laos - international university of japan · thailand cambodia laos vietnam indonesia myanmar 02468...

Country Profile 2006

Laos This Country Profile is a reference work, analysing the country’s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit’s Country Reports analyse current trends and provide a two-year forecast.

The full publishing schedule for Country Profiles is now available on our website at www.eiu.com/schedule The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

The Economist Intelligence Unit

The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide.

The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group.

London The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: [email protected]

New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: [email protected]

Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: [email protected]

Website: www.eiu.com

Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com

Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office

Copyright © 2006 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited.

All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.

ISSN 1740-8334

Symbols for tables “n/a” means not available; “–” means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

Country Profile 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006

Comparative economic indicators, 2005

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

0 20 40 60 80 100 120 140

Laos

Cambodia

Myanmar

Vietnam

Singapore

Malaysia

Thailand

Indonesia

0 1 2 3 4 5

Myanmar

Cambodia

Laos

Vietnam

Indonesia

Thailand

Malaysia

Singapore

0 2 4 6 8 10 12

Singapore

Malaysia

Thailand

Cambodia

Laos

Vietnam

Indonesia

Myanmar

0 2 4 6 8 10

Myanmar

Thailand

Malaysia

Indonesia

Cambodia

Singapore

Laos

Vietnam

Gross domestic product(% change, year on year)


Consumer prices(% change, year on year)


Gross domestic product per head(US$ ’000)


281.3

176.6

26.9

20.3

Laos 1

© The Economist Intelligence Unit Limited 2006 www.eiu.com Country Profile 2006

Contents

Laos

3 Basic data

4 Politics 4 Political background 5 Recent political developments 7 Constitution, institutions and administration 7 Political forces 9 International relations and defence

11 Resources and infrastructure 11 Population 12 Education 13 Health 13 Natural resources and the environment 14 Transport, communications and the Internet 16 Energy provision

18 The economy 18 Economic structure 19 Economic policy 21 Economic performance 22 Regional trends

22 Economic sectors 22 Agriculture 23 Mining and semi-processing 24 Manufacturing 25 Construction 25 Financial services 26 Other services

27 The external sector 27 Trade in goods 28 Invisibles and the current account 29 Capital flows and foreign debt 30 Foreign reserves and the exchange rate

31 Regional overview 31 Membership of organisations

33 Appendices 33 Sources of information 34 Reference tables 34 Population 34 Transport statistics 34 National energy statistics 35 Government finances

2 Laos


35 Money supply and credit 35 Gross domestic product 36 Gross domestic product by sector 36 Consumer prices 36 Principal crop production 36 Livestock 37 Forestry output 37 Mining and quarrying output 37 Output of selected industrial goods 37 Principal exports 38 Principal imports 38 Main trading partners 39 Balance of payments 39 Net official development assistance 40 External debt 40 Foreign reserves 40 Exchange rates

Laos 3


Laos

Basic data

236,800 sq km

5.79m (mid-2004 IMF estimate)

Population of the province in which a main town is situated ('000; mid-1999):

Vientiane (capital) 319 Vientiane (municipality) 583 Savannakhet 748 Champasak 558 Luang Prabang 406

Tropical; rainy season, May-October; dry season, November-April

Hottest month, April, 23-38°C; coldest month, January, 14-28°C; wettest month, June, 302 mm average rainfall; driest month, December, 3 mm average rainfall

Lao and others

Metric system; local measures include:

1 va = 5 sok = 10 khup = 2 metres 1 rai = 4 ngane = 1,600 sq metres 1 kang = 10 hoi = 1.2 kg

Kip (K). Average exchange rate in 2005: K10,655:US$1. Exchange rate on May 15th 2006: K10,135:US$1

Seven hours ahead of GMT

October 1st-September 30th

January 1st (New Year), January 6th (Pathet Lao Day), January 20th (Army Day), March 8th (Women's Day—a holiday for women only), March 22nd (people's Party Day), April 14th-16th (Pi Mai Lao, or Lao New Year), May 1st (Labour Day), May 13th (Buddha Day), July 11th (Khao Pansa), August 13th (Lao Issara), October 2nd (Bouk Khao Pansa), October 12th (Liberation Day), December 2nd (National Day)

Land area

Population

Main towns

Climate

Currency

Time

Weather in Vientiane (531 ft above sea level)

Language

Measures

Fiscal year

Public holidays

4 Laos


Politics

Laos has had a system of one-party rule under the Lao People's Revolutionary Party (LPRP) since 1975. General Choummaly Sayasone took over the LPRP’s top post of general secretary in March 2006, succeeding General Khamtay Siphandone, who had held the position for 14 years following the death of Kaysone Phomvihane.

Political background

Laos traces its origins as a unified state to the emergence in the mid-14th century of the kingdom of Lan Xang Hom Khao, initially based in the northern town of Luang Prabang. At the end of a "golden age" of rule by King Sulinya Vongsa in the 17th century, the once wealthy kingdom broke up, riven by factionalism. By the late 18th century three separate kingdoms had emerged, centred on Luang Prabang in the north, Vientiane in the centre and Champasak in the south. All were under Siamese (Thai) control.

Following its colonisation of central and northern Vietnam in 1884, France began to take control of the three Lao kingdoms in 1893, centralising them under the rule of the royal house of Luang Prabang. For the next half-century Laos was ruled as part of French Indochina. After the outbreak of the second world war, French rule was briefly replaced by that of the Japanese. During this period nationalist sentiment grew among the Lao elite, and Laos was declared independent in April 1945. However, the surrender of the Japanese in August 1945 left a political vacuum. The nationalist Lao Itsara (Free Laos) movement seized power, but by early 1946 French forces had regained control.

In 1946 war broke out between France and the Vietminh, the communist-led United Front organisation in Vietnam. The Vietminh influenced the more radical elements in the Lao Itsara, led by Prince Souphanouvong (the "red prince"). In 1950 Prince Souphanouvong, supported by the Vietminh, formed the Pathet Lao (Land of Laos) resistance organisation committed to the communist struggle against colonialism.

The French defeat by the Vietnamese in 1954 paved the way for a Franco-Laotian treaty that granted Laos full sovereignty, and elections were held the following year. The Lao People's Party (later renamed the Lao People's Revolutionary Party; LPRP) was established in 1955 in support of the Pathet Lao, under the leadership of Kaysone Phomvihane. Using his Vietnamese connections (he had studied in Hanoi and his father was Vietnamese), Kaysone Phomvihane had been instrumental in founding the Lao Itsara movement. The new coalition government, the Government of National Union, included two Pathet Lao members, a move strongly opposed by the US, which cut off aid to Laos. The government proved short-lived and collapsed in July 1958, to be replaced by a right-wing, US-backed administration. This in turn was over-thrown in a military coup in December 1959.

Laos was once three kingdoms

France ruled Laos as a part of French Indochina

The communist movement gained strength

Laos 5


After the collapse of the government, and with the military in power, the Pathet Lao went underground and began an armed struggle against the government in 1963. At the same time Laos was drawn into the war in Vietnam, and both the Americans and the North Vietnamese became active within Laos. For the next decade Laos was subjected to some of the heaviest bombing in the history of warfare, as the US sought to hinder the passage of North Vietnamese soldiers and supplies along the Ho Chi Minh Trail, which passed through Laos.

A ceasefire in the Vietnam war was agreed in 1973 and in Laos the communists formed a coalition with the royal government, the Provisional Government of National Union. Half of the cabinet posts went to the Pathet Lao, reflecting communist battlefield gains. However, fighting soon resumed, and in August 1975, four months after communist victories in Cambodia and Vietnam, the Pathet Lao entered Vientiane. In December that year, King Savang Vatthana abdicated and the Lao People's Democratic Republic (LPDR) was proclaimed. Prince Souphanouvong was named president, but the real power lay with the relatively unknown Kaysone, the general secretary of the renamed LPRP.

