East Timor Still On Brink Of Anarchy: Report

East Timor`s economy relies on off-shore oil and gas reserves shared with Australia.

East Timor remains on the brink of anarchy and could easily slide back into the violence that fractured the country in 2006, a U.N. peacekeeping report was quoted as saying on Tuesday. It said a "precipitous fall" in oil revenue also threatened to bring more social unrest in a country where three-in-four households were struggling to find enough food and chronic malnutrition hit one-in-two children under 5 in many areas.

East Timor's economy relies on off-shore oil and gas reserves shared with Australia, and which pump around $40 million a year into government coffers.

The security report, completed earlier this month for the U.N.'s Department of Peacekeeping Operations, said international peacekeepers must stay in the country despite mounting local pressure for them to leave, the Australian newspaper reported.

"With regard to the security institutions, there will be no easy choices, and donors should be prepared to provide new reinvigorated assistance in the security area while the government continues to be under pressure to redeem on its social promises," it said.

The leaked security assessment warned that nine years after Indonesia's occupation ended and independence in 2002, Asia's youngest nation remained vulnerable to rapid political collapse. After a split among the military and police in early 2006, violence flared between Timorese from the country's east and west, killing 37 people and driving 150,000 from their homes.

In February this year, rebel soldiers carried out an unsuccessful attempt to kill President Jose Ramos Horta, who was wounded and flown to Australia for surgery. Prime Minister Xanana Gusmao escaped injury in the attack.

The U.N. report said East Timor's police force and courts were largely dysfunctional and required urgent international intervention to strengthen their ability.

Local police were struggling to cope with no operational budget and "troubling" tensions were rising with U.N. police due to unrealistic Timorese demands for a stronger role, it said.

A U.N. spokeswoman in Dili was not immediately available for comment.

More than 2,500 foreign troops and police remain in East Timor to help local security forces maintain stability, the bulk from Australia, New Zealand and former colonial ruler Portugal.

The report, prepared as part of the U.N.'s evaluations on the future of its peacekeeping operations in the country, said East Timor's senior political leadership was bitterly divided.

Gusmao was facing a difficult political balancing act, with Timor's economic outlook weakening because of the collapse of oil prices sparked by the global financial crisis, while needing to improve social conditions, it said.