Rentier State, Statism, and SoCio Political and Socio-Economic Dynamic

1
Rentier State, Statism, and SoCio Political and
Socio-Economic Dynamic

• Guteriano Neves
• Departement of Research, Analysis and
  Documentation
• Presidency of the Republic

2
Objective

• This presentation intends to deploy Rentier
  State paradigm to explain current Socio-economic
  and Socio-political dynamic, and state-society
  relations in Timor-Leste.

3
Hypothesis

• Through this presentation I argue that
• Understanding socio-political and socio-economic
  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.

4
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

5
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 states presence in the society and
  fortifies states legitimacy
• In some case, because state is too powerful, the
  regime turns into authoritarian regime.

6
Cont..

• States 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

7
Timor is an Extreme Case of Rentier State

• 80.5 of GDP is from Petroleum
• 93.6 of states revenues are expected to come
  from Petroleum (2013)
• 88.47 States 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

8
Statism in Timor-Leste

• Pragmatic and 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

9

• 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 states Budget is 113 of
  non-oil projected GDP and it contributes only
  6.7 of states revenues this year alone .

10
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

11
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

12
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.