A decade after independence, East Timor's surprising best friend? Indonesia.

Ten years ago, East Timor was reeling from Indonesia's scorched-earth withdrawal after two-plus decades of occupation. Today it sees its huge neighbor as a crucial partner.

Last weekend, a number of uniformed Indonesian military officers were lounging about the Dili Beach Hotel drinking coffee, laughing, and shooting pool.

That would have been a shocking sight a decade ago, when tiny East Timor (Timor-Leste) was still crawling out of the ashes of a scorched-earth withdrawal by Indonesian forces after a 24-year military occupation.

But now, Indonesians are practically everywhere you look in East Timor, never more so than this past weekend, when the soldiers were just the advance team for the star of the show: A beaming Indonesian President Susilo Bambang Yudhoyono, who attended the country’s 10-year independence anniversary as a guest of new President Taur Matan Ruak.

As Asia’s youngest and poorest state enters a new era, it’s doing so with its old foe Indonesia as a crucial partner – a once unthinkable proposition after the war crimes committed in 1999.  But what was once unthinkable is now a necessity, and no one knows that more than President Ruak, a former guerrilla commander whose forces were once hunted by a younger Yudhoyono, when he was a battalion commander here.

Indonesia is home to 240 million people and continues to hold the western half of Timor Island. For East Timor’s 1 million people, it is both a potential source of capital, expertise, diplomatic assistance – and trouble, as the recent past makes all too clear.

Trouble is the last thing East Timor wants again. East Timor has occasionally tottered in the 13 years since its independence referendum and the 10 since the UN, which administered the country in its most ambitious nation-building effort, returned full sovereignty. In the years after the referendum, Indonesia permitted cross-border raids by militias. In 2006, a civil war was averted by the return of Australian troops and a new UN peacekeeping mission.

New money

Since 2008, East Timor has undergone a dramatic transformation, powered by new oil wealth and the rapidly evolving relationship with Indonesia. In 2005 Timor-Leste’s annual national budget was $200 million. Today, it’s a staggering $1.7 billion, thanks to oil production in the Timor Sea, which has swollen the coffers of the government’s Petroleum Fund to nearly $11 billion.  

The money has provided the self-confidence and the means whereby the Timorese can reengage with Indonesia and the country is awash with Indonesian contractors and businesses. Armed with skills and capital, they renovate the homes of the new Dili elite, build bridges and extend the power grid into the mountains.

They’re also making their mark at the bottom rung of the economy. Groups of young Javanese laborers are now seen all over the country. Easy oil money has many Timorese unwilling to work for wages, and the underemployed of East Java frequently beat the skills and wage demands of those who will.

All this has created ferocious economic growth, although not changes in the skills or positions of the workforce. GDP has expanded by more than 7 percent a year since 2007, but has come at the price of dramatic inflation, growing corruption, and a widening gap between rich and poor.
 
 Humvees and BMWs are the vehicles of choice for the nouveau riche in Dili. Timorese and Indonesians huddle everywhere making deals. Rich wives sport Louis Vuitton handbags, their husbands', flashy gold watches. This new class seeks medical care in Surabaya and Singapore, and they pay cash.

But there are concerns that Dili’s oil bubble is dangerously unsustainable, with much of the money stolen or wasted.  The economy is now 95 percent oil-reliant, yet the petrodollars may dry up as early as 2022. Time is short, and the list of needs is long.  

The road network is crumbling, reliable electricity supply remains elusive, and the majority of the population remains subsistence farmers who earn less than a dollar a day and survive on what they grow.  

Indonesia at the center

President Ruak will be guiding a National Development Plan that projects that East Timor will become a middle-income country in the next generation. That ambitious goal has Indonesia at its center.

The occupation, generations of intermarriage, and geographical proximity are the foundations for the expanding relationship. Some 6,000 Timorese are studying everything from human rights to chemical engineering at Indonesian universities.
 
Believing that integration into the region is critical, the Timorese have made a bid to join the Association of Southeast Asian Nations (ASEAN). Singapore blocked the move last year, but the Timorese have Indonesia in their corner on the bid. As the largest member of the group, Indonesia carries a lot of weight.  

And ties to the once-hated Indonesian security establishment have been expanding. Last year, Indonesia's Gen. Tri Sutrisno (ret.) attended a ceremony with senior military officials to commemorate the founding of FALINTIL, the independence army that fought Indonesia for almost 20 years. Sutrisno presided over the 1992 capture of Timorese independence hero Xanana Gusmao, who became East Timor's first president and is the current prime minister.

The youthful Julio Pinto, currently secretary of State for defense, arranged that visit ,and he represents one vision for the future. Mr. Pinto has warm relations with the Indonesian defense and security establishment and was educated in Indonesia, where he converted to Islam. He’s also the nephew of Ruak.

The military ties have left many Timorese uncomfortable. Many complain that no Indonesian military officers have ever been tried for the crimes against humanity for which the UN indicted them in 2003. While the lack of justice remains a sore point, the official stance in Dili is that Timorese must allow Indonesia to reform at its own pace, and that they are in no position to press the issue.  Washington, London, Canberra, and Tokyo are also mute on the matter.

Since Sutrisno’s visit, a wide array of joint defense and security initiatives has been under discussion. At the independence commemoration, and with Yudhoyono looking on, Ruak appeared to call for a formal military alliance to “safeguard the security ... and well being of our peoples.”  

With general elections planned for July 7, Prime Minister Gusmao seeks to continue his program of rapid and dramatic reconstruction of East Timor. He is counting on Indonesia’s help. In a recent fundraiser for his National Congress for Timorese Reconstruction Party, more than $2.5 million was raised to support his reelection campaign, of which 25 percent came from Indonesian companies heavily involved in rebuilding East Timor’s infrastructure.