When one-third of a nation's army storms out of the barracks, it usually spells trouble. So what to do? Logically the government would attempt to resolve the issue by pulling out all stops. Not the government of East Timor. Riddled with incompetence and short-sightedness, it only worsened problems. Now it has more trouble than the world's newest nation had bargained for.

Last March, prime minister Mari Alkatiri's government summarily sacked 591 soldiers. The result - a protest. But it rapidly escalated into riots in the capital, Dili. The sacked soldiers threw stones, looted and burned shops. And criminal gangs couldn't have wished for a better cover to carry out their own thuggery.

Every day since, East Timor has been descending into chaos. On the surface it looks like the usual growing pains of any new and developing nation. But scratch beneath the surface and there are inimical signs of another Solomon Islands or West Papua in the making. It has the hallmarks of another failed state, joining others in Micronesia.

And it will happen if president Xanana Gusmo ( pix ) stays complacent and aloof and allows Alkatiri's incompetence to continue. Because the sum of the problems today is far greater than Gusmo's charisma could ever hope to bring the tiny and dreadfully destitute republic back from the brink of deepening regional ethnic fragmentation.

In the Feb 8 incident, 350 officers and soldiers abandoned their posts and marched on to the presidential palace. They condemned their conditions and claimed discriminatory practices within the military, among other things. A stunned Gusmo tried on two occasions to mediate.

Each time he warned them to return to their posts or face court martial. Only 25 soldiers heeded Gusmo's warning. But matters worsened when on March 16, armed forces chief, Brigadier General Taur Matan Ruak, declared that all the striking soldiers had been sacked.

Hardly a conciliatory gesture or democratic approach that Gusmo had promised his people after nearly 25 years of cruel Indonesian rule. So, it is barely surprising the soldiers rioted. Gusmo no longer seems to have his finger on the nation's pulse as he once did when he led Fretilin, the pro- independence guerilla movement, against Indonesian occupation from 1975 to 1999.

On April 28 this year, in a confrontation outside Alkatiri's office and rioting in Dili's streets, a joint police-military operation to end the unrest left at least six people dead and more than 60 in hospital. That was enough to panic Dili's residents, who fled for the hills.

Massive social divide

The signs of growing trouble aren't new. Since independence in 2002, East Timor has been on a downward spiral. Foreign minister and Nobel Peace Prize winner Jose Ramos Horta, in Australia recently, attributed the problems to the new nation's growing pains. Maybe. But these problems have been smouldering since 2002. For Horta to glibly brush them aside suggests a government on the slippery-slide of losing control and, worse, incapable of ensuring good governance.

More, Horta didn't show political will to resolve matters any time soon, and fairly. The rebels, too, have taken to the misty hills beyond Dili. Despite their diverse regional origins, they're banding as brothers and are prepared to die for the East Timor for which they had fought alongside Gusmo against Indonesia. That s not good news for Messrs Gusmo, Horta and Alkatiri.

Gusmo, Horta and Alkatiri may try to spin their way out of blame but their policies and ineptitude are the root cause of growing dissent among East Timorese - not just the sacked army rebels. A similar situation exists in the Philippines. No doubt the government is looking for a scapegoat to deflect attention from the failure of its policies.

There's a huge and still growing social divide between a tiny elite of government officials, businessmen, foreign officials, aid workers and troops and the vast majority of the population most of whom are unemployed and live in wretched poverty. And their economic lot is worsening despite massive oil and gas revenues from the Timor Sea.

Young people, in particular, are angry that their prospects for an education and a job are harrowingly narrow or simply lacking. Among the businesses ransacked was the Australian -owned 'Hello Mister' supermarket, which specialises in supplying imported goods to UN and other foreign workers.

While UN troops and officials are paid hefty living allowances of $US100 a day, most East Timorese are struggling to survive everyday. The few who have jobs earn an average of about US$6 a week. The unemployment rate varies at between 70 and 80 percent. The difficulties facing villagers in rural areas have been compounded by a severe drought.