The first two years of LPRP rule involved harsh policies of "accelerated socialisation", which included agricultural collectivisation. As many as 40,000 people were sent to samana (re-education camps) and an estimated 30,000 (some say as many as 160,000) were imprisoned for "political crimes". The former king, Savang Vatthana, was initially assigned the position of supreme adviser to the president. Then, in 1977, accused of an anti-communist attack on Muang Nan in the north, he was banished to a remote area of the country. Descendants of the royal family now live in exile, mainly in France.

Recent political developments

The 1980s were characterised by a tentative shift in economic stance, under the more liberal New Economic Mechanism. However, there was no equivalent shift in politics. There was domestic criticism about the lack of political reform, but the government swiftly marginalised or imprisoned dissidents. The collapse of the Soviet Union in 1991 provided a further spur to economic reform because it forced Laos to reorient its trade towards Asian and Western markets and to attract foreign investment. The collapse also had the effect of demonstrating the difficulties of a centrally planned economy and the necessity of at least some economic reform. Kaysone died in 1992 and was succeeded as president by Nouhak Phomsavan. Six years later, in early 1998, the increasingly frail Nouhak retired, and was replaced by General Khamtay Siphandone, who also held the post of party general secretary following Kaysone’s death.

The LPRP continued to maintain full control of the polity under General Khamtay, but in recent years it has faced an anti-government bombing campaign waged by Lao dissidents. Given this political instability, leadership continuity was the watchword at the seventh party congress, which was held in March 2001—all eight surviving members of the nine-member politburo were reappointed and only three new appointments were made. The congress offered little in the way of new policy initiatives, but it was clear that gradual

Laos was drawn into the Vietnam war

The LPRP maintains control, despite growing instability

There is tentative economic, but no political, reform

The LPRP seizes power

6 Laos


reform would continue. There was also little change in policy during the eighth party congress, which was held in March 2006. However, after being at the helm of the party for 14 years, General Khamtay resigned during the eighth congress, and he was succeeded by General Choummaly Sayasone, the vice-president. Despite this major change at the top of the party, General Khamtay’s resignation is unlikely to bring about any major change in the way the party operates. Indeed, the promotion of General Choummaly to LPRP general secretary, and effectively to president-elect, reaffirmed the traditional direction of the party. Lao media, which remains under firm state control, reported the pronouncements of the most recent congress in detail, including General Khamtay’s desire that the state power system would continue forward “under the leadership of the party, with new firm steps… towards the objective of socialism”.

During the eighth party congress there were two new appointments to the 11-member Politburo. Pany Yathortou, a daughter of a Hmong revolutionary hero, became the first female member of the party’s top body. Joining Pany as a new face in the Politburo was long-serving foreign minister and deputy prime minister, Somsavat Lengsavad.

Important recent events

March 2001

The seventh party congress of the Lao People's Revolutionary Party (LPRP) is held. All eight surviving members of the nine-member politburo are retained but three new appointments are also made.

February 2002

An election to the National Assembly (the legislature) is held—elected delegates are younger and better educated, but all bar one are party members.

February and April 2003

Two attacks on buses near Luang Prabang are probably the work of bandits, rather than politically motivated Hmong rebels.

January 2004

The government launches a series of military attacks on Hmong rebels holding out in the north of the country. It also offers an amnesty and land to Hmong communities that cease resistance.

November 2004

Laos successfully hosts the tenth Association of South-East Asian Nations (ASEAN) summit amid the threat of disruption by anti-government forces.

December 2004

The US government grants Laos normal trade relations (NTR) status, despite the intensification of clashes between the government and ethnic Hmong groups.

March 2006

The LPRP holds its eighth party congress, during which General Choummaly Sayasone replaces General Khamtay Siphandone as the party’s general secretary.

Laos 7


April 2006

The National Assembly election is brought forward a year. A total of 71 new members are elected, with 44 members being re-elected to the sixth legislature.

Constitution, institutions and administration

According to the present constitution, which was amended in 2003, the LPRP is responsible for setting broad policy guidelines and the government is meant to be left to manage day-to-day administration. In reality, the two are almost indistinguishable. The constitution describes the LPRP as the "leading nucleus" of the political system. The constitutional amendments passed in 2003 formally give the National Assembly (the legislature) the right to approve or dismiss the prime minister or members of the government, but this is largely symbolic because in reality the National Assembly is subservient to the LPRP. Party factions are mainly defined by leading personalities rather than ideological differences, although factional disputes do occur on policy issues such as whether to favour relations with Vietnam at the expense of those with China, or on the appropriate pace of economic reform.

The National Assembly meets twice a year and is elected for a period of five years. (The most recent election, held in April 2006, was brought forward a year, reducing the term of the previous Assembly to four years.) Despite a range of constraints imposed on the National Assembly, its powers have increased since the early 1990s, and its role is now viewed as to oversee the government and the judiciary. The previous system of rule by party fiat has been replaced by a system of passing legislation through the National Assembly. However, policy formulation and implementation is a contorted process, compromised by political vested interests, bureaucratic inefficiency and corruption.

Most members of the government are members of the LPRP, and those who stand for election to the National Assembly must be approved by the party-controlled Lao Front for National Reconstruction (LFNR), which comprises such organisations as trade unions, peasant associations and religious and business groups. A total of 175 candidates were selected to stand for the 115 seats available in the expanded legislature in the election in April 2006. Only two non-party candidates were elected. The judiciary is in no sense independent of the LPRP.

Political forces

The LPRP, established in 1955 as the Lao People's Party and supporting the Pathet Lao resistance movement, has held exclusive power since the Pathet Lao ousted the royalist government in 1975. The LPRP remains opposed to political reform along multiparty lines. Differences have periodically surfaced between different wings of the leadership on economic reform, democratisation and even the correct policies to be adopted towards China and Vietnam. However, overall, the leadership is not heavily factionalised. Succession issues are primarily decided by the politburo, that is the top leaders, and leadership transition in the party is almost completely unformalised. However, a smooth

The party is the "leading nucleus"

The National Assembly becomes more active

The LPRP is dominant, and its leadership changes are smooth

There is little real devolution of power

8 Laos


transition followed the death in 1992 of Kaysone Phomvihane, the party’s general secretary and state president and the leading revolutionary. A second generation of leaders, centred on General Khamtay Siphandone, dominated the party up to the eighth party congress in March 2006, when General Choummaly Sayasone took over the party’s top position.

The military has long been well represented in political life. The military's activities are diverse, including involvement in reconstruction work and private business. Previous talk about a withdrawal of the military from business has never been translated into action. The Lao People's Army maintains a regular armed force of 29,100 (mainly army) and a local militia that numbers around 100,000.

Since 1999 there has been an increase in anti-government activity, albeit among groups that have different (sometimes conflicting) aims and use different means. According to press reports, known Lao opposition groups are the Lao Student Movement for Democracy, the Lao Neutral Justice and Development Party, the United Lao National Resistance for Democracy (or the United Lao Freedom Fighters), the Council of the Lao Overseas Representatives, the Laotian Executive Council for Independence and Democracy, and the Lao Human Rights Council.

