Timor-Leste experienced in 2010 a second year of relative political stability following the political crises and violence of 2006, 2007, and 2008. At the same time, serious strife within the Parliamentary Majority Alliance (AMP) coalition government signalled a new, destabilizing development in national politics as its political leaders manoeuvred in advance of the 2012 parliamentary elections. The Prime Minister, Kay Rala Xanana Gusmão, publicly attacked his second Deputy Prime Minister, Mário Carrascalão, and his Foreign Minister, Zacarias Albano da Costa, senior leaders of the Social Democrat Party (PSD), a partner in the AMP coalition. The Foreign Minister threatened to resign, then resisted the Prime Minister's demand that he act on his threat. Later in the year, Carrascalão did resign (these events are discussed in more detail below). In October 2010, in a speech to the national congress of his own party, the CNRT (National Congress for Timorese Reconstruction), Gusmão declared that he no longer needed the coalition. Despite these provocations, the PSD remained in the AMP coalition, reserving its position on new alliances until the national elections.

A broader political development, engineered by the Prime Minister in 2010, was a major shift in policy to pursue a strategy of state-led development that is intended to transform Timor-Leste from the poorest state in Southeast Asia into a prosperous upper-middle-income country. The shift in state policy involves implementing a highly ambitious development plan for 2011–30 funded by large withdrawals from the Petroleum Fund. On 7 April 2010, the Prime Minister released his National Strategic Development Plan (NSDP) for Timor-Leste. Entitled “On [the] Road to Peace and Prosperity”, the NSDP sets an agenda to transform Timor-Leste within twenty years into the ranks of the most developed states in its region. This will be achieved, according to the NSDP, through economic growth at double-digit rates throughout the coming decade and beyond.1 The strategy involves a programme of state-led development that will very likely remake the nature of the Timor-Leste state and of its political economy for the foreseeable future.