Helder Lopes, Governor of Timor-Leste’s Central Bank, spoke with Robin Davies when he visited Australia in May 2024 under the Special Visits Program of the Department of Foreign Affairs and Trade.
Helder Lopes, Governor of Timor-Leste’s Central Bank, spoke with Robin Davies when he visited Australia in May 2024 under the Special Visits Program of the Department of Foreign Affairs and Trade.
The Central Bank of Timor-Leste is a young institution, established in 2011. It combines some of the responsibilities of our own reserve bank with those of the Australian Securities and Investments Commission and the Australian Prudential Regulatory Authority, and it manages Timor-Leste's sovereign wealth fund, the Petroleum Fund.
Helder is only the Central Bank’s second Governor, and is six months into a six-year term. He talks about the need to put Timor-Leste’s Petroleum Fund on a sustainable footing, accelerate private sector development, harness the benefits of remittances from its citizens working in countries such as Australia, the UK and South Korea, expand the range and reach of financial services, and carefully review the pros and cons of continuing to use the US dollar as the country’s national currency.
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Welcome to Devpolicy Talks, the podcast of the Development Policy Centre. We’re part of the Crawford School of Public Policy at the Australian National University, on Ngunnawal and Ngambri country in Canberra.
This is episode four in our 2024 season, which is a new beginning for the podcast after a hiatus of two years. We're bringing you a mix of interviews, event recordings, and in-depth documentary features relating to the topics we research at the centre – Australia's overseas aid, development in Papua New Guinea and the Pacific, and Indo-Pacific regional and global development.
Acknowledgement 00:06
We wish to acknowledge the Indigenous people of Australia, the wider Asia Pacific region, and other parts of the world, and express our respect for their traditional knowledge and practices, which stem from a deep connection to the lands and waters they have inhabited for millennia.
Helder Lopes 00:27
We think that sending away people to overseas, especially like what we have with Australian Government, where we send our young people to come and work on the farm, is extremely important. Just last year, the total inbound remittance that we got was 204 million US dollars, of which Australia contributes 43 million US dollars, just in one year.
Robin Davies 01:02
Welcome, to Devpolicy Talks, the podcast of the Development Policy Centre. We're part of the Crawford School of Public Policy at the Australian National University on Ngunnawal and Ngambri country in Canberra. I'm Robin Davies. This is episode five of the new season of our podcast, which we relaunched in April of this year after a more than two year hiatus. In this new season, we're bringing you a mix of interviews, event recordings, and in depth documentary features relating to the topics we research at the Centre, namely, Australia's overseas aid, development in Papua, New Guinea and the Pacific, and Indo-Pacific regional and global development. This episode is an interview I recently recorded with Helder Lopes, Governor of the Central Bank of Timor-Leste, which is responsible for regulating and supervising the country's financial sector. Helder was visiting Australia under the special visits program of the Department of Foreign Affairs and Trade. The Central Bank of Timor Leste is a young institution established in 2011. It combines some of the responsibilities of our own Reserve Bank, with those of the Australian Securities and Investments Commission and the Australian Prudential Regulatory Authority, and it manages Timor-Leste's sovereign wealth fund, the Petroleum Fund. Unusually, the Central Bank doesn't do monetary policy, because Timor Leste's national currency has been the US dollar since independence in 2002. Helder is only the second governor of the Central Bank and is six months into a six-year term. He previously served as Vice Minister of Finance between 2015 and 2017 and was the Chief of Staff of the Ministry of Finance between 2012 and 2015.
Robin Davies 02:56
I always like to start with some personal background, so maybe if you could introduce yourself and say a little bit about your background, how you came to your present position as the governor of the Central Bank.
Helder Lopes 03:10
I am the Governor of the Central Bank for one term. One term is a six year term. But before this governorship, I was appointed as the Minister of Finance, Vice Minister of Finance, twice, and most of my career I was doing a lot of work on the PFM, Public Financial Management area, and also doing some economic stuff as PFM economic advisor, PFM economic advisor for the Ministry of Finance and for the President of the Republic of Timor-Leste.
Robin Davies 03:48
Now, I can't tell how old you are by looking at you at the time of independence, what were you doing?
Helder Lopes 03:55
At the time of independence I just graduated from high school, so then I went to a church school. And after that, one year in the church school, I went to college in Dili. And after finishing up five years college in Dili, which is in National University of Timor-Leste, then I continued my study in the US.
Robin Davies 04:18
And where did you study in the US?
Helder Lopes 04:20
Michigan State University.
Robin Davies 04:22
And you did a doctorate in economics?
