration and banking registration have been approved so things have to be done as quickly as possible. So speed is the kind of signature word."

Establishing a fiscal and central payments authority is currently the biggest task for the IMF in East Timor, where it is likely to have a presence for the next two to three years, or until full independence is achieved.

"In the end, this foreign expertise has to be transferred to the local people and that time will soon come I hope.

"But that learning process will take some time until we feel confident that local people can handle tax administration and customs administration and banking," he said.

"The U.N. administration will have to stay for a few years and during that period, one way or another, we need to be present here and it's really up to the U.N. administration whether they feel they need us or not."

On the recently endorsed official currency for East Timor, the US dollar, Sugisaki said its stability and international acceptance made it the best choice but hoped the Indonesian government would continue to supply rupiah.

"The US dollar is used in Dili but the local people also want to use the rupiah probably because they are familiar with it. So I hope that the Indonesian government will continue to provide the rupiah as needed." -Reuters