With the benefit of almost 20 years of hindsight, in this article we evaluate the legacy of state-building in Timor-Leste. We find that much of the academic critique of the state-building mission has proven to be largely accurate: political and economic development has indeed been challenged by the legacy of key decisions made during the early state-building process. First, the focus on centralised state institutions has led to the underdevelopment of administrative, political, and economic decentralization. Second, the partisan nature of the constitution-making process has facilitated the continued concentration of political and economic power in the hands of certain elites. Third, the ambiguous—and at times conflictual—division of powers between state institutions has facilitated the emergence of political clientelism and undermined broad-based economic diversification and development.

Timor-Leste’s extractive industry became economically and politically important during the post-conflict transition period. The government established the Petroleum Fund in 2005 to protect the economy from a “resource curse.” However, the management of the Fund has since become a source of controversy as it created opportunities for corruption and unsustainable spending practices. We argue in this article that political dynamics, in addition to if not more than weak institutions, engendered corruption, clientelist rule, and economic disenfranchisement in postconflict Timor-Leste. Using the Political Settlements approach as an analytical framework, we demonstrate that patronage, rivalry, and rent seeking in the management of petroleum revenues are associated with economic and political challenges in Timor-Leste’s state-building process.