Within Laos, a number of guerrilla groups exist, notably among the Hmong ethnic group, whose opposition to the communists can be traced back to Hmong links with the US in the 1960s and 1970s. Although this group has not accepted responsibility for violent activities, the government has blamed it for attacks on buses travelling in the northern part of the country in recent years. An upsurge in fighting between the government and Hmong rebels occurred in 2004, but the situation appears to have eased since then, and there have been reports of the widespread "surrender" of Hmong communities wooed by the promise of amnesty and offers of land. This partly supports the view that any remaining rebel groups are weak and are no match for govern-ment forces.

Main political figures

General Choummaly Sayasone

In March 2006, during the eighth congress of the Lao People's Revolutionary Party (LPRP), General Choummaly became the party’s general secretary, rising to the top of the party’s politburo, and effectively president-elect. An army general and revolution-ary veteran from the remote southern province of Attapeu, Choummaly had long been seen as the military’s preferred candidate to succeed General Khamtay Siphandone, the last of the revolution’s original leaders. Although regarded as politically conservative, Choummaly's involvement in the rapid expansion of the military's economic activities has given him a stake in the reform process.

General Khamtay Siphandone

General Khamtay, who remains president but stepped down as the LPRP’s general secretary in March 2006 after 14 years, was widely regarded as the head of the second generation of leaders, advocating economic reform. It is not expected that Khamtay’s retirement will see his family’s economic or political influence wane. As

The military is well represented

Anti-government forces are active

Laos 9


with another former president, Nouhak Phomsavanh, who is now a “senior party adviser”, Khamtay will remain a strong presence in Lao politics for as long as his health permits.

Samane Vignaket

Ranked second in the politburo, Samane is president of the National Assembly (the legislature). Politically he is hard to place, as he is part of the second generation of leaders, but he is also said to be close to the conservative Nouhak.

Bounyang Vorachit

Although expected to step down as prime minister following the April 2006 National Assembly election, after one term in office, Bounyang ranked fourth in the politburo following the eighth party congress. He previously served as finance minister, when he was brought in to try to restore stability in the wake of the Asian financial crisis.

Somsavat Lengsavad

The long-serving foreign minister and deputy prime minister, Somsavat became a member of the politburo following the eighth party congress. Somsavat, who has generally been seen by the diplomatic community in Laos as the brave new face of a non-military and non-Vietnam tied generation, perhaps had to wait longer than expected for promotion because of his image as a potential reformer. Over the past few years, however, he has shown his conservative credentials by playing a patient game of polite quietness with both the international community and foreign media.

International relations and defence

Laos joined the Association of South-East Asian Nations (ASEAN) in July 1997, and it hosted the tenth ASEAN summit in Vientiane in November 2004 during its year-long stint as chair of the group. This was the first time that Laos had hosted such a high-profile meeting, with around 3,000 delegates and journalists attending, including the heads of state of ASEAN's nine other members and the leaders of India, China, Japan, South Korea, Australia and New Zealand. The summit passed off smoothly, despite the threat of disruption.

Relations with the other late entrants to ASEAN (Vietnam, Myanmar and Cambodia) are particularly strong. The four countries (collectively known as CLMV) signed the Vientiane Declaration in November 2004 in order to cement their relationship and agree upon a range of measures to enhance the development process in each country through co-operation with the others. Myanmar and Laos have had cordial relations following the signing of the Treaty on the Demarcation of Boundaries in 1994. Ties with Cambodia are normally uncomplicated, apart from occasional friction along the border resulting from illegal logging. Laos has a particularly close relationship with Vietnam. The LPRP government was heavily influenced by its links with the Soviet Union and Vietnam from the mid-1970s until the late 1980s. During this period around 40,000 Vietnamese troops were stationed in Laos. Political relations remain close. The two countries face similar challenges, as surviving communist governments seeking to reform their economies.

Laos has good relations with most fellow ASEAN members

10 Laos


Laos became increasingly reliant on Thailand for trade and investment during the 1990s. Politically, however, relations are sometimes strained, with problems frequently occurring along the common border, including illegal migration. Although there have been delays in completing the border demarcation process (deadlines for finishing work have repeatedly been revised because previous completion dates have proved difficult to achieve), progress has been made. In early 2006 the Thai-Lao Joint Commission, which deals with issues related to bilateral co-operation, most notably border demarcation, concluded its 14th meeting, with both sides agreeing to complete their land border demarcation by the end of 2006, and river border demarcation by 2008.

Issues concerning ethnic Hmong from Laos have affected relations with Thailand. The most recent dispute occurred in 2005, when provincial authorities in Thailand’s Petchabun province pressed the Thai government to repatriate to Laos some 6,000 Hmong currently living in the province. However, the Lao government denied that the Hmong were Lao citizens.

Relations with China have improved as relations with Vietnam have shifted to a less exclusive footing. There are regular exchanges at party and military levels, and crossborder trade (although much of it informal) is thriving. In December 2005 a deputy prime minister, Thongloun Sisoulith, received a delegation from the People’s Council of Yunnan. Thongloun remarked that the visit contributed to the development of friendly and co-operative ties between the two countries. The LPRP remains keen to bolster its ties with the ruling Communist Party of China (CPC). During a trip to China in January 2006, another Lao deputy prime minister, who is also the foreign minister, Somsavat Lengsavad, said that the LPRP attached great importance to studying the CPC’s party-building experiences.

Laos has been working with the US in the areas of drug control, bomb disposal and the search for US servicemen missing in action, and has been praised for its level of co-operation. In 2003 the government signed a bilateral trade accord with the US, and in December 2004 the US finally awarded the country NTR status, which confers on Laos trade terms similar to those enjoyed by the majority of US trade partners. The US Congress also agreed to increase its annual contribution to the effort to rid Laos of unexploded ordinance left over from the war from US$1.4m to US$2.5m. Despite these improvements, diplo-matic relations between the two countries remain tense owing to Laos's poor human rights record. In May 2004 the US House of Representatives adopted a resolution criticising the Lao government's record on human rights and calling for an end to alleged violence against ethnic Hmong, some of whom are waging an intermittent struggle against the government. The Lao government condemned the resolution.

Relations with Thailand remain close

Relations with China improve

Links with the US expand

Laos 11


Security risk in Laos

Armed conflict

There is a risk of groups opposed to the government using force to try to destabilise the country and achieve their objectives. However, the threat to business is relatively small. A bombing campaign that has been directed at the government since 2000 is likely to continue. Vehicles travelling in remote parts of the country have periodically been attacked. However, there have been no major attacks since an attack on a bus on a highway 200 km north of the capital, Vientiane, in April 2003, which killed 12 people. In a similar attack in February 2003, two foreigners were among 13 killed. It remains unclear whether such attacks are the work of Hmong rebels opposed to the government or bandits.

Unrest/demonstrations

A small anti-government demonstration occurred in Vientiane in 1999. It was quickly stopped and many of those involved arrested. Although a repeat of such activity cannot be ruled out, the security forces are now more alert to the possibility and ready to crush any demonstration. Any future demonstrations are unlikely to precipitate mass unrest.

Violent crime

Although street crime does occur, violent crime, particularly directed against foreigners, is rare. Burglary is also relatively uncommon.

Organised crime

Organised crime is not a significant problem in Laos.

Kidnapping/extortion

The risk of kidnapping or extortion is low in Laos.

Resources and infrastructure

Population Age structure of population, 2003 (% of total unless otherwise indicated)

0-14 years 41.7

15-64 years 55.4

65+ years 2.9

Total population (m) 5.7

Source: UNDP, Human Development Report, 2005.

