In spite of the global economic and financial crisis the Baltic States continue with their transition. According to the World Bank, Estonia and Latvia already are high income countries and Lithuania is an upper middle income country. The transition is also in international affairs. It includes the transition of the Baltic States from being recipient countries to becoming donor countries in international development cooperation. This is taking place through their EU membership and also through their participation in the
international financial institutions and organizations they are members of. All the Baltic States have also established their bilateral development programs and are assisting and sharing their transition experience with countries further to the south and east, including Belarus, Georgia, Moldova, Ukraine, etc. This article discusses the role that small states can play in multilateral development cooperation and in assisting less developed countries in transition. The countries focused on are the Baltic States and to a lesser extent on the Nordic countries.1 The article discusses project approach and budget support as well as the relationship between good policy and economic growth. Finally it addresses the question whether or not small countries have a role in budget support operations. The article argues that small states can play an important role in economic development and Nordic countries like Denmark, Norway and Sweden are all major aid contributors. The Baltic States can also be important contributors since they have recent and relevant transition experience to share when they engage in policy dialogue with countries that are less advanced in their transition. Participation in budget support operations can be one venue for engagement in development cooperation if such operations are ongoing in their current partner countries and if they later on engage in African countries.2 It is also argued that a small country like Iceland should consider participating in budget support operations in its current African partner countries in cooperation with Nordic partners. This article is based on a review of theoretical literature, secondary data and the author’s experience as a staff member of the World Bank Group for 12 years in three continents.