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6. Financial Sector

Capital Markets and Portfolio Investment

Timor-Leste does not have a stock market and has limited credit and liquidity to facilitate investment.  There are no known restrictions on portfolio investment.

Money and Banking System

There are five commercial banks operating in Timor-Leste: ANZ of Australia, Mandiri of Indonesia, BRI of Indonesia, BNU of Portugal, and a subsidized national bank, National Commercial Bank of Timor-Leste.  Foreign citizens must have a tax identification number that demonstrates residency in Timor-Leste in order to maintain an individual bank account. According to Central Bank data, commercial banks’ credit to the private sector totaled USD 182.5 million as of December 2016.  The overall non-performing loan rate was 15.2 percent in September 2016.

The Central Bank of Timor-Leste is the country’s monetary authority.  It supervises the activities of commercial banks, money transfer operators, currency exchange offices, insurance companies, and other deposit-taking corporations, as well as serving as the operational manager of the country’s sovereign wealth Petroleum Fund.  The bank also operates as the clearing house for interbank payments and undertakes bank operations for the government and Timor-Leste’s public administration. American citizens must submit a copy of their passport notarized by the Consular Section of the U.S. embassy attesting to their citizenship status to open a bank account.

Foreign Exchange and Remittances

Foreign Exchange

The U.S. dollar is the official currency of Timor-Leste.  There are no official currency controls, although the Central Bank of Timor-Leste imposes reporting requirements for the importation or exportation of cash above USD 5,000 and requires explicit authorization for sums in excess of USD 10,000.  The four foreign banks operating in Timor-Leste – Bank Mandiri, BRI, ANZ Bank, and Banco Nacional Ultramarino – may also impose reporting requirements for transactions above a certain amount in order to comply with home-country anti-money laundering regulations in addition to the requirements stipulated by the Central Bank.  American citizens must have a tax identification number that demonstrates residency in Timor-Leste in order to maintain an individual bank account. American citizens must also submit a copy of their passport notarized by the Consular Section of the U.S. embassy attesting to their citizenship status to open a bank account.

Remittance Policies

Timor-Leste does not have a specific policy governing remittances.  The government facilitates Timorese going overseas in the UK, South Korea, and Australia for industrial and agricultural work but data on remittances is limited.  In 2016, Timorese workers participating in bilateral workers’ programs in South Korea and Australia sent USD 9.89 million back to Timor-Leste. By 2017, estimated total remittances had grown to USD 43.8 million, according to the Secretary of State for Professional Training and Employment Policy (SEPFOPE).  The government is also currently discussion a bilateral work program with Japan.

Sovereign Wealth Funds

Established in 2005, the Petroleum Fund is Timor-Leste’s sovereign wealth fund.  The Minister of Finance is responsible for its overall management and investment strategy.  The Central Bank of Timor-Leste is responsible for its operational management, although the Minister of Finance has the authority to select a different operational manager.  By law, all petroleum and related revenues must be paid into the Fund, with the balance of the Fund invested in international financial markets for the benefit of present and future generations of Timor-Leste’s citizens.  The Fund’s receipts are invested in approximately 40 percent equities and 60 percent bonds, but the Petroleum Fund Law permits the investment of up to 50 percent of the Fund in equities, 10 percent of which may be in exotic investments.  The Petroleum Fund publishes monthly, quarterly, and annual reports online. As of February 2019, Petroleum Fund assets stood at USD 16.6 billion. The law governing the Fund provides that there shall at all times be appointed an independent auditor, which shall be an internationally recognized accounting firm (most recently Deloitte Touche Tohmatsu).  In February 2016, the Sovereign Wealth Institute rated the Petroleum Fund as an 8 out of a possible 10 points for transparency.

The Petroleum Fund is the primary source of funding for the government budget, with a ceiling on annual withdrawals set by law at 3 percent of Timor-Leste’s total petroleum wealth (defined as the current Petroleum Fund balance plus the net present value of future petroleum receipts).  Recent budgets have exceeded the annual ceiling with the approval of Parliament; however, budgets have rarely been fully executed, returning up to one-third of the budget to the government coffers.

The Petroleum Activities Law no 13/2005, article 22, limits the government to investing 20 percent of the fund in petroleum activities.  The government amended the law in 2019 to allow 5 percent of the Petroleum Fund to be invested in Timor GAP, while reducing the percentage of the Fund held in stocks from 40 percent to 35 percent.  TimorGAP must use the investment to exploit known oil and gas fields, which are commercially competitive and will contribute to development and diversification of the national economy. TimorGAP will pay 4.5 percent interest on the investment and comply with reporting requirements.

In July 2010, Timor-Leste became the third country in the world and the first in Asia to be certified as compliant with the Extractive Industries Transparency Initiative (EITI), but was suspended in March 2017 because it did not submit required reports.  EITI is a G-7 endorsed undertaking that involves a country’s government, extractive-sector companies, and civil society in ensuring transparency of relevant payments and revenues.