The IMF estimated the population at nearly 5.8m in mid-2004 (the most recent data available), up from nearly 5.3m in 2000. According to these data, the population growth rate slowed to around 2.3% in 2000-01, picked up to 2.4% in 2002-03, before dropping back to 2.3% in 2004, which is still lower than the annual average of around 2.5% recorded in the 1990s. The population is young, with around 42% under the age of 15 in 2003, according to data from the UN Development Programme (UNDP). This makes for a high fertility rate, which keeps the population growth rate rapid despite a high mortality rate. The

Population growth is fairly stable

12 Laos


government has promoted "birth spacing" and contraception in an attempt to control population growth.

The population of Laos is considerably smaller than that of its neighbours, and this limits its attractiveness as a consumer market. Around 20.7% of the population lives in urban areas, according to the UNDP, and the country is sparsely populated, with an estimated average of 24 persons per sq km in 2002, according to the Asian Development Bank (ADB), compared with around 245 persons per sq km in Vietnam. According to the World Bank, annual average income per head in 2003 was US$380 compared with a regional average of US$1,870, and 39% of the population was estimated to be below the food poverty line (defined as the level of income sufficient to buy 2,100 calories of food per person per day). The south is much poorer than the central and northern parts of Laos.

The government recognises the existence of 65 distinct ethnic groups. Around 60% of the population belongs to Lao Lum ("lowland Lao") groups; 35% belongs to the various hill tribes. There is also a small number of ethnic Vietnamese and Chinese. The Lao Lum are politically dominant, and historical tensions with minority groups persist. One of the most alienated groups is the Hmong, some of whom received US military training before 1975 and continue to oppose the government.

In 2000 Laos had a labour force of 2.5m, equivalent to nearly one-half of the population. More than 80% of the labour force are farmers. The growing number of rural migrants in Vientiane means that there is no shortage of unskilled labour. In 2003 the government said that it was seeking to limit unemployment to 5-6% of the labour force. This is considerably higher than unemployment levels in the mid-1990s, reflecting the less buoyant economic climate since the Asian financial crisis.

Education

The poor quality of the education system is a further constraint on develop-ment prospects. Although the situation has improved since the 1980s, only 68.7% of the adult population was literate in 2003, according to the UNDP, and this figure is lower for women, at 60.9%. Laos suffers from a shortage of schools, a lack of textbooks, poorly qualified teachers and low school enrolment and completion levels. The net enrolment rate in primary schools was 85% in the 2002/03 school year, according to the UNDP, up from 63% in 1990/91. However, the enrolment rate at secondary level was only 35% in 2002/03. Tertiary-level training is also inadequate, posing major problems for businesses requiring skilled labour or educated staff. There are gaps in important areas such as information technology (IT) and accountancy.

The population is small and poor

Ethnic tensions are widespread

Unemployment is high

The education system is poorly developed

Laos 13


In tackling educational deficiencies, the government is focusing on raising primary and secondary school enrolment rates, and is receiving external assist-ance to improve tertiary education. Few Lao people receive training abroad. There is also some educational provision by the private sector. Budgetary constraints, however, make improvements difficult.

Health

Health standards in Laos are low compared with countries in the region with a similar level of income per head. Life expectancy at birth in 2003 was slightly below 55 years, compared with around 70 years in Thailand and Vietnam. Maternal mortality in 2000 stood at 65 per 10,000 live births, high even for a low-income country. Underlying these poor standards is a public health system that has been inadequately maintained and that is inaccessible to a large percentage of the population. Public healthcare expenditure stood at only 1.5% of GDP in 2002, with private healthcare expenditure slightly lower at 1.4% of GDP. Many poor people rely on medical treatment from the private pharmacies that have sprung up in recent years, but personnel are often inadequately trained. The government is focusing on developing a more efficient primary healthcare system. It has set targets for reducing infant and maternal mortality, and in 2003 it announced a national strategy to deal with HIV/AIDS—the rate of HIV/AIDS infection has been increasing. Tackling these problems will be hindered by resource constraints, although the government is receiving technical and financial assistance from international donors. The potential for private investment in healthcare is constrained by the inability of all but a minority to pay.

Natural resources and the environment

Laos is a mountainous, landlocked country, bordered by China to the north, Vietnam to the east, Cambodia to the south, Thailand to the west and Myanmar to the north-west. Southern Laos is less hilly but still rugged. Despite serious deforestation, around 45% of the country is still forested. Of the many rivers, the most important is the Mekong, which constitutes a natural border with Thailand and Myanmar. The most valuable natural resources of Laos are its forests and rivers; the latter have considerable potential for generating hydroelectric power. However, there are concerns about the sustainability of the exploitation of the forests, and not just because of the logging industry; hydroelectric facilities and slash-and-burn agriculture also involve deforestation. Laos is endowed with a wide range of mineral deposits, the most important of which are tin, lead, gravel, gypsum and salt, although there are also small deposits of coal, iron ore, gold, and oil and gas. Surveys to determine the extent of natural resource deposits are incomplete.

Estimates vary, but according to the latest data from the Ministry of Agriculture, 7,881 sq km of land area were cultivated out of a total area of 236,800 sq km in 1998. This is partly because of the mountainous nature of the terrain, but also because of inadequate irrigation. Most farming is rain-dependent, although

Public health provision is poor

Forests and rivers offer potential

14 Laos


there has recently been increased investment in irrigation to extend dry-season cultivation.

According to government records, there have been serious floods in Laos every 18 months since 1966. Flooding is most common in central and southern parts of the country, notably in Nam Ngum, Xekong and on the Can and Ou rivers. The government’s National Disaster Management Committee stated in July 2005 that it was exploring ways of adopting a more strategic approach to flood prevention and management, partly in an effort to safeguard the development of agricultural crops. This includes studying the reasons for floods and the impact they have on socioeconomic development. The government is using a method of assessing the impact of flooding from Latin America.

Transport, communications and the Internet

War, mismanagement and a lack of investment have resulted in an un-developed transport and communications infrastructure. Around two-thirds of freight traffic moves by road and most of the remainder travels by river, leaving only a small volume of freight transported by air. The majority of passenger traffic uses the roads. Traffic density is light, even in the capital, Vientiane. The government's priorities for infrastructure development have traditionally fav-oured upgrading the road network, which attracts most of the funding.

Laos is a central player in efforts to develop transportation links between countries in the Greater Mekong Subregion (Laos, Thailand, Cambodia, Vietnam and China’s Yunnan province). An important step in improving such links is the construction of a second bridge over the Mekong River connecting Thailand and Laos, between Mukdahan (Thailand) and Savannakhet (Laos), a project that is being financed by the Japan Bank for International Co-operation. Despite suffering a setback in July 2005, when part of the bridge collapsed, killing ten construction engineers and injuring many, the 1.6-km bridge is still set to be completed by the end of 2006.

The development of the road network is a vital element of the government's transport policy, as it will allow the domestic market to become more integrated. According to World Bank data, of the 31,000 km of roads (in 2003), less than 20% were paved. Around 41% of the population live more than 6 km from a main road. Many dirt roads become impassable during the rainy season. Route 13, which runs from Luang Prabang in the north to the Cambodian border in the south, is now completely paved, and many of the bridges along the route have been renovated. The ADB has been funding improvements to a number of major roads.

There are around 4,600 km of navigable waterways along the Mekong River and its tributaries. Their use as transport routes has increased since the early 1990s. In order to develop the use of the waterways further a number of river ports have been upgraded, and efforts are being made to improve river access.

Laos does not have a rail network, but talks on building a railway took place between the government and a Chinese and a Malaysian firm in September 2002. This is part of a plan, which is supported by the Association of South-East

Flooding is a perennial problem

Transport infrastructure is poorly developed

Laos 15


Asian Nations (ASEAN), to link Singapore with Kunming in south-western China by rail. The Thai and French governments agreed in February 2004 to finance a 3.2-km rail link across the Mitraphab bridge from Thailand, and further talks on this project were held during the visit of the French president, Jacques Chirac, to Thailand in early 2006. France has agreed to finance the second phase of the project, the link between Tha Na Laeng to Vientiane.