Helder Lopes 04:25
A master's in economics.
Robin Davies 04:26
And so when you came back to Timor-Leste is that when you joined the Ministry of Finance?
Helder Lopes 04:31
I started with working for Asian Development Bank as a consultant, and then I moved to Ministry of Finance, playing an advisor role. Then I took the role as head of economic policy department, which is actually the department responsible for producing economic research and analysis to inform the government for policy-making process, especially for fiscal policy and economic policy. And then I was promoted to be a Vice Minister of Finance. And then after that, I now took a number of roles in senior advisor role as PFM advisor in the Ministry of Finance and Economics in the Ministry of Finance, and also in ADB, as in the Asian Development Bank, and also in the current presidential office, President Ramos-Horta's office.
Robin Davies 04:34
So, all through your career, you've had exposure to the economic fortunes of East Timor from not long after independence to the present time. What are the major shifts you've seen in economic stability, prosperity over that time?
Helder Lopes 05:51
Well, you know, if we look at two decades ago about Timor-Leste, we actually started everything from [the basics] because in 1999 once we decided to become an independent country, and now our country is totally newborn: infrastructures, systems, public, private, and the human resources were still limited at that time. But then after two decades, we see that despite we still have a lot of systemic challenges, but we are making progress now, and we Timorese in this case, I think the government is in the driving seat. We have set our objectives of where to go, which is in our strategic development plan, the government said the objective of Timor-Leste to be an upper middle-income country with a healthy and educated population by 2030. But I think this vision has to be reviewed again, because it was set in 2011 given that we have a very limited time to add to the point of achieving this vision. So the point that I would like to make is that, you know, I think it's probably time to revisit the vision that was set in 2011. But to answer your question, and if we compare where we were 20 years ago up to today, we made a lot of progress, but we also recognise that we have challenges, systemic challenges, that we need to address, in which, if I am allowed, I can mention, like the living standard of many people are still low. Unemployment is still high. The private sector contribution to the economy is still small. Our economy is still driven by public sector, and we think that, you know, we have to change the structure of this economy to be sustained by private sector, because otherwise it's not sustainable for long term, if it is continue driven by public sector.
Robin Davies 08:03
And what are your specific hopes for the private sector? Which parts of the private sector economy hold out most promise?
Helder Lopes 08:10
Well, you know, we have identified at least three or four sectors to diversify the economy based on the notion of endowments, which is agriculture, tourism, manufacturing, and also petrochemical industry. So we have identified this. But I think these are the potential sectors to diversify the economy. I think the approach, the next approach, will be this has to be developed by private sector, not by public sector. So we need to make sure that, you know, we engage private sector in this endowment sectors, in these potential sectors. We call it potential sector, so that they are the one going to develop these sectors to diversify the economy, making sure that these sectors are going to be the drivers of the growth, create jobs, create and generate income for individuals, for households etc, etc, so that could ultimately contribute to the reduction of poverty in the country. So what I will say is that what we need to do is we need to do four things in terms of attracting private sector [investment]. One is, we need to continue invest in infrastructure. Which is, we have done so, but we have to continue do that, but because we believe that investing in infrastructure is good for the current growth and future growth, and also for the competitiveness of the country, relative to the other countries. Second is we need to continue invest in human capital, especially education, health, because we need to have productive human resources to work for our economy and to be competitive. We have to work on our legal and regulatory environments in order to be to the standard where we give confidence to investors, local and foreign investors, to come and invest in the potential sectors that I just mentioned. And the last one is the public sector, which is, we have been doing that, but I think we need to continue improve the efficiency of the bureaucracy in the public sector and enhance coordination between government departments to make sure that, you know, if the objective is to sustain the economy with private sector, then we take bureaucracy and the coordination between entities has to be there to facilitate the growth of private sector.
Robin Davies 10:43
I'm interested particularly in the tourism sector. So I mean, as you know, in Australia, there's a lot of goodwill towards Timor-Leste, and I think there would be a lot of people that would like to visit for tourism. But of course, the air connections are difficult and expensive. Do you see prospects over time for better air connections between Australia and Timor-Leste?
