The welcome resolution of East Timor's dispute with Australia over oil and gas revenue from the Timor Sea means about $150,000 for every man, woman and child in the recently independent nation.

The expected $15 billion to $20 billion in royalties and taxes is a dizzying windfall for a young country where more than half the population scrapes by on a couple of dollars a day. As the President, Xanana Gusmao, has often argued, the money is nothing less than East Timor's future. For the first time since the end of Indonesia's brutal occupation in 1999, the East Timorese people have a real prospect of building a stable, independent, prosperous nation. The oil and gas deal signed last week ends years of bitter wrangling which saw Australia frequently cast as the rich bully standing over its tiny, vulnerable new neighbour. With both nations due to reap substantial profits, bilateral relations should resume their rightful warmth. Australia played a leading role in East Timor's reconstruction, and the revenue dispute had jeopardised that considerable goodwill. More than a happy ending, however, the agreement is a beginning.

Resource riches are not in themselves a guarantee of prosperity. In the 1950s economists naively assumed the winners in the global resource lottery would inevitably become wealthy as they sold off their natural riches. Yet many apparently rich nations fell victim to the now familiar "resource curse". Take, for example, the tiny Pacific nation of Nauru. The single generation which tasted the big money of phosphate royalties forgot how to work, squandered the cash and the phosphates ran out. Nigeria has earned $350 billion in oil revenue over four decades, but its people are worse off. Closer to home is Papua New Guinea – resources-rich, but corrupt, violent and getting poorer.

Then there are the unedifying struggles for control of the loot; civil conflict is about 50 times more likely in resources-rich nations than those with nothing to dig up and sell.

Resource income seems like free money; no one has to toil away in the fields or factories, it just gets credited to the Government's account. One of East Timor's most pressing social problems is unemployment and idleness, especially among young men – and its potential for social strife. Turning oil and gas income into productive jobs is extremely difficult, especially with an acute skill shortage after decades of war. Understandably, expectations of a better material life will soar, yet huge public spending risks distorting the local economy and leaving too little money in the bank for the future, when the oil and gas have run out. This is not to suggest East Timor's leaders are unaware of, or unprepared for, the challenge. A recent World Bank report noted East Timor has performed better than other post-conflict countries. A sound oil and gas investment fund, based on a successful Norwegian model, was made law last year.

However, the World Bank also warned official corruption is on the rise and the new administration remains shaky. If East Timor slips back into the same patterns of endemic corruption and poor governance which characterised Indonesian rule, the resource curse will have found another victim.