It is said that only $1 of every $10 spent in Timor-Leste enters the local economy, with most leaving the country to pay for international consultants and imported goods.

I have been following closely the progress of the Australian aid effectiveness review, and the government’s response, released last week by the Foreign Affairs Minister, Kevin Rudd. This is the first independent review in 15 years and it will have a significant impact on Australia, as a substantial aid donor, and on partner countries including Timor-Leste.

The overarching theme of Mr Rudd’s response is to make effectiveness the cornerstone of the aid program. This is an obsession I share with Mr Rudd and I am pleased with the number of practical steps being taken in this area.

After the restoration of independence, we were a country stripped of physical and human resources, unable to deliver basic services, security and economic opportunities for our people. To help us manage these governance challenges, a huge amount of aid flowed in and for a time it comprised more than two thirds of Timor-Leste’s national income.

We have come a long way in the decade since. The economy has grown and the private sector is much more important, but building and strengthening public institutions remains a key priority. The latter is essential for the proper delivery of services. Poverty rates have fallen by 20 per cent and Timor-Leste has risen 40 places in the United Nations human development index. Aid now accounts for less than 10 per cent of the economy.

Aid has helped but it could have helped more if its design and delivery had been effective and focused on our country’s priorities. I have long questioned the proportion of aid allocated to technical assistance and the number of advisers and the inflated salaries they received. Many advisers did an excellent job filling the experience gap after independence, and many still do, but some were simply a waste of taxpayers’ money.

Recognising this reality and the changed circumstances in Timor-Leste, a joint review conducted by both governments was released by Mr Rudd in February. It recommended phasing out a third of adviser positions in Timor-Leste in the next two years. This was a sensible decision, freeing funds to improve the lives of people living in poverty – Timor-Leste’s top priority and the purpose of Australian aid.

I am pleased to see that this recommendation, among others, was addressed in the Australian government’s response, with a 25 per cent reduction in adviser numbers, smaller salaries and significantly more use of volunteers. Some of our best advisers, including Australians, have been volunteers.

Timor-Leste appreciates Australian assistance but we are not a passive and unquestioning recipient. I had also expressed concern that for aid to be effective it must take into account individual country circumstances and work within developing country institutions to strengthen them. There is no one-size-fits-all for aid and Australia has agreed programs will be driven by each country’s specific circumstances and priorities.

I have also raised the importance of focus in Australian aid. ”Fragmentation”, as the aid review calls it, is a serious impediment to effectiveness. We would like to think we are ahead of the curve on this issue.

Last year, Timor-Leste and Australia released a new country strategy for aid. It has a tight focus on four main areas: basic health and education; improving livelihoods; a safer community; and government functioning.

These are important developments but effectiveness is a journey, not a destination, and will require persistence by all parties to achieve. Timor-Leste still faces significant challenges. Education and health indicators are low and many people are unemployed or have an insecure income. Effective aid can play an important role in addressing these challenges.

I look forward to working with Mr Rudd to realise our shared goal of maximising the effects of every aid dollar in Timor-Leste and making a difference to peoples’ lives.

Jose Ramos-Horta is the Presidentof East Timor.