Helder Lopes 11:04
So I think that's why I was saying about the preconditions to attract the private sector in order to contribute to the economy diversification and tourism is one of the sectors. So in our construction or rehabilitating our existing international airport in Dili, we call it Nicolau Lobato International Airport, is in the pipeline of the project of the government right now. The notion is that this is the main gate, the international gate of attracting foreigners to come to Timor. So we need to make sure that we have to rehabilitate this infrastructure in order, you know, to provide efficient services and as representing the country as the gate where people enter to Timor-Leste. The second thing is, once we improve this international airport infrastructure, then we need to make sure that we have the proper management of the asset of the infrastructure, and also to attract international carriers in order to bring down the cost of, as you say, the cost of travelling to our country. That's extremely important, and that is what we are working on. But another element of attracting tourism is we have to work on the soft side of it, which is the services. People have to be trained up to the level where they provide proper services to the customers, especially customer services, smiling to the people is a basic thing. But, you know, sometimes I made a joke that the most powerful language is - it's not joke but it's true - the most powerful language in hospitality service is smiling. If you just to smile to people and you don't do that, don't expect that people will come again after the first visit. So you know, but this is just a very small thing. So I think we have a lot of potential of tourism in the country. As you said, Australia is just next to us. Many Australians would like to visit Timor-Leste. But what we need to do is that we need to bring down the cost of people come to visit us. We have to have the facilities in place. We have to have people that could provide services to the to the level where Australians expects to get if they visit Timor-Leste, it's not only Australians, but also other tourists that we are targeting for.
Robin Davies 13:34
Now you've talked about Timor-Leste investments in infrastructure, whether it's airports or roads. What sort of, I guess, tolerance does Timor-Leste have for debt, international debt related to these infrastructure investments?
Helder Lopes 13:49
I used to be in the Treasury Department, actually the debt, the public debt, is actually the role of the Treasury Department. In our case, in our Central Bank, I’m not really involved in that. But now, given that we have the money, I try to link this to our mandate [but] I can't speak of other people. So in our case, we have a Sovereign Wealth Fund called a Petroleum Fund, which is, by definition, is a fiscal reserve, but based on the law, produced by the parliament. So we, the Central Bank, is the one responsible for operational management of the Petroleum Fund. Our strategy from the Central Bank is that we need to make sure the fund is the Petroleum Fund or the soil fund is sustainable, because we believe that once the Petroleum Fund is sustainable, that could contribute to the fiscal sustainability and macroeconomic stability in Timor-Leste for medium to long term. So with that notion, and also we invest this money in international financial market and get an annual return, an average annual return, about 6.7%, so we think that once the government, especially the Treasury Department, they prepare annual budget, and they are looking for financing source to support their fiscal deficit. If they think that they can get cheap money from other institutions, let's say international financial institutions, private institutions, or whatever, but cheap money, cheap money is referring to if they pay less than 6.7% of interest then I think that that could be an option that we consider. In this case, public debt would consider this sort of strategy, and I believe that right now, the government even said that for the public debt, the interest would be below 3% because, by law now actually, we define that our average interest rate from the Petroleum Fund is only 3%. It implies that you know, if you use Petroleum Fund, then you need to make sure that you don't have the option of getting other financing source for financing your budget that is lower. The interest is lower than 3%.
Robin Davies 14:28
So the objective for the Petroleum Fund, as oil and gas revenues decrease over time, the objective is to operate the fund in such a way that it grows?
Helder Lopes 16:35
[Yes] at a sustainable level. So actually, if you look at our Sovereign Wealth Fund, which is the Petroleum Fund, the revenue coming to the fund is actually through two ways. One is from the revenue from the oil and gas, selling oil and gas, and one is from the investment return. So as you said, that revenue from the oil and gas is declining. So what we the Central Bank, which is our mandate, has to do, is that we need to make sure that we continue to properly invest this fund in international market to get high return of the investment, and then we continue advise the government that the withdrawal of the fund to finance the government budget, you need to make sure that now you don't eat up all your fund, because this one is important for long term fiscal sustainability and macroeconomic stability.
Robin Davies 17:31
I also wanted to ask about remittances, the importance of remittances to Timor-Leste's economy. Timor-Leste participates in labour mobility schemes that Australia has put in place, which I know is only a small part of the picture. But how important are remittances, and how stable are remittances for Timor-Leste?
