Timor-Leste’s request in May 2006 that Portugal, Malaysia, Australia and New Zealand send troops to
restore order came just a year after the last UN peacekeepers had departed and four years into the
country’s independence. The 2006 violence that claimed at least 37 lives and drove 155,000 people
(15% of the population) from their homes sent shock waves through an already fragile polity.
The complex causes of the 2006 conflict have been treated in depth elsewhere. This note looks
specifically at how the government used public finance management (PFM) policies to help address the
enormous short-term challenges of a fragile situation in the aftermath of the 2006 crisis. The
government capitalized on a rapid increase in oil revenues and through administrative measures that
delegated more responsibility for spending decisions to line ministries, achieved a rapid increase in the
rate of public spending on cash transfers, goods and services and public works. This note starts by
summarizing the evolving challenges of the post-independence PFM system, the fragility of 2006/07,
and the changed fiscal outlook following the surge in petroleum revenue. It then looks at the
government’s PFM policies that helped it to address urgent demands and successfully restore shortterm
stability. The note concludes by drawing possible lessons from this period for other post-conflict
situations.