Timor-Leste has faced political turmoil following resistance-era leader Xanana Gusmao’s withdrawal of the National Council for Timorese Reconstruction (CNRT) party from two ruling coalitions. This followed disputes with Fretilin party coalition partners and Fretilin President Francisco ‘Lu-Olo’ Guterres’ refusal to swear in seven proposed but allegedly corrupt CNRT ministers.

Gusmao’s apparent bid to reshape Timor-Leste’s politics in CNRT’s favour backfired in 2020 when President Lu-Olo refused to accept the resignation of Peoples Liberation Party Prime Minister Jose Maria ‘Taur Matan Ruak’ Vasconcelos. This kept him in office until a new coalition could be formed, leaving the minority government operating on a monthly budget and crippling the government spending-dependent local economy.

The new parliamentary coalition formed later in 2020 comprised Fretilin, the Peoples Liberation Party and the Noble Advancement of Timorese National Unity. The coalition held 36 of the parliament’s 65 seats and remained stable throughout 2021. The stability enabled a more effective response to COVID-19 in 2021.

While Xanana Gusmao appeared isolated from power, at least for the time being, his political arch-rival, twice prime minister and Fretilin leader Mari Alkatiri, had also stepped back from front line politics. With former president and Nobel Peace laureate Jose Ramos Horta also no longer involved in daily politics, three of the country’s most influential political figures and remaining ‘Generation of ’75’ leaders were no longer directly involved in running the country. This might be seen to have marked a long anticipated generational shift, but that President Lu-Olo and Prime Minister Taur Matan Ruak were also resistance-era figures.

Timor-Leste declared a state of emergency and limited international travel, weathering the COVID-19 storm relatively successfully. This was especially so given the somewhat porous border with pandemic-ravaged Indonesia. Total infections were contained to around 20,000 cases with just 122 related deaths.

While patchy in distribution, about half of Timor-Leste’s population had received at least one dose of either the AstraZeneca or Sinovac vaccines. Just over 37 per cent of the population was double vaccinated towards the end of the year. While Timor-Leste’s young population may have contributed to the low COVID-19 numbers, the government’s periodic ‘stay home’ lockdown orders with financial subsidies for families were key measures that helped fight the coronavirus. This was a similar policy that earlier saw Timor-Leste effectively eradicate Malaria.

The continued closure of Timor-Leste — excluding emergency inbound travel — had little impact on the otherwise oil-revenue dependent economy, with growth edging back towards 2 per cent following a 7 per cent slump in 2020. Growth was less than the originally projected 3 per cent, largely due to extensive flooding in April and May 2021. The floods affected each of the country’s 13 districts, with significant parts of Dili inundated, other areas experiencing serious landslides and a ‘State of Calamity’ being declared from April until August 2021.

Consequently, median income remained low at around US$1300 per capita, making it the poorest country in Southeast Asia. Elite rent-seeking behaviour continued, marking a significant divide between rich and poor.

After losing around 10 per cent of its value in early 2020, the country’s sovereign wealth Petroleum Fund bounced back towards the end of the year and in March 2021 valued at US$18.9 billion.

Despite diminishing oil revenues, the Petroleum Fund performed well and continued to underwrite the Timor-Leste economy. Earlier projections of financial collapse by the end of the 2020s based on government spending exceeding sustainable Petroleum Fund withdrawals appeared less imminent. But government spending continued to exceed sustainable withdrawals by more than double.

Without building other areas of the economy, the country would face a financial reckoning at some point. The government appeared to understand the unsustainability of its budgetary position but remained unable to reduce spending in the face of COVID-19 and the flooding.

There was no sign of any other sector making significant economic progress, let alone meaningfully supplementing the country’s oil-based revenue. Despite earlier plans for tourism to become one of Timor-Leste’s three key foreign income streams, international visitors are unlikely to flock to the country anytime soon. COVID-19 travel restrictions present significant barriers to tourism alongside already high travel and accommodation costs, as well as limited infrastructure.

The previous Alliance for Change and Progress government’s signature Tasi Mane liquid natural gas project — central to the country’s development plans — was quietly being mothballed. There was no international interest in developing the Greater Sunrise liquid natural gas field as the Tasi Mane centrepiece, other than from China as a loss-leading partnership in exchange for strategic concessions. The possibility of China gaining a strategic foothold in Timor-Leste was of key concern to three of Timor-Leste’s most important partners — Australia, Indonesia and the United States.

Despite what might have otherwise been a recipe for continuing political strife, including poverty, a pandemic and a natural disaster, Timor-Leste remained calm in 2021. Adding to the sense of calm was the country’s now much tested electoral process. Despite the challenges faced in 2021, it has defied the odds and confirmed the country to be the most successful democracy in Southeast Asia.

Damien Kingsbury is an Emeritus Professor of the School of Humanities and Social Sciences at Deakin University.

This article is part of an EAF special feature series on 2021 in review and the year ahead.