The new nation of East Timor will certainly wish to improve the living standards of the population, and will no doubt give top priority to the goal of poverty alleviation. The purpose of this chapter is to suggest which policies may be most effective in achieving this goal. The first part of the chapter examines the legacy of the years 1975–99, when East Timor was a province of Indonesia. A considerable body of statistical data is available for this period, and an examination of these data is essential if we wish to understand the nature of the challenges facing the new government. The second part of the chapter looks at policy options, drawing both on the lessons of the Indonesian period and on the wider literature on poverty alleviation that has proliferated in recent years.

THE INDONESIAN LEGACY

Trends in Poverty and Inequality

During the 1990s, data from the Household Income and Expenditure module of the National Socio-economic Survey (Susenas) carried out by the Indonesian Central Statistics Agency (BPS) were used to produce estimates of the head-count measure of poverty by province in Indonesia. (The headcount measure is the proportion of the total population whose monthly expenditure falls below a stipulated poverty line.) The estimates for 1993 and 1996 for East Timor, and for four other provinces in eastern Indonesia, are shown in Table 15.1. According to the estimates published in 1998, the headcount measure of poverty was higher in East Timor than in any other province in both 1993 and 1996. The revised estimates for 1996 published in 1999 (which were based on a revised poverty line estimate) indicate that a higher proportion of the population fell below the poverty line in both Irian Jaya and Maluku. It is not possible here to give a full account of the debate surrounding the official poverty estimates in Indonesia, or to give a comprehensive explanation of the changes in the estimation of the poverty line that were introduced in 1999.