Helder Lopes 17:51
Very, very important, at least from our perspective as the Central Bank, because we have the data that we would like to say. You know, since 2009 up to last year, 2023 and when you look at the remittance, the inbound remittance actually and now it's increasing, very promising, very significantly. And given that one of the systemic problems that we have in our country right now is employment creation, where our economy still has a limited capacity to create employment. We think that sending our people to overseas, especially like what we have with Australian Government, where we send our young people to come and work on the farm, is extremely important. Let me just share with you, just last year, the total remittance that we got, inbound remittance that we got, actually 204 million US dollars, of which Australia contributes 43 million US dollars, just in one year. People who come and work here, send money back home. They contribute 43 million US, dollars, huge. And the total inbound remittance last year represents 12.6% of GDP. So what I'm saying here is that remit, or, you know, sending our people overseas to get job is extremely important, given that you can't accommodate them locally because limited economic capacity. And once they go out, such as in Australia, they get benefit beyond economy. So the economy actually the three benefits that we have identified: money that they get, and they send to their family. Second is skills, the knowledge of working here, the experience. And the third one is the work attitude. Because work attitude, this discipline you only get it once you are really doing work in the proper industry. So we think that we have these benefits, and why we say we also get benefits beyond economy, these three pillars that I just mentioned, because we have experience that once our people, they come work here, they get back home, they actually, you know, just focus on what they would like to do, instead of used to be they have to join this group, that group, no longer exists. So that's sort of additional benefits that we get. But the point that I would like to make is that, you know, participating, especially in the Australian overseas labour scheme, is extremely beneficial for Timor-Leste, and we are very happy, because I think DFAT and our government, Australian government and our government is now working together to expand the quota for us, but also to train our people, to also take up some of the semi-skilled jobs instead of just working on the farm.
Robin Davies 21:08
What about financial services within Timor-Leste? What does the financial sector look like, is it healthy? Are there lots of opportunities for people to access finance or store savings?
Helder Lopes 21:20
So in terms of the financial industry in our country is still relatively small. We only have five banks, four are foreign banks and one local bank. We have three insurance companies, three financial, FinTech companies, and few others, we call them money transfer operators. So the industry, per se, is very small. I think the total assets of the financial institutions in the country is around [US$] 2.4 billion, is the total asset. But what we identify from our industry is that the industry itself is very liquid. We have a lot of liquidities in the country, because I think liquidity represents close to 80%. So we have a lot of liquidities. But the challenge is that these liquidities doesn't really channel to our economy because credit, you know, loan to deposit ratio credit to our private sectors or individuals in the country is just over [US$] 500 million out of the total asset of [US$] 2.4 billion. So, you know, we have the industry that is growing, but we think that the industry has to play more of a role in facilitating and supporting the economy. But we also realise that, you know, because we have a constant dialogue with the player in the industry, such as banks, financial institution, other financial institutions, such as insurance companies and etc. What they say is that we can provide, you know we have these liquidities. We can provide credit to you, to your private sector and your people. The problem is, you know, the risk is high because the collateral system is not really there. So, that is why, and also we don't have any sort of local security instruments such as public treasury debt or public treasury bonds that could be an alternative for them to invest. So, that is why we the Central Bank, are now working very hard in improving the regulatory framework for providing, for unlocking the risk in the credit market penetration. We are also working together with our industry players for promoting digital financing services. So we need to make sure that you know we provide the digital financing services to promote efficiency and promote financial inclusion, and we are also preparing ourselves to the standard of ASEAN, because once we join ASEAN, we want to make sure you know we are already up to the standard, so that you know we are not really far away from that. So we for that one, we work on our our platforms, like digital payment platforms or financial services, where we need to make sure that you know is going to be compatible to integrate with the regional system.
Robin Davies 24:35
Correct me if I'm wrong, but the US dollar is still the currency of Timor-Leste, and does it make sense for that to remain the case for some time yet? Do you think?
Helder Lopes 24:44
right now, without having a proper result from the study, I will say yes. But what we the Central Bank, is doing right now is we are working with International Monetary Fund, IMF, conducting study on the impact of using US dollar since inception up to today. So we want to understand the pros and cons of using US dollar to us, to the economy, to the entire country. And then from there, we will then get the picture of what is the pros and cons of using US dollars. And then we will then see whether we now, it's time for now, whether it is benefit for us to continue maintaining the US dollar, or we have to start thinking of changing the regime. But what we the Central Bank always promote, and it's our strong view, is that any change in the in the currency regime, it has to be economically and technically motivated. It's not politically motivated. That's our view. And to do that, you know, we have set three minimum requirements that change in the regime has to meet this requirement: strong current account, strong fiscal account, and we have to have a Central Bank reserve. Otherwise, you know, you cannot just have a political motivation of "we are a country, we should have our own currency". No, because we don't want to destroy our economy, and the Central Bank doesn't want to be associated with that.
Robin Davies 26:19
I saw the speech that Prime Minister Gusmão delivered when you were appointed as Central Bank governor last September, and I was impressed by how strongly he reinforced the independence of the bank and the fact that the bank is a partner of the government, not subordinate to the government. So that was a very clear message. Has that independence always operated well since 2011 when the bank was first established?