Efforts are also being made to upgrade air transport, reflecting the desire to develop the tourism industry. The national airline, Lao Airlines, was relaunched in 2003 after suffering from financial and safety problems. As a result, it has expanded its fleet and is currently flying to six international destinations—Thailand (Bangkok and Chiang Mai), China (Kunming), Vietnam (Hanoi) and Cambodia (Phnom Penh and Siam Reap)—in addition to servicing domestic routes. In late 2003 Lao Airlines announced that it was planning to sell a 40-60% stake to a foreign investor, but this has yet to be achieved. However, in a positive step for the airline, it signed an agreement with the Thai national airline, Thai Airways International, in March 2006, under which the two airlines will launch joint routes.

A new airport terminal in Luang Prabang has been completed and the airport runway is being extended to receive larger aircraft. The Wattay International Airport in Vientiane has also been improved. Renovations to the airport, comprising an extension of the runway to enable the take-off and landing of Boeing 747 aircraft and an extension of the facilities for aircraft, including the provision of additional space to park six Boeing 747s, were completed in April 2006. The Thai government financed this project, providing US$8m in loans and grants to the Lao government, in accordance with an agreement signed on August 18th 2004.

The telecommunications network is poorly developed, although improvements are gradually being made. Since the monopoly of state telecoms provider, Lao Telecom (Laotel, a joint venture between the state and Thailand’s Shin Satellite), ended in late 2001, fixed-line telephone usage has grown. According to Lao Telecom’s general director, Houmphanh Intharath, the number of fixed-line subscribers has increased from three per 100 people in 2001 to ten per 100 people in early 2006. However, according to data from the World Bank, there were only 1.2 fixed-line telephones per 100 people in 2003. The telephone network now reaches all 17 provinces, although some towns are still without telephones. There are currently four telecoms operators in Laos: Laotel; Enterprise of Telecom Lao (ETL, state owned); Lao Asia Telecom (LAT, army-owned); and Millicom Lao (a joint venture between a Luxembourg-based company, Millicom International Cellular, and the government; it operates the "Tango" service).

Laotel remains under pressure from increasing competition, particularly in the Internet and mobile-phone markets. In December 2005, LAT announced that it would expand its network to remote areas in northern provinces in 2006. The company aims to add about 50 base stations to the current 25 that it has in place in the northern provinces. In total, the company had around 200 base stations throughout the country in late 2005. In addition to announcing these

Telecommunications density is low, but rising

Lao Airlines is relaunched, and airports are improved

16 Laos


expansion plans, in December 2005 LAT launched nine new services, including discounted prepaid and post-paid mobile services.

Laotel’s main competitor in the expanding mobile sector is Millicom Lao. The company has revolutionised the mobile sector in Laos since it came into operation in 2003 through slick first-world marketing and professional customer service. Laotel has tried to respond, opening an impressive customer service centre in Vientiane at the beginning of 2006, but its service remains beset by technical limitations.

In 2004 the government announced that it was planning to set up a regulatory body to oversee the telecoms industry, owing to the fact that regulation had become more complicated since private companies were permitted to partici-pate. However, progress in the area of regulation has been slow.

Laos has had Internet access since 1996, but Internet usage remains low and e-business is virtually non-existent. According to the World Bank, there were only around 0.3 users per 100 people in 2003. However, there has been growth in Internet cafes catering for foreign tourists. The country has seven licensed Internet service providers (ISPs)—Lane Xang Internet, Laotel, Planet Internet, ETL, Champalao Internet, KPL Internet and the Lao National Internet Committee (LANIC)—but Laotel dominates the market. In August 2004 the government launched a project that will enable ISPs to connect to the Internet through a single exchange in Laos. The project was initiated by LANIC, a state agency that provides services to government organisations and academic institutions, with the support of the Swedish International Development Agency. Without this exchange, ISPs have to connect to the Internet separately routing through Thailand or Singapore.

Although the government seeks to control Internet access, a number of anti-government websites, run by overseas Lao, exist.

Energy provision

Generating capacity is minute by regional standards, even allowing for the small population and economy. In 2003, according to the World Bank, 41% of house-holds had access to electricity. Although access to electricity has been increasing (in 1998 only 30% of households had access to electricity), access is low compared with the ratio in most other countries in the region, such as Thailand (84%) and Vietnam (81%). Power cuts are also a common experience.

In 2002 Laos’s installed electricity capacity stood at 639 mw, of which 622 mw was generated by hydroelectric sources, according to the US’s Energy Information Administration. Electricity output in 2002 reached 3.6bn kwh, of which just over 3bn kwh was consumed domestically. Transmission losses accounted for around 7% of total output. Most electricity comes from three power stations: the 210-mw Theun Hinboun power plant on the Theun river; the 150-mw Nam Ngum hydroelectric plant near Vientiane; and the 150-mw Huay Ho, which became operational in 1998. In 2001 Electricité du Laos (EdL), the state-owned national power utility responsible for power generation, transmission and distribution, accounted for 42% of hydropower plant capacity,

Access to electricity increases, but remains low

Internet usage is minimal

Laos 17


with independent power producers accounting for 57% and provincial authorities the reminder.

The Nam Theun II project moves ahead

Construction of the long-delayed US$1.2bn Nam Theun II power project finally commenced in late 2005, with an official ceremony marking the laying of the project’s foundation stone being held in November. The controversial project received the full backing of the World Bank in March 2005. The plant, the largest of its kind in Laos, will have a capacity of 1,070 mw, of which 995 mw of electricity-generating capacity and electrical energy will be exported to the Electricity Generating Authority of Thailand (EGAT), with the remainder (75 mw) supplying electricity for domestic use in Laos. The direct financial benefits for the Lao government are clear, with the project likely to raise around US$2bn in revenue over a 25-year period. However, there is intense opposition to the project from environmental protection groups and from human rights groups, with the latter raising concerns over the dis-placement of more than 6,000 people in the surrounding areas of the Khammouane and Bolikhamxay provinces in central Laos. In response to serious concerns about the social and environmental impact of the project, the World Bank adopted a comprehensive approach to reviews of the proposals—it held a number of rounds of consultations, in Vientiane, Bangkok, Paris, Tokyo and Washington. The World Bank's support comprises a US$50m partial risk guarantee, a US$20m grant and up to US$200m in political risk guarantees. The French state-owned power company, Electricité de France, has a 35% stake in the Nam Theun II power project. The state-owned Electricité du Laos (EDL) and a privately owned Thai energy company, Electricity Generating Public Company, both have a 25% stake, and a private construction company, Italian-Thai Development, has the remaining 15% stake.

Laos has been increasingly attracting foreign investors keen to tap into the country’s potential to become a leading source of hydroelectric power in the region. In 2005 Russian and South Korean energy firms announced plans to invest in hydroelectric power projects in the country. Vietnamese firms are also getting involved. In December 2005 a Vietnamese consortium, the Viet-Laos Joint-Stock Electricity Investment and Development Company, signed an agreement with Laos’s state-owned energy firm, Electricité du Laos (EDL), to develop a hydroelectric power plant in Xekong province. Construction of the US$273m plant commenced in April 2006, and completion is scheduled for 2009. The power plant, Xekaman III, will be capable of generating 250 mw of electricity, of which around 90% will be exported to Vietnam. This deal forms part of an agreement between the Lao and Vietnamese governments under which exports of electricity from Laos to Vietnam will reach 2,000 mw by 2010.

