This article is co-authored by Lynn Lai and Luo Xuhong. Cover image by Caprise Chew.
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Malaysia's Prime Minister and ASEAN chairman Anwar Ibrahim presents documents declaring the admission of Timor-Leste to the bloc. Image credit: The Lowry Institute
ASEAN is about to add an eleventh flag. As the bloc prepares to welcome Timor-Leste into the fray, this development is more than ceremonial. It is a test of ASEAN’s commitment to inclusivity, regional development, and its ambitious economic vision while choosing to bring a very small, low-capacity economy into the fold.
A country of about 1.4 million, Timor-Leste won independence in 2002 after a UN-supervised referendum and years of violence. The young nation sits strategically between Indonesia and Australia, astride vital sea lanes in the Timor Sea and Ombai-Wetar Straits. Its economy depends heavily on oil and gas revenues channelled through a sovereign petroleum fund, even as the government works to build a more diversified private sector. Diplomatically, Timor-Leste has pursued a pragmatic mix of partners — deep infrastructure ties with China, development aid from Australia, and an emerging partnership with the United States — reflecting its desire to secure both growth and autonomy.
ASEAN’s economic goals are clear: to build a single market and production base, foster equitable prosperity, and promote sustainable development across all member states. These aspirations are enshrined in the ASEAN Economic Community (AEC) blueprint. The single-market objective emphasises free movement of goods, services, investment, capital and skilled labour, enabling ASEAN members to integrate into regional value chains.
Equitable prosperity is reflected in the AEC’s commitment to narrowing the development gap and ensuring no member country lags irreparably behind. Sustainable development is woven through the blueprint via the promotion of inclusive growth, SME support, and people-centered approaches.
Timor-Leste’s current situation, however, presents a challenge to these goals. The country remains heavily dependent on oil and gas revenues. The country’s petroleum fund exceeded US$18B in 2025, almost 10 times of its GDP, highlighting Timor-Leste’s extent of fiscal reliance on a finite resource. This proved disastrous for the country in 2024, where an 82.7% collapse in oil production resulted in a 9.1% decrease in total real GDP, wiping out the gains of a non-oil economy that had otherwise expanded by 4.3%. Between the shrinking oil sector and a modestly expanding non-oil base, Timor-Leste’s path to economic transformation is rocky and uncertain.
The non-oil sectors have indeed grown, inching from US$1.5 billion in 2015 to US$1.7 billion in 2014, but this expansion has been fuelled primarily by public spending rather than private-sector development. Public expenditure averaged 85% of GDP between 2013 and 2023, yet average GDP growth remained at just 1.3% per year, with 42% of the population still living below the national poverty line. This lies an inherent structural weakness of Timor-Leste’s economy, where growth is sustained by public spending financed by oil revenue, and not by a self-sustaining base of productive enterprises.
The implications for ASEAN’s goal of economic integration are significant. Timor-Leste's fiscal model of high state spending, a nascent private sector, and dependence on external rents, is a very far cry from the AEC’s vision of a participant of a competitive, market-driven regional economy. Without structural reforms, Timor-Leste would be depending on ASEAN’s regional production networks instead of contributing to them.
Ultimately, ASEAN’s decision to admit Timor-Leste should be seen not only as a gesture of inclusivity but also as an opportunity to anchor these reforms within a regional framework. Technical cooperation on tax administration, support for budding SMEs, and infrastructure improving regional connectivity could help Timor-Leste with their much-needed transition. Conversely, without such support, the persistence of a high-expenditure, low-return growth model could strain the bloc’s goal of narrowing development gaps and undermine the credibility of its integration agenda.
Beyond an attempt at reversing the economic fragmentation that plagues many corners of Southeast Asia, Timor-Leste’s entry also spotlights the unique diplomatic approach adopted by the now-11 member bloc.
Also known as the ASEAN Way, the principle of consensus-based decisions has been espoused by the bloc since its founding days nearly 60 years ago. Despite frequent criticism over the crawling pace of negotiations, the practice has done well to bridge the foreign policy differences of newly independent nations keen on asserting their sovereignty back in the Cold War era.
