Insufficient human capital Human capital is the collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community: Education is an investment in human capital that pays off in terms of higher productivity. The concept of human capital recognizes that not all labour is equal and that the quality of employees can be improved by investing in them; the education, experience and abilities of employees have economic value for employers and for the economy as a whole.
Unequal distribution of wealth causing severe poverty or income inequality
Income inequality is the unequal distribution of household or individual income across the various participants in an economy. It is often presented as the percentage of income related to a percentage of the population. For example, a statistic may indicate that 70% of a country’s income is controlled by 20% of that country’s residents.
Quality Education. It is noted in countries that provide higher-quality secondary education across the economic spectrum, there is much less income disparity.
Competition for talent creates a salary divide
Stagnant wages also play a big role in inequality while the diminished influence of labour unions has also led to flat or declining wages among workers.
Increased demand for high-skilled workers adds to a widening wage gap. Companies are investing heavily to develop a highly skilled workforce, which is driving wages up for high-skilled workers. This leads to the de-emphasis or automation of low-skilled functions pushing down wages for low-skilled workers.
Absence of a national currency
Timor Leste is known to have adopted the US$ as its legal tender. Together with the US$, they also accept Indonesian Rupiahs (IDR) and their very own coins called Centavos (in the denomination of 1C, 5C, 10C, 25C, 50C, 100C and 200C; Every 100C is equivalent to US$1). After the occupation by the Indonesian forces, Timor-Leste adopted the US Dollars as its official currency in year 2000 due to many inevitable factors.
Today, the absence of a national currency has constrained their monetary and exchange rate policies. There is neither any interest rate policy, nor broad money management, nor reserve ratio requirements.
Rendering the country’s Central Bank less power and unable to act as lender and providing liquidity to their own banking system, small medium enterprises and citizens, should the need arises which more often than not, does.
As it is, they are using a ‘front-loading’ fiscal policy mainly with the aid of a now depleting petroleum reserve which signs up to the Santiago Principles of Sovereign Wealth Funds management, earning them an average of ~2%-4% annually; and timely humanitarian funds from the UN. This strategy denies them the plans for broad money management. Causing unachievable long term goals.