Foreign interest in hydropower projects grows

18 Laos


The economy

Economic structure Main economic indicators, 2005 Real GDP growth (%) 7.0a

Consumer price inflation (%) 7.2a

Current-account balance (US$ m) -524a

Foreign debt (US$ m; year-end) 2,846b

Exchange rate (K:US$; av) 10,655

a Economist Intelligence Unit estimate. b End-2003.

Sources: Economist Intelligence Unit; IMF, International Financial Statistics; World Bank, Global Development Finance.

Agriculture (including forestry and fishing) is the most important economic sector. In 2003 agriculture accounted for an estimated 48% of nominal GDP, according to the IMF. Its share of GDP has fallen slightly since 1999, when it was 53%. Industry and services account for a growing share of GDP. Industry (manufacturing, mining, utilities and construction) contributed 25.7% of GDP at current prices in 2003, compared with around 23% in 1999. Leading growth sectors are garment manufacturing, food-processing and low-technology assembling. Utilities are growing in importance as a share of total industrial output, although not rapidly. Services contributed 25.5% of GDP in 2003. Wholesale and retail trade, the largest component of the services sector, has recorded solid growth (in real terms) over the past five years. The hotels and restaurants sector, which accounts for around 2% of nominal GDP, recorded strong growth in 2000-01, but has been fairly stable over the past few years, declining in real terms by 2.1% in 2003.

Comparative economic indicators, 2005a Laos Cambodia Vietnam Indonesia Philippines Thailand

GDP (US$ bn) 3.2 5.4 52.8 281.3 95.4 183.5b

GDP per head (US$) 536 382 630 1,162 1,086 2,802

Consumer price inflation (av; %) 7.2 5.7 8.2 10.5 7.7 4.5

Current-account balance (US$ m) -524 -166 -176 2,241 3,392 -3,735

Exports of goods, fob (US$ bn) 0.7 2.8 32.2 84.7 40.1 109.2

Imports of goods, fob (US$ bn) 1.3 3.6 33.5 63.1 46.5 106.1

Foreign trade (% of GDP)c 62.5 118.5 124.4 52.5 90.8 117.3

Foreign debt (% of GDP) 136.6d 77.3d 38.2 49.0 69.0 28.2

a Estimates unless otherwise indicated. b Actual. c Merchandise exports plus imports. d 2003 actual.

Sources: Economist Intelligence Unit; IMF, International Financial Statistics; World Bank, Global Development Finance; national sources.

Agriculture remains dominant, but industry and services grow

Laos 19


Economic policy

Laos has followed a market-oriented reform programme since 1986, although partial reforms were introduced as early as the late 1970s. In November 1986 the fourth party congress of the Lao People's Revolutionary Party (LPRP) adopted the slogan pean pang mai (new thinking, known as the New Economic Mechanism). Many economic problems stem from the legacies of central plan-ning and the difficulties associated with the shift from the plan to the market.

The government's ability to tackle the policy challenges that it faces is hindered by a lack of consensus within the ruling party over the suitable pace of reform. Although the LPRP’s top leaders are regarded as being from the reformist wing of the party, in the face of ideological and political resistance their approach to reform has been gradual at best. The environment for both domestic firms and foreign investors is still far from easy, owing to persistent red tape and corruption. Nevertheless, the government has shown a willingness to permit the private sector to play a more important role in the development process, in line with the wishes of foreign donors.

In 2006 the government formulated its sixth five-year National Socio-Economic Development Plan (NSEDP) for 2006-10. The reform rhetoric in the plan is impressive, but the state’s role in the economy will remain important. Although the plan centres on “improving and promoting the state and people’s co-operative economy”, there are provisions for “encouraging economic development of other sectors so that they will render strength to the national economy”. Under the five-year plan, the government plans to concentrate on strengthening public finances, improving the foreign investment environment, revitalising the services sector, and tackling corruption and waste.

Main economic policy developments

2001

The IMF resumes lending to Laos in the form of a US$40m poverty reduction and growth facility (PRGF). The Fund calls for greater efforts in tax revenue collection and bank restructuring. The PRGF arrangement lapses in April 2005, with only three of six reviews completed.

2004

The government signs 11 economic co-operation agreements with China during a state visit by China's deputy prime minister. It welcomes China's pledge to encourage greater investment and double trade levels by 2005. In October the government's formal efforts to join the World Trade Organisation (WTO) commence with the first meeting of Laos's accession working party.

2005

The government drafts a new law on value-added tax (VAT), in addition to setting out a timetable for its implementation. The draft law will be put before the National Assembly for approval in 2006, with a view to introducing it nationwide in 2007.

Laos pushes ahead slowly with market-oriented reforms

20 Laos


Laos has pursued policies of foreign trade liberalisation, notably through the reduction of quota restrictions and the rationalisation of import tariffs. Membership of the Association of South-East Asian Nations (ASEAN), which Laos gained in July 1997, requires the government to lower tariffs on a wide variety of products to below 5% by 2008. Laos signed a bilateral trade accord with the US in 2003, and was granted normal trade relations (NTR) status in late 2004.

The government's formal efforts to join the WTO commenced in October 2004, with the first meeting of Laos's accession working party. During the meeting the government outlined the reforms that it had already undertaken and called on members of the working party to take into account Laos's status as a land-locked least-developed country. The accession process is unlikely to be swift, reflecting the fact that the government lacks technical expertise, but assistance in such areas is likely to be forthcoming, and there is strong support from WTO members for Laos's eventual accession. Indeed, in 2005 the EU signed an agree-ment with the government to provide more than €1m (US$1.2m) in technical assistance to help Laos prepare for WTO membership.

Laos has maintained the general support of the IMF. In its 2005 Article IV Consultation with the IMF, the report for which was published in late March 2006, the government received praise from the Fund’s directors for its progress in reducing poverty and maintaining stable macroeconomic conditions. The Fund has attributed much of this success to “disciplined economic management”. However, the Fund highlighted some of the challenges facing the government, most notably those of improving the trade and investment regime to enhance competitiveness and strengthening public expenditure management. Laos entered into a US$40m IMF poverty reduction and growth facility (PRGF) in April 2001. The programme expired in April 2005, by which time only around US$22m of the total approved amount had drawn down.

The IMF continues to encourage a wider and more efficient tax regime that incorporates a value-added tax (VAT) system, but despite official approval of such policies action remains slow in these areas. The draft law on VAT will be put before the National Assembly for approval in 2006 with a view to intro-ducing it nationwide in 2007. The goal is to ensure that the VAT regime is in place before the government completes its ASEAN free-trade area (AFTA) tariff reduction obligations in 2008, as lower import tariffs will obviously mean less revenue from this source. Based on the draft law, VAT is expected to be levied in the form of a single 10% rate. There was discussion about a possible 8% or a 12% rate, but the lower rate was felt to be insufficient to cover the anticipated loss of import duty, and there was concern that the higher rate might have an adverse impact on people with low incomes.

The government liberalises foreign trade

The IMF remains fairly supportive

Laos 21


Economic performance Gross domestic product (% real change)

Annual average 2005 2001-05GDP (market prices) 7.0 6.2

Source: IMF, 2005 Article IV Consultation, March 2006.

