Anzac forces in Timor for a long time to come

A foreign security presence may need to remain in East Timor and the Solomons for longer than expected as the two tiny Pacific nations struggle to overcome poverty and cement new democracies.

Both have gained relative stability in the wake of Australian-led military interventions and large aid programmes that followed East Timor's bloody independence 12 years ago and the 2006 political violence in the Solomons.

But two new reports by the Australian Strategic Policy Institute warn many of the underlying tensions remain and that poverty, corruption and mismanagement could spark new crises.

Australia and New Zealand troops remain in East Timor as part of the International Stabilisation Force, with 475 troops including an Anzac infantry company supporting Timor's own security forces.

There is a smaller presence in the Solomons, with one permanent Australian platoon and a second alternating with New Zealand every eight months.

Both commitments are gradually winding down but in East Timor, the institute's report warns of an increasingly complex period in the leadup to the 2012 elections.

It says the nation faces daunting economic and social challenges, including possible domestic unrest, transnational crime, food security, land reform, law and justice issues, security sector reform and maritime development. The situation is made more complex by the large number of donor states and the need for Timor-Leste to co-ordinate their assistance.

The report says widespread poverty, high levels of illiteracy and a rapidly growing young population continue to place pressure on a limited employment market.

Mismanagement of revenue from oil and gas fields could lead to the misallocation of resources, including heightened opportunities for corruption, an artificial boom economy causing inflationary pressure, a lack of sustainable investment and political discord.

The report says unrealistic expectations of life after independence, continuing poverty, high levels of illiteracy, rapid population growth and high youth unemployment fuel a potentially explosive mix.

Many of the other fuses for the near-collapse of the state in 2006 - including arbitrary political decisions, corruption, brutality, poorly trained and out-of-touch judges and political intervention by the military - also still bedevil the country.

China's growing "soft power" diplomacy is a growing challenge for Australia, although Dili regards Canberra as a strategic partner.

Over the next decade East Timor's political leadership will also be reshaped by generation change, as those who led the war for independence give way to younger politicians who grew up during Indonesian occupation.

"The post-1999 political generation is largely educated in Indonesian, leading to a continuation of Timor-Leste's voluntary 'Indonesianisation,' including the widespread use of the Indonesian language for commercial and other purposes," the report says.

Their real test will be the transition from charismatic government, framed by the consolidation of democracy through elections next year and in 2017, oil and gas-based economic growth, increasing rule of law and economic decentralisation, the report says.

But the new generation will be better-educated and - in theory - more competent as managers, and will be free of the military backgrounds that encouraged authoritarianism and arbitrary government.

Even so, the report says Australia needs to maintain a small military presence after next year's election: "Maintaining a constructive commitment to [East Timor's] security and, by extension, Australia's own security, will remain a necessary element in the role of the Australian Defence Force," the report says.

Similar policies are advocated for the Solomons by Australian National University research fellow Matthew Allen in a report for the institute.

In "Long-term engagement: The future of the Regional Assistance Mission to Solomon Islands", Allen says that despite general support for a gradual end to the Australian led Regional Assistance Mission, the timing of a withdrawal remains controversial.

"While surveys suggest that the vast majority of Solomon Islanders continue to support the presence of RAMSI, some of their elected political leaders have expressed strong opposition to the mission," the report says.

Allen says the country is heading into a "high-risk period for conflict" and a complete withdrawal is not a credible option.

The expected collapse of the logging industry by 2015, magnified by the impact of the global economic crisis, will hammer the Solomons' economy.

Job losses and falling government revenue will pressure local patronage networks and increase socio-economic grievances, in part recreating the conditions that contributed to the outbreak of violence in the late 1990s.

Inequality and tensions are also expected to increase through policies focusing on urbanisation and sectors such as mining.

Dire economic forecasts and high population growth of about 2.3 per cent also means the government will not be able to support itself and major foreign aid funding will be needed for years to come.

"Given this scenario, one must weigh the cost of maintaining a small ongoing security presence against the potentially much greater cost of having to redeploy a larger contingent if lawlessness returns to the country following a precipitate withdrawal of the RAMSI security guarantee," Allen says.

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