The starting premise of this chapter is that East Timor has enough similarities with war-torn economies elsewhere for it to be useful to consider the lessons from the experience of those other countries. In particular, we would like to draw on international experience to help answer a fundamental question: what policies are needed, and in what order, to move a war-torn economy from devastation to a path of sustainable economic recovery?

East Timor qualifies as a recently war-torn economy, on the basis of the upheavals of 1999. After the consultation vote of 30 August 1999 in which 79.5 per cent of voters opted for independence, the Indonesian army (TNI) and the local militias it supported rampaged through East Timor. Of the total population of just over 900,000, an estimated 250,000 people fled, or were forcibly removed, to West Timor as refugees. A further 250,000 were internally displaced, as they left their homes for the relative security of the hills and forests (UNHCR 2000: 2). The number of deaths due to the conflict was relatively modest by the standards of most wars – about 1,500 dead, or roughly 0.2 per cent of the population – but the killings occurred in a very short interval and so were particularly traumatic.

An Australian-led multinational force, Interfet, intervened in late September 1999 to restore peace and security. In October the government of Indonesia revoked its 1978 decree annexing East Timor, and the United Nations Transitional Administration in East Timor (UNTAET) was established on 25 October to administer the transition to independence. In February 2000 the peacekeeping operation was turned over to UN troops, and in July 2000 a power-sharing arrangement began with the appointment of a joint cabinet comprising five East Timorese and four international staff. Elections will be held on 30 August 2001 to choose an assembly that will write a constitution, with formal independence expected in 2002.