By: Our Correspondent

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

“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

“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

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.

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

“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