The United States government is promising East Timor hundreds of millions of dollars in aid money — if it can organize a plan to clean up its corruption within a year, a tall order for a country that was nearly crushed at independence by Indonesia and whose institutions are in early stages of development. Only five of its 15 ministries have internal audit processes in place and World Bank statistics indicate corruption is on the rise.

In late 2005 the Millennium Challenge Corporation, an innovative new development agency funded by the US Congress with the mandate to tie aid to policy reform milestones, approved a full contract — called a compact — with the fledgling country. Usually the compacts are worth hundreds of millions of dollars and are used to develop specific projects, such as new highway or hospitals, but a flawed proposal in 2006 and then national elections in 2007 have delayed the process and Timor is still without a compact.

With the national elections completed, the MCC has said it is ready to consider a new proposal from Timor, but over the past two years another problem has emerged: corruption. Timor is currently failing the MCC's control of corruption criterion.

The MCC uses 17 criteria in three sectors to rate countries: fair and impartial governance, investing in people, and economic freedom. The control-of corruption criterion is based on data collected locally by the World Bank and it is the only pass/fail one. In other words, it is the one thing Timor cannot afford to fail if it hopes to win a full compact. The local head of the World Bank, however, told Asia Sentinel he is confident Timor will right itself by the time the proposal is accepted.

“You have a very dedicated government committed to fighting corruption here,” Antonio Franco, World Bank country director, said. “I would assume that possibly by the end of this year they'll be okay.”

Last month East Timor's prime minister, Xanana Gusmao, introduced his plan to create a civil service commission and an anti-corruption commission, declaring 2008 the “Year of administrative reform.”

Franco said measures like these should have an immediate effect.

“In most cases that's all you need is to establish the framework,” he said. Six years from independence from Indonesia’s failed rule and subsequent devastation of the tiny country, Timor has found it difficult to create the framework, however.

Franco said this created a problem because there were few benchmarks to measure corruption.

“It's not very specific data and it's not based on very in depth country analysis,” Franco said.

John Hewko, vice president of the MCC, said he was convinced the government would fix its corruption rating soon and so Timor would still be eligible for a compact.

Hewko, along with a small delegation from Washington, D.C., visited East Timor last week to meet with the government about the new project proposal. Timor's initial 2005 proposal was rejected because it was too broad and it was not discussed with leaders of civil society.

The first step to any compact, Hewko said, is public consultation.

“We view this as a program between the people of the United States and the people of East Timor,” he said. The consultation process is followed by a feasibility study and Timor will base its proposal on that study.

The entire process can take up to 18 months, and during that time the MCC will push for better control of corruption. Hewko said that often the amount of money at stake is so great that countries improve their ratings for fear of losing the money. The projects can be terminated if goals are not met.

“There's something called the MCC effect,” he said. “Already we've seen this. Countries try to do well to be eligible [for a compact].”

Although the amount of money Timor could get will be based on its future project proposal, the money should be significant.

“These are large grants and they focus people's attention. This isn't $10 million, but more like $100 million” said Darius Nassiry, the MCC's country director for the department of compact development.

To a country like East Timor where most people live on a few dollars a day, the project alone could provide countless jobs and a needed boost to the economy.

About half the country is unemployed and the gross domestic product is based heavily on the country's nascent petroleum revenue. In Timor, not only are there few skilled workers, but even those with skills say they have trouble finding work. Thousands still live in displacement camps scattered around Dili, the nation's capital, too poor to rebuild their homes, and without income. Tens of thousands lost everything following violent civil unrest in 2006, and while the government has made some progress moving people back home, underlying causes—lack of jobs, skills, etc—are harder to fix.

Hewko said the MCC aims to fix just these sorts of problems through their compacts. He said Timor's project should have a heavy emphasis on infrastructure and rural development, and be “rooted in activities that promote economic growth.”

The MCC was established in 2004 as an initiative by the Bush administration as a “new” approach to aid development. Some critics have said the Bush administration should have simply reworked the United States Agency for International Development, the U.S. government's existing development agency, but Hewko and others said USAID is actually quite different.

“USAID has a much broader mandate than the MCC,” said Hewko. “Our projects are highly specialized and we only work with countries that are doing well.”