Real GDP growth has picked up in recent years, reaching an estimated 7% in 2005, according to data from the IMF. Industry has been growing faster than either agriculture or services, with growth in this sector averaging 9.6% per year in 1999-2003 (latest actual data available) compared with 6.1% in services and 4.6% in agriculture. As reforms got under way, inflows of foreign direct invest-ment (FDI) resulted in the emergence of a small, export-oriented manufacturing sector, notably producing textiles and garments. The development of new, more dynamic Asian and European export markets, following the collapse of Soviet and east European markets, also stimulated export-oriented manufacturing. Increased tourism, trade and financial activity contributed to buoyant growth in services throughout the 1990s. Growth in both industry and services was slower in the years immediately following the Asian crisis, but it has since recovered slightly.

A breakdown of GDP by expenditure is not available. However, gross domestic investment since 1990 is believed to have increased as a result of higher private, rather than public, investment. The latter has been constrained by efforts to curb the fiscal deficit. Private consumption, although affected by fluctuations in the performance of agriculture, is likely to provide the largest contribution to GDP in expenditure terms.

Inflation has been a persistent problem since the second half of the 1990s. Consumer price inflation surged in the aftermath of the Asian economic crisis, peaking at a rate of 128.5% in 1999, as a consequence of the sharp falls in the domestic currency, the kip, which led to imported inflation, along with a loose fiscal and monetary policy. Inflation eased in 2000-01 following better harvests, which constrained growth in food prices, and greater stability in the kip, but picked up again in 2002-03. In 2003 inflation reached a rate of 15.5%, partly owing to loose fiscal and monetary policy, but has eased since then, falling to 10.5% in 2004 and to 6.9% year on year in the third quarter of 2005. Food has a 54% weighting in the consumer price index, of which rice accounts for 20%.

Consumer prices (% change, year on year)

Annual average 2004 2000-04Consumer prices 10.5 13.9

Source: IMF, International Financial Statistics.

Inflation is easing

Growth picks up, with industry leading the way

22 Laos


Regional trends

The economic gap between the capital, Vientiane, and the rest of Laos has widened since the early 1990s, as the greatest proportion of foreign investment has gone to the capital and its environs. The central provinces, benefiting from their proximity to Vientiane, are economically more dynamic than either the south or the north. Central control over the regions has been weak, largely because of poor communications and transport links between the provinces. It has been argued that the "open door" economic policy is exacerbating such problems—as crossborder trade develops, northern Laos is being drawn into the orbit of China's Yunnan province, the north-eastern provinces are looking to Vietnam, and the centre and south of the country are becoming oriented towards Thailand.

Economic sectors

Agriculture

The agricultural sector is the backbone of the Lao economy, providing 48% of output in 2003 (at current prices) and employing the majority of the labour force. As in many former centrally planned economies, the agricultural sector in Laos is grappling with a history of chronic underinvestment and, to a lesser extent, the legacy of collectivisation. Most agricultural land is given over for the cultivation of rice, which is still the largest single crop. Timber and wood products have historically been the main source of export earnings, although the emergence of new products in the 1990s, such as garments and coffee, means that they are relatively less important now.

Rice production accounts for most of the country's land under cultivation. The main rainfed crop is usually harvested in November, but a small amount of dry-season cultivation does take place. The dependence on the rainfed crop and hence weather conditions has contributed to some fluctuation in output. However, there has been a rising trend in paddy production in recent years, with output rising from 2.2m tonnes in 2000 to 2.7m tonnes in 2004.

The government is encouraging the cultivation of cash crops, particularly coffee, cotton, peanuts, sugarcane, sesame seeds and tobacco. This policy has seen some success. Laos is a small coffee producer in global terms, accounting for less than 0.3% of world production, but the sector has seen rapid growth in recent years. In 2003, however, the coffee harvest dropped to 22,000 tonnes, its lowest level since 1999. (Lao coffee currently comprises a greater quantity of robusta coffee than arabica.) Tobacco output also dropped in 2003, to 26,000 tonnes, from 28,000 tonnes in 2002. Other crops include maize, cassava and potatoes.

There has been a steady expansion in the rearing of farm animals, such as cattle, poultry and pigs, facilitated by the establishment of animal breeding stations by the government. The past decade or so has also seen the expansion of fish farming. However, in 2003 livestock and fisheries accounted for 17% of

Regional differences run deep

Underinvestment is a problem for agriculture

Rice production dominates agriculture

Animal husbandry grows in importance

Laos 23


nominal GDP, down from 19% in 1999. There have been significant increases from the late 1980s in the levels of animal cultivation, notably of cattle and poultry.

Outbreaks of avian influenza are limited

Laos’s poultry industry has suffered from outbreaks of avian influenza (bird flu), with the virus resulting in the culling and deaths of around 150,000 birds in Laos in 2004, according to official data. However, it has not suffered to the same extent as that of poultry farmers in neighbouring Thailand and Vietnam. The government is determined to implement measures to prevent or contain any potential future outbreaks. The Laos National Committee for Bird Flu Prevention met in January 2006 and approved a national anti-bird flu plan for 2006-10. The overall aims of the plan are to develop safe poultry farming management, improve the country’s capacity to treat human cases, and raise public awareness of the virus. Specific measures introduced under the plan include the establishment of poultry farming groups at the village level, which could oversee the rearing of chickens. There are also plans to bolster the government’s capabilities in regulating and monitoring the movement of birds. In 2005 the government implemented a ban on all poultry imports unless they came from a country that has been declared free of bird flu.

The forestry sector contributed around 3.2% to GDP (at current market prices) in 2003, down from 5% in 1999, but it is still a significant export earner. Forestry products include a wide variety of different woods, as well as rattan, bamboo, cardamom, resins and furniture. The principal challenge facing the authorities is to find a way to manage this resource in a sustainable manner. Illegal logging and slash-and-burn cultivation have been responsible for a rapid reduction in forest cover—forests still cover around 45% of Laos (although only one-half of this is commercially accessible), but this is a significant drop from the 55% quoted in official statistics in 1991. The government has issued numerous regulations limiting the amount of living timber that can be felled each year and banning the export of unprocessed logs, but these have proved difficult to enforce. In 2003 the government's quota stipulating the amount of timber that could be cut was exceeded by 30%, according to reports in the official media.

Mining and semi-processing

Laos is endowed with a range of minerals, but the quantities are modest in international terms. Although the mining sector has been open to foreign investment since the early 1990s, there have been few moves to develop the sector. In recent years, however, there has been an increase in foreign interest, notably from Australian and Chinese companies. As a result, there was a sharp expansion in the mining and quarrying sector in 2003, with output growing more than threefold in real terms to account for 1.7% of GDP, compared with 0.5% in 2002.

Growth is likely to have remained strong in recent years, reflecting the expan-sion of operations at the Sepong mining project, which is owned and operated by Lane Xang Minerals, a local subsidiary of Oxiana Resources of Australia. The Sepong copper mine was officially opened in October 2005, and by the end of

Sustainable forestry management is a problem

Sepong gold and copper mine expands operations

24 Laos


2005 the mine had reached design capacity. In 2005 the mine produced 30,480 tonnes of copper, with output in 2006 set to reach 60,000 tonnes. Oxiana also operates the Sepong gold mine, which officially opened in 2003. In 2005 the mine produced 200,370 oz of gold, up by 40% compared with output in 2004, bringing total output since the mine commenced operations to more than 500,000 oz.

Another Australian mining firm, Pan Australian Resources, announced in November 2005 that it had completed its first shipment of gold from the Phu Bia gold mine, which is located in the Xaisomboun Special Zone. The company expects the mine to produce more than 60,000 oz of gold in 2006, meeting design production rates and grades. In late March 2006, Pan Australian Resources announced plans to move ahead with the Phu Kham gold and copper mine. Construction of the mine could be completed in 2007, with production set to commence in 2008 of around 50,000 tonnes of copper, 100,000 oz of gold and 400,000 oz of silver per year.

