RENTIER STATE STATISM AND SOCIO POLITICAL AND SOCIOECONOMIC

RENTIER STATE, STATISM, AND SOCIO POLITICAL AND SOCIO-ECONOMIC DYNAMIC Guteriano Neves Departement of Research, Analysis and Documentation Presidency of the Republic

OBJECTIVE This presentation intends to deploy “Rentier State” paradigm to explain current Socioeconomic and Socio-political dynamic, and state-society relations in Timor-Leste. ”

HYPOTHESIS Through this presentation I argue that “Understanding socio-political and socioeconomic dynamic of Timor-Leste, one cannot ignore the impacts of Petroleum Dependency. Petroleum revenues forms a state of Timor-Leste becomes a “Rentier State” even the extreme one, in which, it determines current political economy, public institutions characteristics, and state-society relations. It will be still the case for one or two decades to come.

CONCEPTUAL FRAMEWORK Rentier State Political Economic Concept that explain political, economic and social dynamic in a state where high percentage of its revenues are derived from extrenal rents. Hossein Mahavy, Hazem Beblawi no Giacomo Luciani are well-known

GENERAL PHENOMENA OF RENTIER STATE Statism/Developmental State: State not only functions as regulatory body, but it is the main entity of development. It lays down the long-term plan, and orient other entities to follow. In Third World Countries, it is a pragmatic decision, given that private sector is lacking of capacity. It fortifies state’s presence in the society and fortifies state’s legitimacy In some case, because state is too powerful, the regime turns into authoritarian regime.

CONT…. . State’s independent from domestic economy Government plays down importance of Taxation Dutch Disease hurts domestic production Employment in Public Sector: Bigger, more attractive, more Secure. Other Sectors are to service petroleum or public sector State institutions are to distribute resources and not to extract revenues from domestic economy Relations between Elites – Business – Voters characterized as Patron-Client Relations Middle Class: Centralized in Urban and Highly Consumption imported goods

TIMOR IS AN EXTREME CASE OF RENTIER STATE 80. 5% of GDP is from Petroleum 93. 6% of state’s revenues are expected to come from Petroleum (2013) 88. 47% State’s annual budget is transferred from Petroleum Fund (2013) 54% of household wage income and 57% of percapita monthly wage income paid by the government Domestic Economy activities takes place due to recycle of Petroleum Money

STATISM IN TIMOR-LESTE Pragmatic and Unavoidable Strategic Development Plan Public Sector is expected to lay down foundation for private sector and economic diversification. Capital Development Increased in extreme way (Between 2008 and 2013, it increased 775%, without inflation). Recurrent Expenditure increased 136% from 2008 level (Without Inflation) Macroeconomic Policy: Injecting capital into domestic Market through wage and salary, public transfers, PDD, PDL, and Goods and Services Increased in the Public Servants: 54. 4% of national household wage income and 57% of percapita salary income is from Government Expansion of Social service: Education, and Health

This expansion regardless of quality, happens because only petroleum revenues. It takes place independently from domestic economy. Or in other words, domestic economy does not contributes to this expansion as 2013 state’s Budget is 113% of non-oil projected GDP and it contributes

DUTCH DISEASE AND INFLATION Inflation between December 2010 and December 2012, CPI increased 26% or 13% annually. Right now, inflation in Dili still at 13%. Expansionary fiscal policy does not match with domestic productivity Makes it hard for local industry to take place ISI becomes impossible as imported goods and services are more attractive It hurts 50% of population who live with $40 or less/month Without Petroleum Fund, it would have been worse

EMPLOYMENT STRUCTURE Public Sector employs around 40, 000 Job in Public Sector: more attractive, more secure Private Sector Employs 58, 000 (30% in construction sector, and 80. 5% of it are in Dili) Outside of these sectors are: Self-Employed, subsistence agriculture. Around 50% of productive age population (15 – 64) are considered to be economically inactive

TAXATION 2008 Government reform tax policy upon recommendation from IMF It was based on the fact that petroleum revenues was already flowing into Petroleum Fund Therefore, even without domestic economy, state still exist. Fiscal contract, and constructive roles of the society to the state is very small.