Helder Lopes 26:46
Yes, yes. The issue is probably me. Given my background, I was from the government and appointed me today to the Central Bank. Sometimes people may associate me with the government, but let me assure you, now, once I took this role and now it's my responsibility to ensure that the Central Bank is an independent institution. But Central Bank doesn't isolate itself into the independence sort of mindset. So we are here. We do our stuff, we use our instruments independently, but the development objectives, development statements [stated] by our parliament, our President and our government, that will be the same direction that we go.
Robin Davies 27:35
Perhaps the final question is about the relationship of your institution with other central banks in the region, for example, the Reserve Bank of Australia or New Zealand, or some of the ASEAN central banks. What sort of networking and knowledge sharing happens between these central banks?
Helder Lopes 27:55
So yesterday and the day before yesterday, I met with the Chair of APRA. I met with the commissioner of ASIC, and I yesterday, I met with the Governor of the Reserve Bank of Australia. So we had very productive discussions. We learned a lot from what they are doing here, and especially with the Reserve Bank of Australia, representative of what they are doing here. And we had a discussion with the governor about like having potential sort of cooperation on where we could send our people to come and study here, studying the sense of learning from the Central Bank, Reserve Bank of Australia. So that is sort of the beginning of our discussion engagement with them. But I see a lot of positive possibilities with these institutions. So what we are going to do is probably one of the takeaways from this visit, is, after coming, after finishing this visit, we'll try to follow up on issues that we discussed with these institutions. Why we also met with APRA and ASIC? Because in our case, like a super financial supervision, prudential supervision to the financial institution, is under us, which is like in your case is now APRA. You also have ASIC with different roles, but it's also in our cases, under the Central Bank. So, you know, we had very good meetings with them. And I like, you know, like from ASIC, I like one of the initiatives that they launch, called Money Smart. So that sort of thing, you know, I think that's a good initiative. We were thinking of whether we could sort of copy this initiative and apply in our country for financial education, but we have to tailor it to our context, with regards to cooperation with regional central banks, such as in up north in Southeast Asia. And now we have started the negotiation or the discussion with Bank of Indonesia, Bank Negara Malaysia, Cambodia, even like Macau. So we are actually establishing the cooperation with them. For us and as the governor, my philosophy is that Timor-Leste is hit behind between two big countries to big economies. So instead of going very far away to learn. So now, learning from Indonesia, learning from Australia, will benefit us a lot, because we are from the same region, and you are very advanced than us, so learning from you will benefit us a lot, but we also have a relationship with central banks in Pacific region.
Robin Davies 30:44
As my final question, you're now in your first year of your first term. I know your predecessor served two terms, so who knows? You might be in the job for a long time, but at the end of your first term, what do you hope to achieve in terms of economic and organisational management?
Helder Lopes 31:00
So by the end of my term, if I could set few KPIs, one is I would like the institution, the Central Bank, to have the knowledge already of what is the impact pros and cons of using the existing currency regime to demolition. And they have to understand this, and they are capable, already capable, not fully capable, but at least they are preparing themselves to continue implementing the existing regime or preparing for changing of the regime. But they have to, first, they have to at least get the information. What are the pros and cons? But with the with the study that is very independent, together with international financial institutions such as IMF, second is that I want the financial industry to grow. What I believe is that I want more players to come to our industry. I want more financial institutions such as banks, insurance companies, financial companies, FinTech companies, to put to come to invest in our country, but not only to invest in our country, not to only make the financial or the asset of the financial institution is growing, but I want them to play proper intermediary roles in order to support the development of the economy, especially support the private sector. This is, by the end of the day, if I bring my indicator KPIs to the KPIs of the economy development in general, I would like the financial sector to support the growth of private sector and the support the growth of the economy in general.
Robin Davies 32:56
Well, we should finish there, you have a lecture to get to. Thank you very much for your time today, and I really wish you all the best for your first term.
Helder Lopes 33:05
Thank you so much for having me. I appreciate it.
Outro 33:11
Devpolicy Talks is the podcast of the Australian National University's Development Policy Centre. Show Notes are posted to Simplecast. Our producers are Robin Davies, Amita Monterola, and Jackie Hanafie. You can read and subscribe to our daily blogs on aid, international development, and the Pacific at devpolicy.org and you can follow us on Facebook, LinkedIn, Instagram, and Twitter. You can send us feedback and ideas for episodes to devpolicy@anu.edu.au. Join us again in another fortnight for the next episode of Devpolicy Talks.