It is rare to have the opportunity to contribute to the design of the policy settings of a new nation. The primary objective of such design is to accelerate the pace of development. Often the resource constraints faced at this initial stage of development are severe, allowing only a handful of interventions; the challenge is to choose the critical factors that will bring about output growth and alleviate poverty. Getting the settings ‘right’ has the potential to deliver large and ongoing benefits, but mistakes made at this stage could have catastrophic consequences for the welfare of current and future generations. This is because initial conditions determine levels of future prosperity and, once put in place, are hard to dismantle.

For long, the economics profession has been debating the circumstances that are most conducive to a society's growth in income. Cross-country experiences over the six decades since World War II have many lessons to offer. But, given the extent of repetition of mistakes in policy formulation, one clear lesson from history is that we seldom if ever learn from it. East Timor could be different; indeed that is the hope and aim of this volume. In this chapter we draw on the experiences of 14 Pacific Island countries, many of them very similar to East Timor, in arriving at lessons for development that could be relevant to the country.

The 14 nations that comprise the countries of the South Pacific have sufficient diversity to accommodate most of the attributes of East Timor. A listing of these countries, together with data on some basic indicators, is provided in Table 19.1. East Timor, with a population of 840,000 people, is comparable in size to Fiji, which has 825,000 people. Per capita GDP, at $300, is much lower than in the Pacific Island countries; Kiribati, with per capita GDP of approximately $600, comes closest to East Timor on this count.