Dollarisation in East Timor

Owen Jones owen.jones at
Mon Jan 31 15:32:14 MST 2000

 Source: World Socialist Web Site (

 Comrades were recently discussing the possibility of a radicalisation of
the East Timorese masses and even the establishment of a workers' state in
East Timor; possibly we could get a mass reaction against the invasion of US
capital there. We all know how the Ecuadorian people reacted to

WSWS : News & Analysis : Asia : Indonesia & East Timor

US dollar to be official currency in East Timor

By Mike Head
31 January 2000

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The UN Transitional Administration in East Timor (UNTAET) announced last
Monday that the US dollar would be the official currency of the former
colony and Indonesian territory. As a result, government transactions must
be conducted in dollars for at least the two to three years of UNTAET's
expected rule.

Private contracts may still be executed in any currency, but civil service
wages, taxes and other payments owed to any public authority must be in US
dollars. The
former official currency, the Indonesian rupiah, may be used to make such
payments temporarily, subject to a yet-to-be-determined transaction fee.

UNTAET said the move had been adopted by the 15-member National Consultative
Council (NCC), which includes seven representatives of East Timor's
coalition, the National Resistance Council of East Timor (CNRT). The
announcement was followed by a joint news conference of officials from the
UN and the

A senior CNRT figure, Joao Carrascalao, president of the Timorese Democratic
Union (UDT), was anxious to dispel the impression of a complete lack of
sovereignty. ³It was a unanimous decision by the UN and the CNRT,² he said,
without ³any pressure² from the UN or the International Monetary Fund. He
admitted, however, that the choice of the dollar would make the creation of
a future local currency ³more difficult² because it would have to be ³at
least as strong² as
the US currency.

Despite Carrascalao's assurances, remarks by IMF representatives in East
Timor point to definite pressure from the US-based institution. Luis
Valdivieso, the head
of the IMF office in Dili, said use of the dollar could avoid potential
problems associated with the Portuguese escudo, the currency previously
favoured by many
CNRT leaders. As one of these problems, Valdivieso mentioned the escudo's
future absorption into the euro, the currency of the European Union.

Valdivieso added that if the country started with the dollar it could stay
with it, suggesting that the decision would not be a temporary one. He
indicated that one of
the primary factors in adopting the dollar had been the territory's
desperate dependence on IMF funds, foreign aid and investment. ³I think the
main consideration
has been one of pragmatic consideration given the fact that it is urgent now
to receive the payments on execution of the budget.²

In the lead-up to the UN decision, an IMF economist, Luis Mendonca, had
publicly opposed use of the rupiah or the escudo. Without waiting for the
announcement, he declared that the rupiah‹whose value collapsed in the
financial crisis of 1997‹was too unstable for East Timor's use. As for the
escudo, it
³really doesn't exist. It is just a division of the euro.²

The decision makes a mockery of claims to national self-determination. In
effect, the half-island's currency will now be controlled by the United
States Treasury. Its
decisions on money supply, interest rates and other economic policies will
determine the currency's value, dictate the territory's terms of trade and
largely shape the
direction of the economy.

Given the close ties between the IMF and the US government, it is
inconceivable that the Clinton administration did not support and approve
the UN decision. In its
media statement, UNTAET admitted that the governments of the US and Portugal
had been informed in advance.

The decision provoked ructions within the CNRT, which is an amalgam of
formerly pro-independence, pro-Portuguese and pro-Indonesian groups. An
CNRT source told a Reuters correspondent that the move was an affront to the
CNRT. ³We believe the national currency should be an affirmation of
and sovereignty,² he said. ³Having the US dollar as legal tender will make
our dream of adopting the escudo just a dream.²

To associate the Portuguese currency with independence and sovereignty only
underscores the fraudulent character of the CNRT's claims that the formation
of a
statelet in the tiny territory can free the Timorese masses from colonialism
and exploitation. Portugal plundered East Timor for more than four
centuries, leaving it in
1975 as one of the most impoverished enclaves in the world. Portuguese
authorities revived their colonial claims in the late 1980s following the
discovery of huge oil
and gas deposits in the Timor Sea.

The dollar decision will fuel tensions between the US, Portugal and other
economic powers over the future of the strategically located territory.
After last year's
Indonesian pullout, Portugal, backed by some CNRT leaders, including its
vice-president Jose Ramos-Horta, strenuously pushed for the escudo to be
restored as
Timor's currency.

Portugal's overseas bank, Banco Nacional Ultramarino, even attempted to make
the escudo the de facto currency of the UN occupation. It began trading in
Dili last
December, paying East Timorese public servants in escudos and refusing to
issue US or Australian dollars. As an added incentive for the UN and CNRT to
the escudo, the Portuguese government offered to underwrite East Timor's
expected $US100 million balance of payments deficit for five years.

After the UNTAET announcement, Portuguese Foreign Minister Jaime Gama issued
a terse statement to the effect that Portugal ³respected² the decision even
it had provided the necessary ³technical conditions² for the escudo to
operate as the official currency.

Portugal's loss is also a blow to its partners in the European Union, who
backed the revival of its claims over the territory. Japan is also unlikely
to welcome the
dollar's dominance. It has become the largest aid supplier to East Timor and
last month chaired an international donors' conference in Tokyo.

The dollarisation of East Timor has a distinct class content. Since
Indonesian rule ended, the US greenback, along with the escudo and the
Australian dollar, has
become the currency of the elite economy that surrounds the operations of
UNTAET and aid agencies. By contrast, the destitute people of the devastated
have largely continued to use the rupiah‹or relied on barter.

A stark example is the floating Hotel Olympia, sitting in Dili harbour for
the use of UN personnel. Even before the UN decision, only US and Australian
and escudos, were accepted as legal tender. Other hotels took only US
dollars; some restaurants accepted Australian dollars.

One youth leader commented that the rich and the poor were using two
different sets of currencies. ³The poor are holding onto Indonesian rupiah
while the rich UN
people and foreign aid workers pay in escudos, American dollars or
Australian dollars,² said Fernando Araujo, the outgoing secretary-general of
Renetil‹a youth
organisation previously affiliated to the CNRT.

For the most part, ordinary Timorese people are excluded by sheer poverty
from the dollar economy. The arrival of the Australian-led INTERFET force,
followed by
aid agencies and the UN, has inflated prices for food and other essentials.
An ad hoc price survey by the World Bank found that the cost of living for
households increased by 200 percent between August and September.

Most people remain unemployed and homeless. The few employed by official or
aid organisations are paid a pittance. The National Consultative Council
unveiled a five-tier wage system for civil servants, with unskilled workers
on about $US3 a day. Aid agencies have agreed between themselves to pay
equally low
wages to local staff. ³There is an explicit understanding between employing
agencies that they will adhere to these salary ranges in order to minimise
the poaching of
employees,² stated a recent report by UNTAET and eight agencies.

In some cases, the UN and relief agencies do not even pay cash, using food
handouts instead. ³Salaries can be paid in a mixture of cash and
commodities,² the
UNTAET report said. Official dollarisation will further widen the already
growing inequality.

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