In 2008, Timor-Leste participated for the first time in the IMF-hosted international working group on sovereign wealth funds.  The country follows the best practices of the Santiago Principles.

7. State-Owned Enterprises

The Timorese government operates several state-owned enterprises (SOEs) across various sectors, including broadcasting, aviation, oil and gas, pharmaceuticals, and telecommunications.

  • The Government of Timor-Leste owns 20.6 percent of Timor Telecom, a telecommunications provider while Telecomunicações Públicas de Timor (TPT) owns 54 percent.  In 2013, two private foreign companies began telecommunications operations, ending Timor Telecom’s monopoly of the fixed and mobile network. In exchange for the end of the monopoly, Timor Telecom acquired certain equipment procured by the government and will retain no-cost usage rights of some government-owned infrastructure and equipment until 2062.
  • In mid-2011, the government established TimorGAP, E.P., a 100-percent state-owned petroleum company intended to partner with international firms in exploration and development of Timor-Leste’s petroleum resources and to provide downstream petroleum services.  TimorGAP is supervised by the Minister of Petroleum, but is governed by an independent Board of Directors. Firms that partner with TimorGAP will receive preferential treatment in tenders for petroleum projects.
  • In November 2008, the Timorese government transformed Timor-Leste’s Public Broadcasting Service, Radio Televisão de Timor-Leste (RTTL), into a state-owned enterprise known as RTTL.  The government owns RTTL under the supervision of the State Secretary of Social Communication governed by an independent Board of Directors. In 2016, the government established an official news agency, TATOLI.
  • In November 2005 (Government Decree No.8/2005), the government established ANATL, E.P., a state-owned company to administer the domestic airports in all aspects, including air navigation.
  • The government also created SAMES, E.P. in April 2004 (Government Decree No. 2/2004) – a public enterprise that imports, stores, and distributes medicines and medical products and equipment.  In April 2015, the government converted SAMES, E.P. into SAMES, I.P., an autonomous institution, which operates under the tutelage and supervision of the Ministry of Health.

Several autonomous government agencies are active in the economy: the Institute of Equipment Management (IGE), the Dili Port Authority (APORTIL), and the National Aviation Authority (AACTL).  Postal and communications services may shift from the Ministry of Transportation and Communications to autonomous agency status eventually. Timor-Leste Electricity Company (EDTL) has recently ceased to be an autonomous institution and currently operates under the direct supervision of the General Directorate for Electricity, which resides under the Ministry of Public works.  Other autonomous and self-funded institutions include the National Petroleum and Mineral Authority (ANPM), which regulates the oil and gas sector, and a lottery operated by the Ministry of Tourism. A National Authority of Communication (ANC) under the Ministry of Transport and Telecommunication will eventually shift to become an autonomous and self-funded institution.

Timor-Leste has not adhered to the Organization of Economic Cooperation and Development (OECD) guidelines on Corporate Governance of SOEs.  Line ministers supervise SOEs but independent boards of directors administer them. Senior management reports directly to a 5-7 member Board of Directors.  Line ministers are responsible for nominating or dismissing the President of the Board of Directors with approval from the Council of Ministers.

Privatization Program

Timor-Leste does not have a privatization program, but has voice a desire to privatize its energy and water utilities in the near future.

8. Responsible Business Conduct

Businesses are generally aware of expectations and standards for responsible business conduct, although regulation of those standards is inconsistent.  The government monitors business compliance with labor and environmental regulations, although the capacity to do so is insufficient. The government does not appear to factor responsible business conduct policies into procurement decisions.

There have been no high-profile business-related instances of corporate impact on human rights.  Civil society and other organizations are generally able to monitor and promote human rights, both related to corporate actions and otherwise, without undue interference from the government.

Timor-Leste is not an adherent to the OECD Guidelines for Multinational Enterprises.  In July 2010, it became the third country in the world and the first in Asia to be certified as compliant with the Extractive Industries Transparency Initiative (EITI), but it was suspended in March 2017 for failing to submit its required 2014 report, although the EITI statement on the suspension recognized Timor-Leste’s consistent commitment to transparency.  The criteria and procedures by which the national government awards natural resource contracts or licenses are specified in the 2005 Petroleum Act. The process actually used to award contracts is broadly consistent with the procedural requirements set by law or regulation. Once a contract or license is awarded, the government makes public the basic terms of the awards.  The government publishes quarterly reports on its Petroleum Fund on the Central Bank website.