In the face of irreconcilable differences however, national interests are still prioritised at the expense of unified action. Back in 2012, ASEAN failed to issue a joint communiqué upon the conclusion of the Foreign Ministers’ Meeting after then-chair Cambodia objected to the inclusion of references to previous incidents in the South China Sea dispute that were raised by Vietnam and Philippines. Cautious optimism present after the signing of the 2002 Declaration on the Conduct of Parties in the South China Sea has long given way to fading hopes as a follow-up Code of Conduct meant to manage and de-escalate tensions remains elusive 23 years on.
Timor-Leste’s foreign policy posture also holds important lessons for the bloc. As a small nation wedged between its much larger neighbours Indonesia and Australia, Timor-Leste has formulated a non-aligned approach that strategically balances between competing interests.
Timor-Leste strengthens economic ties with China through a series of new agreements. Pictured here is the signing ceremony held in Beijing. Image credit: President of Timor-Leste
In the pursuit of economic development, Timor-Leste signed a Comprehensive Strategic Partnership with China in 2023, paving the way for Chinese investments in critical infrastructure including the nation’s first deep-water port and a key highway — a move that raised eyebrows in many quarters, particularly Canberra.
As the Trump administration orders the cancellation of plans for a US$420mn wastewater system in capital Dili as part of its worldwide shuttering of developmental aid initiatives, concerns have heightened over the possibility that China would fill the void. Even then, Timor-Leste has maintained its long-standing defence partnerships with the US and Australia, partaking in regular bilateral and multilateral exercises with both.
A vibrant democracy, Timor-Leste has also offered support to Myanmar’s exiled National Unity Government at the risk of its bid for ASEAN membership. Unsurprisingly, the move drew swift condemnation from the military junta that cited Timor-Leste’s violation of the principle of non-interference in domestic affairs as justification for Naypyitaw’s opposition. Dili eventually settled upon a compromise that removed the final hurdle to its membership bid, proving that pragmatism prevails once more.
Wake-up call?
As delegates arrive in Kuala Lumpur, summit deliberations are expected to be overshadowed by key security challenges such as the Myanmar civil war as well as the aforementioned South China Sea dispute.
Notably, the former has emerged as one of the most serious threats to ASEAN unity since its founding - ASEAN’s 2021 Five-Point Consensus initiative for peace is all but abandoned by member states in the name of non-interference after the junta simply failed to comply with its terms. Even though junta leaders are barred from attending consecutive ASEAN summits and helming the rotating ASEAN Chairmanship come 2026, the civil war rages on with no end in sight.
Amidst a virtual standstill in the progress of managing such thorny political issues, calls for long-overdue reforms to the bloc’s decision-making process have re-emerged.
One tantalising alternative is the ASEAN minus X (A-X) formula, whereby select member states more keen on moving forward in certain areas may choose to initiate cooperation with the expectation that others would eventually follow in the future. Limited to economic issues thus far, academics have proposed expanding "A-X" to selected security areas and preventive diplomacy initiatives.
A more radical approach involves the introduction of majority-voting on decisions for which achieving consensus is impossible but are nevertheless pressing enough to demand a prompt resolution. For instance, majority-voting could apply for decisions with implications on regional peace and security while agreement through consensus would remain for decisions that affect individual states’ sovereignty and territorial integrity. However, implementing such an extensive change may prove yet too much for a bloc founded upon the principle of consensus.
As the rules-based international order undergoes a period of unprecedented upheaval, Timor-Leste’s accession adds a fresh layer of hope for the regional bloc across both economic and political spheres. What lies ahead?
Ng, J. (2021). Extending the “ASEAN Minus X” Formula. Contesting Sovereignty: Power and Practice in Africa and Southeast Asia, 224–252. Cambridge University Press.
UN News. (2024, August 30). Timor-Leste’s 25-year-long path to freedom and democracy. UN News Global Perspective Human Stories. https://news.un.org/en/gallery/1153781
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