The Institutional Environment Assessment (IEA) carried out in Sao Tome e Principe in October-November 1996, sought to assist the government in identifying the root causes of the country's poor economic performance and in formulating strategies to address them. It was a self-diagnostic exercise based on the active participation of local stakeholders so as to foster ownership of the follow-up reforms. It entailed comprehensive data collection and analysis through field reviews (by three working groups focusing on technical, administrative, and structural problems respectively); desk reviews of relevant consultant reports and economic and sector work; and a survey of governance and indigenous institutions impacting on economic management. A 4-day assessment workshop was held to synthesize, analyze and prioritize the information gathered, and to map out future strategy. Follow-up workshops are being held to formulate an implementation plan and apportion responsibilities between implementing agencies. Lessons learned: the IEA is an appropriate instrument for identifying the major institutional causes of economic underperformance; and the involvement of all the key stakeholders was a positive and strategic move. In many cases, it will be these stakeholders who will ensure follow-up on measures agreed, thus making government more accountable.