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

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.

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