Like Papua New Guinea, East Timor is a very small economy in global terms. Both economies are heavily dominated by subsistence-related activities and small-scale services, and are extremely vulnerable to external shocks. Sustained improvement in living standards will require massive investment in human resource development and physical infrastructure to allow people to improve their productivity by engaging in a more diverse range of economic activities.

Papua New Guinea had independence thrust upon it by Australia. In contrast, East Timor had to pay a very high price for its independence. In both cases, there was far too little planning for a transition to nationhood. Like Papua New Guinea 30 years ago, East Timor's physical infrastructure, health and education levels are inadequate.

The economy and the functioning of government depend heavily on financial resources and expertise from the rest of the world. International agencies will have very substantial influence on the transition to genuine independence, but the extent of their support or influence cannot, and should not, be expected to continue indefinitely.

As it approaches independence, East Timor is looking forward to substantial revenue from off-shore oil and gas production, which could replace dependence on aid. Such revenue should not be taken for granted. Much depends on sustaining a political and economic environment that can attract the necessary foreign investment, whose profitability will depend on international oil and gas prices.

Papua New Guinea also expected to earn substantial revenue from mining and petroleum, but these flows proved insufficient to offset a rapid decline in development assistance. Moreover, as in many other countries, it proved very hard to invest either aid or mineral revenue to build the basis of a sustainable, diversified economy.

These similarities suggest that some of Papua New Guinea's experience may be relevant to East Timor. There are some lessons to be learned from Papua New Guinea, which managed the early transition to independence quite well but found it impossible to sustain its good performance.