Even with the official poverty rate set at just US50 cents a day, a UN survey found that at least 60 percent of people in rural areas were living in abject poverty. And education and health services remain rudimentary.

That s not all. Many East Timorese feel betrayed as the promises that accompanied the Australian-led UN military intervention into East Timor between 1999 and 2002 have singularly failed to materialise. Australian Prime Minister John Howard has recently pledged financial assistance to Dili in a bid to bolster the police for law and order but he, again, has ignored the underlying social crisis.

Dangerous mix

The Alkatiri administration governs for a small elite. This was reinforced by its decision to impose Portuguese, the language of the former colonial power, as the country's official language. Yet most of the population, around 90 percent, speak only Bahasa Indonesia or Tetum and other local languages. The policy excludes them from government jobs, and they are further alienated from parliament, the courts and other state institutions.

One of the issues fuelling hostility among the sacked soldiers is the Alkatiri government's deliberate policies of favouring former guerrilla fighters from eastern provinces over them. They have accused the army's top brass of harassment and discrimination over pay and promotion.

These rebels were part of Falintil, who were the first to put down their weapons once Indonesian forces were sent packing. But it's the Fretilin guerrillas, signed into the defence force, who have been better treated by Alkatiri's government.

They also claim police ranks include former members of the Indonesian-backed militia groups who unleashed a wave of violence against pro-independence supporters prior to and after the 1999 UN-sponsored referendum on East Timor's status.

The government has been forced to concede that it will give preference in the future to former independence fighters for the few hundred available police jobs, but the ones who have benefitted the most are Gusmo's Fretelin guerrillas.

For all the heady and dangerous mix in East Timor, Australia, who's again trying to punch above its weight in the South Pacific, especially in the Solomons, has to do more for the East Timorese. It can begin by re-crafting the oil and gas agreement with East Timor and returning a more equitable revenue to Dili than outright plunder of the tiny republic's natural wealth.

And Gusmo needs to sack Alkatiri for his incompetence and ensure fairer redistribution policies based on resources wealth. But he must also produce equitable social policies on education and health. Jobs growth requires investment.

The best way forward is to invest in infrastructure development - something East Timor desperately needs if other economic investments are to be boosted in the long run. They'll spin off into jobs growth in the short-term, and continue long-term.

Stupid games

However, against the present crisis comes a series of pressing but related problems for Gusmo. These are problems not just for the bungling Alkatiri. The equally inept United Nations, under the pathetic leadership of Kofi Annan, needs to also take serious note. Years of inadequate training by the UN have contributed to a pattern of abuses, including torture and rape, by East Timor's police.

This has become one of the most worrying human rights problems, according to a just released report by the New York-based Human Rights Watch. It pointedly accuses the police of arbitrary detentions, beatings, torture and rape. And it warns that without the intervention of international donors and the East Timorese government, the police risk slipping into an endemic culture of abuse and impunity .

These allegations are the latest in a growing list of shortcomings attributed to the UN's dismal nation-building exercise in East Timor, often held up by senior UN officials as a 'success story'. Even the World Bank warned last year that corruption was on the rise in East Timor, while experts say its judiciary remains fragile.

Gusmo's charisma has been wearing thin. The Alkatiri government is on the nose of most East Timorese. And Nobel Peace Prize winner Horta's spin amounts to hubris. It is time for all three to stop playing chicken and get on with the job of governing and governing well, for which East Timorese gave them the mandate. If they can't, or won't, they should quit.

It is pitiable enough that they have resorted to shifting the blame for the crisis to foreign elements. But it has been clear all along that their wretched policies are squarely liable for the squalid social conditions in which East Timorese have been asked eke out a meagre living.

Meanwhile the dominant political elite continue to play stupid political games while grovelling to powerful foreign and domestic economic interests. Growing pains? No. But state failure looks very real in East Timor, and for all the wrong reasons.

MANJIT BHATIA, an academician and writer, is also research director of AsiaRisk, a political, economic and risk analysis consultancy in Australia. He specialises in international economics and politics, with a focus on the Asia-Pacific .