21 July 2009

Draft land law provisions on land rights for foreigners in East Timor will smother development

ETLJB 21 July 2009 SYDNEY - In a press release dated 20 July 2009, the Revolutionary Front for an Independent East Timor stated that '[t]he Gusmao–led AMP government’s consultation process on the draft land law is woefully inadequate and the law itself would open the door to foreign ownership and control of land.

Fretilin further stated that '[a]ccording to the draft, a company wishing to own land in Timor-Leste only needs to have its head office in Timor-Leste, meaning foreigners could set up companies here and through their majority controlling shareholdings purchase large swathes of land at vastly discounted values.

'The major productive asset of most families, land, would potentially be ripe for exploitation by international speculators as nearly all East Timorese have little experience in land valuation, and being desperate for cash, would be vulnerable to unfair deals. This would lead to the displacement of many people and exacerbate social tensions and inequality.'

The press release continued to account a recent history of foreign land grants in East Timor and said that the draft law demonstrates the AMP government’s willingness to put the interests of powerful interest groups ahead of vulnerable East Timorese citizens.

According to Fretilin, last year, 'the current Minister for Agriculture Mariano Sabino agreed to hand over 100,000 hectares of scarce agricultural land to an Indonesian company for use as a sugar-cane plantation.

This deal was followed by the Secretary of State for Energy Policy Avelinho Coelho signing a contract with the Australian-based biofuel company Enviroenergy Developments Australia for Jatropha development on 59 hectares of prime agricultural land at Baucau.

Both deals were signed at a time of sky rocketing food prices and despite clear evidence that the projects were highly polluting and severely damaged Timor-Leste’s capacity to become self sufficient in food production.'

But a closer examination of the draft land law poses some more fundamental issues.

The following provision is in the East Timor Draft Land Law 2009:

Article 11 (Foreigners)
1. Properties whose previous right holder is a foreign claimants revert to the State, unless there is special adverse possession.
2. The State shall grant usufruct to foreign holders of previous rights who maintain the current possession of a property that has reverted to the State's private domain.
3. The usufruct referred to in the above number is automatically re-granted in favor of the heirs and legatees of the usufruct holder (upon the death of the grantee).

Firstly, the Constitution of the Democratic Republic of East Timor restricts the right of ownership of land in East Timor to citizens (presumably, this included national bodies corporate, but it may not).

But this so-called constitutional prohibition on land ownership in East Timor does not mean that foreigners can not gain any land rights. There is a similar provision in the Indonesian constitution. Such a provision is usually interpreted to mean that foreigners may not hold the fullest rights in land that exist in the jurisdiction that prohibits such ownership. Lesser rights such as lease - or, in the case of Indonesia - the right of use (hak pakai) - are created and granted for the purposes of foreign investment.

As the elucidation of Articles 41 and 42 the Indonesian Basic Agrarian Law of 1960 (which is presently part of the applicable land law in East Timor),

Hak pakai (right of use) is the 'collective definition' of the rights which are known in land law by different names, all of which --with slight differences due to differences in circumstances amongst regions-- provide the holder with powers as meant in this article. In the context of simplification as described in the General Elucidation, the new agrarian law uses the same term (i.e. hak pakai) to refer to these rights.

Foreign embassies can be granted with a hak pakai because this right can be valid for as long as the land is used for that purpose.

Foreign individuals and foreign corporate bodies can be granted with a hak pakai because this right only provides limited powers.

Prohibiting access to land by foreign entities or entrenching such a juridically limited and restricted right to land for foreigners such that it provides no security of tenure for a sound and sufficiently empowering land right that is necessary to induce capital investment is not a policy that exists in legal systems whose economy is based on the principles of capitalism and democracy. Land - and secure rights on land - are indispensable preconditions for foreign investment. Foreign investment - in the absence of an economy that is capable of existing without it - is crucial for poverty alleviation and eradication goals as well as general economic and social development.

To argue that foreigners should have no access to land in a developing country's legal and economic system or that they should only be entitled to a right that is not compatible with or sufficient for investment is to argue that country into perpetual poverty, political instability (unless the state is strengthened to suppress dissent) and international isolation.

The draft land law does this by actually inhibiting foreign access to land by restricting the right which a foreign entity may hold to a mere usufructuary right - one of the most primitive forms of land right - and one that is totally useless for international capital because it will not be transferrable (if it is, it will probably require state consent.) Certainly the draft implies that it may only devolve to successors to the original grantee. Most importantly, however, it can not be used as collateral for loans from financial institutions. Such a situation will smother foreign investment and contribute to the exacerbation of East Timor's many social and economic woes.

It is extraordinary that such a critical matter should be regulated in the way proposed by the draft land law and that only a short provision exists in a land law that is supposed to be directed to more fundamental determination of land ownership issues and the resolution of disputes over land in East Timor.

It is even more extraordinary, considering the very long gestation period for this draft land law and the considerable resources that have been expended in its production, that any policy maker or legislative drafter could conceive of such an inadequate and, in the end, detrimental, regulation of the critical issue of foreign land ownership in East Timor.


Anonymous said...

I find it very strange and that Portuguese who were foreigners themselves while ruling Timor Leste, endorsed a law stating foreigners cannot own land in Timor Leste. Its time for change now. I think Timor Leste should permit foreign purchase in certain permitted area and for certain land area or property type only. They can also come up with certain measurements to protect their land rights or property prices from being abused by foreigners if they concerned. It would enhance the countries economic growth. At the end of the day the asset is in Timor Leste's land and there is no way a foreigner could run away with the property.

Anonymous said...

We should not get too hyped up about who was where or when or resources. These are not relevant to this Draft. Comments should concentrate on the Draft facts as we see it. Maybe contentious comments, but that is what we should discuss here.

It is poorly phrased and leaves a bucket-load of loopholes, most in sad favour of foreign investors losing their property at the whim of the government.

I am sure there are already some happy foreign investors in ET, but the implementation of this Draft makes secure investments very risky now, even for previous investments.

I will await a more sensible approach to foreign investment in a final draft that definitively states the security of overseas investors.

5 years to retirement, Hope it is fixed by then.