In the year that Timor-Leste celebrates the fiftieth anniversary of its first declaration of independence and the twenty-third anniversary of its restoration, the “old firm” is at the helm. Since 2022 and 2023 respectively, independence leaders José Ramos-Horta and Xanana Gusmão have been president and prime minister, presiding over significant foreign policy advances but still grappling with pressing domestic issues.
The country looks likely to achieve one of its longest-held foreign policy ambitions, gaining admission to the ASEAN regional political and economic grouping, later this year. Though not quite a done deal, hope is growing in Dili that ASEAN will make a decision at its May meeting rather than holding off until October.
East Timorese parties are united in this ambition, and the leadership hopes accession will drive foreign investment and open new markets, particularly in sectors like tourism, and help shift the economy from oil and gas dependence. While some civil society organisations question the economic benefits and administrative burdens, the prospect of more investment and the security benefits of closer integration with its geographical neighbours — including its former occupier — weigh heavily in its favour among the country’s leaders.
Timor-Leste’s likely accession is particularly remarkable in light of the tough stance Ramos-Horta and Gusmão have taken towards the military regime in Myanmar, an ASEAN member, which resulted in the expulsion of its chargé d’affaires from that country in 2023. As Southeast Asia’s most democratic country, Timor-Leste is regarded by local UN commentators as having an “outsize voice” in the international arena.
Recent progress on negotiations over the Greater Sunrise oil and gasfield has also sparked optimism in Dili. Negotiator Steve Bracks and his Timorese counterparts have seemingly satisfied both Australia and Timor-Leste and drawn already improved bilateral ties closer.
Australia will allocate close to $50 million from its future royalties to a dedicated infrastructure fund for Timor-Leste in a deal that will also include an increase to 10,000 in the number of East Timorese places in Australia’s labour mobility schemes by 2027–28, with skills training and English-language programs included. Australia’s willingness to cut a deal clearly reflects the evolving geopolitical dynamics of the Indo-Pacific.
But the position of Greater Sunrise’s commercial partner — whether it’s Woodside Energy or any future owner — is likely to determine the major question of whether the field’s oil and gas is processed in Timor-Leste or Australia. (Importantly, infrastructure funds under the agreement will only flow once the development of Greater Sunrise is underway.) An independent report declared all competing options technically viable, adding that onshore processing in Timor-Leste would likely return greater benefits to the country — a point Dili is keenly emphasising. Woodside itself is reported to have an open mind on the issue. Ramos-Horta recently declared that Timor-Leste would prefer to work with Australia and the existing partners in the joint venture, stating that Timor-Leste has been “holding off” interest from Chinese and Kuwaiti firms.
Just as Timor-Leste makes progress in the international arena, though, domestic concerns are pressing in. The government’s Strategic Development Plan is focused on major infrastructure spending and political stability measures — welfare transfers, and state contracts to potentially restive elements — in the hope of attracting increased investment. The strategy has preserved political stability, but at the expense of diverting funds that could be used to lift basic development indicators like education, health and agricultural output.
With the latter therefore tending to be the focus of donor programs, the sudden suspension of USAID operations is concerning. Though the US program is well behind Australia’s expenditure, it funded important health-sector governance and agriculture programs. In the contest for geopolitical influence, the US administration is raising an isolationist white flag — at least in terms of soft power — and raising the stakes for other longstanding donors.
While much international commentary focuses on Timor-Leste’s looming “fiscal cliff,” associated with the rapid annual expenditure of its sovereign wealth fund, other domestic issues warrant attention. Among these, decentralisation is key. Like its neighbouring Pacific countries, Timor-Leste has a demographically young population — the median age is twenty-one — which means that jobs and training are a far greater preoccupation than in a country like Australia, with a median age of forty-two. Labour mobility programs are important, but they alone can’t substitute for economic diversification.
Rural-to-urban migration, fuelled by the economic drawcard of the capital, has placed increasing strain on the urban environment of Dili, highlighting the slow pace of the decentralisation agenda. More young Timorese would stay in the districts if improved training and job opportunities were available. Urban overcrowding and poor planning practices are worsening Dili’s flooding and climate change–related challenges. The experience of peri-urban settlements in neighbouring Melanesia highlight a potential source of political instability.
Apart from the exclave of Oecussi, and the island of Atauro, which have well-developed decentralised administrations, progress on municipalisation has been relatively slow, despite increases in pay for appointed municipal presidents and a new web portal. But Oecussi’s budget alone far exceeds the resourcing available to the remaining thirteen municipalities, including Dili itself.
The problem was brought into stark relief last month with the resignation of the president of the Dili municipality, Gregorio Saldanha, citing a lack of decision-making autonomy and heavy-handed control by the Ministry of State Administration. Saldanha, a key figure in the clandestine resistance, was the main organiser of the Santa Cruz protest in 1991, which ended in the infamous massacre by Indonesian military forces that proved a turning point in the struggle for independence. His comments reflect local concern that too little has been invested in devolving actual powers, hindering progress on the local economic development plans that could slow rural migration to Dili.
Underinvestment in basic development indicators is also generating public attention in other ways. Rising political figure Fidelis Magalhaes, a former senior minister, has proposed declaring a national emergency in relation to child malnutrition, which remains stubbornly high, and the poor standard of public education. Despite measured poverty falling since 2002, it remains entrenched at somewhere around 40 per cent. But whether the notable improvement between 2007 and 2014 — a fall in the poverty rate from 50 per cent to 42 per cent — has continued in the last decade is more difficult to assess, with recent estimates still relying on outdated data from 2014–16. As Ramos-Horta acknowledged recently, government efforts to reduce extreme poverty and child malnutrition since 2002 still leave much to be desired. Only when the 2024 Living Standards survey is released this year will it be possible to fully assess the impact of recently improved social welfare measures and school feeding programs.
Finally, despite a notable five-year increase in life expectancy since 2002, concerns about the public health sector have grown. Slow service delivery, ageing equipment and the uncertain availability of pharmaceuticals in public hospitals have been pushing people towards more expensive private pharmacies. Rising debts have complicated the practice of sending more serious patients abroad for treatment. La’o Hamutuk, a Timorese NGO, notes that just 19 per cent of the 2025 budget is allocated to education, health, water and agriculture, including 6.2 per cent for health.
Timor-Leste’s efforts to maintain political stability since the 2006–07 political-military crisis have been broadly successful — for which the “old firm” is owed much credit — and the much-awaited ASEAN accession and Greater Sunrise deal are looming. But the country’s relative underinvestment in boosting basic development indicators, and its slow progress on municipalisation, have the potential to derail progress on political stability in the longer term. As Timor-Leste celebrates significant foreign policy successes, significant domestic challenges lie ahead. •
