A Dangerous Windfall.(East Timor)

When Indonesia and Australia agreed in 1989 to jointly exploit East Timor's offshore oil and gas fields, the countries' foreign ministers sealed the pact by sipping champagne in a private jet high above the Timor Sea. Ten years later, after throwing off the yoke of Indonesian rule, East Timor has claimed the deep-sea deposits for itself and is preparing to cash in on its natural resources. But, strangely, no one is breaking out the bubbly. "While oil and gas revenues can be a blessing, we are conscious that our public administration, our Treasury and other branches of government are very weak," says Jose Ramos-Horta, the country's foreign minister. "This can lead to waste, mismanagement and corruption."

Not that East Timor doesn't have a lot to be happy about as the one- year anniversary of its independence approaches later this month. War and starvation are slowly becoming distant memories, nation-building has begun in earnest and the East Timorese--not their Portuguese, Japanese or Indonesian colonizers--are finally calling the shots. Just last month East Timor and Australia inked the final terms of their joint treaty, with 90 percent of the oil revenues headed to the tiny nation. Unlike other strife-torn countries, this Southeast Asian outpost can write its financial ticket by wisely spending its oil and gas revenues, estimated to be $6 billion during the next 25 years.

But therein lies the danger: a sudden windfall of cash from the black stuff could just as easily send the region's poorest state down the path of nations like Nigeria or Indonesia, whose corruption is a testament to the temptations of oil economies. "The institutions are not there--and the openness and transparency are not there--to make sure this money's going to be spent well," warns one Western political analyst in Dili. "There are no checks and balances against large-scale corruption."

In fact, many experts think corruption has already gotten worse in the last year. "There are increasing anecdotal reports... of low-level corruption that is making it difficult for businesses to do business," says Elisabeth Huybens, the World Bank's country manager in East Timor. So far the tales of graft are the typical fare: civil servants demanding bribes for permits, influence peddling by midlevel bureaucrats and alleged kickbacks for handing out state contracts. There is no evidence ...