9. Corruption

Transparency International ranks Timor-Leste at 105 out of 180 countries on its Corruption Perceptions Index in 2018, and the Government of Timor-Leste is continuing to take steps to combat corruption.  In 2010, the Anti-Corruption Commission (CAC), an independent agency, was established in Timor-Leste. That same year, the Office of the Prosecutor General also forwarded its first high-profile corruption case to the courts.  Since then, the CAC has referred several cases to the Office of the Prosecutor General, which have resulted in several ongoing investigations. In 2016, former Minister of Finance Emilia Pires and former Vice-Minister of Health Madalena Hanjam, were convicted of participating in improper procurement of hospital beds.  Both received prison sentences, which were suspended during the appeals process, although Pires was out of the country at the time and has not yet returned. Other corruption cases involving high-profile leaders, including the former President of the National Parliament, Vicente Guterres, have stalled due to claims of immunity.  Business people operating in-country report concerns about operational difficulties they ascribe to lower-level corruption with regard to bureaucratic processing in areas such as licensing, importation, and taxation.

The government is working to establish internal discipline and performance standards.  In October 2017, the government established a new customs authority and adopted the revised Arusha Declaration towards integrity in customs.  The customs authority is also in the process of implementing the Automatic System for Customs Data (ASYCUDA), a UN-development customs management software, to streamline customs processing and reduce corruption.

Under Timorese law, bribery is a crime punishable with up to four years of imprisonment.  It is illegal to bribe a foreign official, although Timorese law would not apply to an attempted bribery of a foreign official overseas.  Bribes cannot be deducted from taxes.

Timor-Leste has signed and ratified the UN Anticorruption Convention; however, it is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

In March 2019, the National Parliament approved a new anti-corruption bill in generality with new identified offenses, including in the private sector, which included penalties for construction fraud and a failure to declare assets or unjustified wealth; however, the details have not been approved, and the law has not been promulgated.

Resources to Report Corruption

Anti-Corruption Commission of Timor-Leste

Rua Sergio Vieira de Mello
Dili, Timor-Leste
Phone: +670 77305564; +670 77326597; or +670 77326599

Contact at watchdog organizations:

La’o Hamutuk – Walk Together
PO Box 340, Bebora, Dili Timor-Leste
Phone: +670 3321040
Mobile: +670 77234330

Lalenok ba Ema Hotu (LABEH) – The Mirror for the People
Avenida Presidente Nicolao Lobato-Comoro-(in front of SDN.07-Malinamuc)
Dili, Timor-Leste
Phone: +670 3331068

10. Political and Security Environment

Timor-Leste emerged from a history of colonialism, occupation, and civil strife to the period of domestic calm that it has enjoyed for more than a decade.  After twenty-five years of occupation by Indonesia, under an agreement between the United Nations, former colonial power Portugal, and Indonesia, a popular consultation was held in August 30, 1999 to allow the Timorese to vote on whether to remain part of Indonesia or to become independent.  The majority chose independence; Timorese militias opposed to the decision organized and, supported by the Indonesian military, commenced a campaign of retribution. According to some reports, approximately 1,300 Timorese were killed and as many as 300,000 people were forcibly relocated into West Timor as refugees.  The majority of the country’s infrastructure, including homes, irrigation systems, water supply systems, and schools, and nearly 100 percent of the country’s electrical grid were destroyed. On September 20, 1999, at the request of the Timorese government, Australia led a deployment of peacekeeping troops (the International Force for East Timor, INTERFET), which ended the violence.

After almost three years of UN administration, Timor-Leste became a fully independent republic with a parliamentary form of government on May 20, 2002.  UN peacekeepers departed in 2005 leaving a special political mission in its stead. In 2006, however, civil order collapsed due to domestic political struggles, which led to armed conflict between the police and military.  The Government of Timor-Leste urgently requested police and military assistance from Australia, New Zealand, Malaysia, and Portugal. In August 2006, the UN Security Council passed Resolution 1704, creating the United Nations Integrated Mission in Timor-Leste (UNMIT) to assist in restoring stability, rebuilding the security sector institutions, supporting the Government of Timor-Leste to conduct the 2007 presidential and parliamentary elections, and achieving accountability for crimes against humanity and atrocities committed in 1999.  An Australian-led International Stabilization Force (ISF) supported UNMIT’s mission. Timor-Leste held free, fair, and largely peaceful presidential and parliamentary elections in 2007. Nobel Peace Prize Laureate José Ramos-Horta assumed the Presidency, and former guerilla leader and outgoing president Xanana Gusmão became Prime Minister.

National elections for president and parliament in 2012 were peaceful, free, and fair.  UNMIT and the ISF departed from Timor-Leste at the end of 2012. Following free, fair, and peaceful parliamentary elections in July 2017, Mari bin Amude Alkatiri became prime minister of a two-party coalition government.  In a March 2017 presidential election, also judged as free and fair, voters elected Francisco Lu Olo Guterres. In contrast with previous years, elections proceeded without extensive support from the international community.  Security forces maintained public order with no reported incidents of excessive use of force. Alkatiri’s government was not able to pass its program or budget. In January 2018, President Lu Olo dissolved parliament and called for early elections.  The elections, which took place May 2018, were considered fair and transparent. A coalition of parties won a Parliamentary majority and Taur Matan Ruak became Prime Minister. A standoff between the President and Prime Minister over cabinet appointments continues to inhibit the swearing in of a full cabinet of ministers.

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