On August 6, East Timorese President Jose Ramos Horta appointed his predecessor, Xanana Gusmao, prime minister and asked him to form a government without Fretilin, the largest party in the parliament elected on June 30. Despite the constitutional legitimacy of this being unclear, Gusmao's government was sworn in on August 8. Since Ramos Horta's decision there have been outbreaks of rioting and arson, as well as protests that were tear-gassed by UN police and the Australian-led International Stabilisation Force (ISF).
Fretilin won 29% of the vote — a drop of 28% from 2001 — giving them 21 seats in the 65-seat parliament while Gusmao's National Congress for Timorese Reconstruction (CNRT) won 24% of the vote and 18 seats. The CNRT has formed a coalition with two other parties, giving Gusmao's new government a comfortable majority in parliament. However, Fretilin has argued that under the constitution the party that won the largest number of seats should have been asked to attempt to form a government first. Given that a Fretilin government would have been unable to win a parliamentary confidence vote, the final outcome would have been the same.
The Western media, in particular that of Australia, has portrayed the disorder as the organised work of "Fretilin mobs". However, Fretilin leaders have been touring the country urging calm. The unrest cannot be explained by the constitutional wrangling: it can only be understood in the context of the internal divisions, and growing suspicion towards Australia, created by the ousting of Fretilin prime minister Mari Alkatiri in June 2006 and his replacement with then-foreign minister Ramos Horta. This coup left 37 dead, 150,000 internally displaced people and was the pretext for the deployment of the ISF. The past fortnight's disturbances have created another 4000 internally displaced people.
Alkatiri has accused Australia of being behind his overthrow. At the time, Australian politicians and media played a significant role in pushing since-discredited allegations blaming Alkatiri for the violence unleashed by a mutiny in the security forces led by officers Alfredo Renaido and Vicente Rai Los da Conceicao. Australian Prime Minister John Howard called for Alkatiri's resignation.
"There's a very strong sense amongst lot of people, not just Fretilin supporters, that Australia has been intervening in [East Timor's] political process", Tim Anderson, senior lecturer in political economy at Sydney University, told Green Left Weekly. This sentiment was evident on July 26, when Howard, on a one-day visit to East Timor to spend his birthday with the Australian troops, provoked demonstrations demanding the troops' withdrawal by commenting that he expected Gusmao to be the next prime minister.
According to Anderson, the ISF troops were involved in petty harassment of Fretilin's election campaign, "stopping people on the way to rallies and confiscating banners", while the Australian media made "constant attacks aimed at de-legitimising Fretilin". Similar allegations were made during the presidential election campaign in May, when Ramos Horta defeated Fretilin's Francisco Guterres Lu'Olo.
The events of 2006 created both polarisation on partisan lines and disillusionment with the entire political establishment. "The popularity of Fretilin was damaged but that of Xanana Gusmao more so", Anderson argued, pointing out that Gusmao had won 80% of the vote in the 2001 presidential elections.
"He is seen as having used violence to undermine the first democratic government — trust in that man has been seriously undermined." Particularly damaging were his links with Reinado, even after the latter had "killed army officers."
Anderson pointed to an "asymmetry and partisan nature" on the part of the ISF, which devoted its energy to "preventing Fretilin rallies while ignoring violence in Dili" mainly directed against communities in which Fretilin had a high level of support. This extended to the way in which those involved in the coup were dealt with. While former justice minister Rogario Lobato was imprisoned for distributing arms to civilians, "he didn't kill people, while Rai Los, who did, was on the staff of Ramos Horta's presidential election campaign".
Rai Los remains unpunished. During the parliamentary elections he was working for Gusmao's campaign. The Australian-trained Reinado was arrested after the 2006 events but escaped from custody shortly after while the ISF were apparently looking the other way. "Australia made half-hearted attempts at catching him but the Xanana/Ramos Horta camp encouraged them to back off", said Anderson. The July 20 Sydney Morning Herald reported that the hunt for Reinado had been officially called off.
The Catholic Church has also been accused of playing a partisan role in the elections. "The church was very strongly identified with the 2006 coup ... The church hierarchy is anti-Fretilin", Anderson said, explaining that this began in 2005 when the Fretilin government tried to make religious education voluntary in schools. The church organised a demonstration against the proposal with logistical support from the US embassy.
Anderson argued that the hostility towards Fretilin from Australia and other Western powers reflected that, while its progressiveness should not be overstated, "the first post-independence government had some important achievements".
He said that one of these was winning a fairer share of the Timor Sea oil and gas reserves than Australia would have liked. Australia has been pushing for the Timor Sea gas-fields' LPG refinery to be built in Darwin, but the Fretilin government insisted that it should be in East Timor. "This will be a test for the new government", Anderson argued.
"[The Fretilin government] also followed an independent agricultural policy: expanding rice production, in opposition to the demand of the World Bank and Australia. They've increased production from one third to two thirds of domestic needs." He added that both major Australian parties were opposed on principal to poor countries becoming self-sufficient in food crops because it undermined the export potential of Australian agribusiness.
Other achievements include abolishing school fees and introducing free meals for primary students. Anderson said the government's most significant achievement was having "the fastest growing health program in the region. With Cuban help, they have increased the number of doctors in the country from 45 to 250 doctors. There are currently 300 Cuban health workers in East Timor and 700 East Timorese medical students studying in Cuba. The Cubans have also been running a literacy program, because they believe you can't have health without education."
He added that the new government was reviewing this program because of the hostility it aroused from the US, the Catholic Church and Australian foreign minister Alexander Downer. The number of East Timorese medical scholarships in Cuba could be increased to 1000. In a glaring contrast, there have never been more than 20 East Timorese students on scholarships in Australia. This number has since been reduced to 8 "because of the oil and gas dispute", Anderson said.