Despite this recent expansion in the mining sector, investment carries substantial risks. Constraints on the sector's development include difficult terrain and poorly developed infrastructure, which make extraction and transport expensive.

Manufacturing

The manufacturing sector is characterised by small-scale processing and assembly plants, predominantly concentrated in and around the capital, Vientiane. Heavy industry is virtually non-existent. The share of manufacturing in GDP rose to 19% in 2003, up from 16.9% in 1999 (at current prices), in part because of inflows of foreign direct investment (FDI), but also because of an increase in the number of small enterprises, especially handicraft companies. Efforts to reform the state-owned enterprise (SOE) sector have also played a part.

Apart from handicrafts, the main growth areas are agribusiness, wood products and garments. The value of wood furniture output reached K15.6bn (US$1.5m) in 2003, up from K12.7bn in 1999. Garment output has also expanded, rising to 34m pieces in 2003, from 21m in 1999. Major constraints to manufacturing growth are infrastructure bottlenecks, competition from imports, cautious private-sector investment, high transport costs, cumbersome customs procedures and high tariffs on imported inputs.

In addition to light manufacturing, there has been some progress in boosting the country’s capacity to manufacture construction materials, such as cement, in order to reduce reliance on imports. Cement production rose to 280,000 tonnes in 2003 from 75,000 tonnes in 2001, and since then more factories have come on stream. In October 2004 Laos's third cement factory, which is located in Savannakhet province, became operational. The factory is capable of producing about 200,000 tonnes/year (t/y). In July 2005 a fairly small cement factory in Luang Prabang province, with the capacity to produce around 35,000 t/y, began production after construction work was completed earlier in the year.

Light manufacturing predominates

Cement output is increasing

Laos 25


Construction of another cement factory is also under way in Khammuan province. It is due to become operational by 2007 and will have a production capacity of 600,000 t/y. For the time being, however, cement still needs to be imported, mainly from Thailand. Excluding large projects, total annual demand for cement for use in general construction in Laos is estimated to be around 800,000 tonnes.

Construction

The construction sector's contribution to GDP is small, at only 2.2% of current-price GDP in 2003. This represents a fall since the mid-1990s. In the period before the 1997-98 Asian financial crisis the industry underwent a mini-boom because of increased demand for hotels and housing, and the development of light industry and hydroelectric power. Expansion has been largely concen-trated in and around Vientiane. Construction growth has fluctuated in nominal terms since 1999, mainly because Thai investment in the sector declined. Output in the construction sector contracted by nearly 7% in 2002, before rising by 13% in 2003. A UN International Development Organisation (UNIDO) study in 2000 estimated that the market in construction materials in Laos was worth US$60m-65m per year, of which imports were estimated to account for 75%. Both state-owned and private-sector firms are active in the construction sector, although the state's share of output has fallen from 70% in the late 1980s to around 40%. The military has extensive commercial con-struction interests, and foreign construction companies are employed on some projects.

Financial services

Financial services in Laos remain limited in terms of choice and depth, and reform of the financial sector has been slow and inadequate. Although the Bank of the Lao People's Democratic Republic (the central bank) has formal autonomy over monetary and exchange-rate policy, in reality politicians intervene in bank policy-setting either directly, or indirectly through the appointment of bank officials. State banks also continue to dominate the banking sector—nearly 50% of total assets are held by the state-owned Banque pour le Commerce Extérieur Lao (BCEL), which handles foreign trade and other overseas transactions.

Following the Asian financial crisis in 1997-98, the government engaged in a major restructuring of the banking sector. The three state-owned commercial banks in the north of the country, Setthathirath Bank, Lanexang Bank and Alounmay Bank, were merged, taking the name of Lanexang Bank. The three in the south were also merged, becoming Lao May Bank. In May 2003 these banks merged to become the Lao Development Bank, with 20 branches in 18 districts nationwide.

Foreign banks have been permitted to open full branches since 1992, but they are limited to operating in the Vientiane municipality. Many of the Thai banks that dominated the foreign banking sector before the Asian economic crisis have

The performance of the construction sector fluctuates

Financial sector reform is slow

26 Laos


since closed or are inoperative. BCEL and Vietnam’s state-owned Bank for Investment and Development (BIDV) established the Lao-Viet Bank in 1999, in essence an official export-import bank to facilitate bilateral trade flows. Over the past six years Lao-Viet Bank, which is the only bank to facilitate the exchange of kip and dong, has managed to expand its deposit base to US$86m.

Although the domestic banking sector has been restructured, the disclosure of data has remained poor, making it difficult to gauge the state of banks' balance sheets. The IMF has acknowledged that the bank mergers have left some of the most pressing reforms still outstanding, and in its 2006 Article IV consultations with the government the Fund’s directors urged the monetary authorities to continue the restructuring process of the state banks and to seek private participation in the banking sector.

Treasury-bill auctions have been held since 1994, but the establishment of a stockmarket remains a distant prospect. The insurance sector is dominated by Assurances Générales du Laos, in which the government has a 49% stake, with the remainder foreign-owned. Nearly all insurance business Laos is in the non-life sector.

Other services

The tourism industry remains on an expansionary trend, but it has suffered some setbacks in recent years. Political instability in Laos, which in turn prompted the government to suspend its visa-on-arrival policy, combined with the terrorist attacks on the US in 2001, led to a drop in the number of visitors in 2001 to 673,823, from 723,705 in 2000. There was a pick-up in the number of visitors in 2002 before the regional outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 resulted in a plunge in the number of visitor arrivals to 636,361. Despite a slow start to the year, the tourism industry enjoyed a sharp upturn in tourist arrivals in 2004, of around 900,000, and this expansion continued into 2005. According to the Lao National Tourism Administration (NTA), total international arrivals reached nearly 1.1m in 2005.

In line with the unsteady trend in visitor arrivals, tourism earnings have also fluctuated, rising from US$78.9m in 1998 (four times the 1995 figure) to US$113.8m in 2002, before falling to US$87.3m in 2003. By 2005, however, earnings had reached US$146m, according to the NTA. Most tourists come from the Asia and Australasia region. Most of the arrivals in 2005 comprised Thai nationals, at around 603,000, followed by visitors from Vietnam (165,000), the US (47,427), China (39,210) and France (35,371). Chinese tourists continue to grow in number and spending power, and Chinese developers have now moved into Laos to tap this market. Poor infrastructure is a constraint on the sector and hotels and tourism facilities are generally below international standards. However, the infrastructure available to guests is improving, with new hotels and guest houses opening regularly in the major cities. According to the NTA, in 2005 the number of hotels rose to 165 from 148 in 2004, while the number of guesthouses increased by more than 100 to 923 during the same period.

There is no stockmarket

Tourism suffers some setbacks, but the overall trend is positive

Laos 27


The government would like to avoid mass tourism similar to that developed in Thailand, because of the adverse impact it would have on a small, culturally diverse and, until recently, isolated population. Instead, it hopes to develop eco-tourism and cultural tourism. If this proves difficult, Laos may find it hard to resist the financial lure of mass tourism.

The external sector

Trade in goods

According to IMF figures, merchandise exports have fluctuated in recent years. Following a decline of 10% in 2002, export revenue surged by 27% in 2003 before falling back again in 2004 by around 5% to US$361m. However, during the first three quarters of 2005, exports jumped by 43% year on year to US$382m. These fluctuations reflect changes in regional demand, in addition to global trends in commodities prices. Import growth has also been erratic, following a similar pattern to that recorded in exports. After three years of relative stability in 1999-2001, the import bill (cif) dropped sharply in 2002 before rising again by 21.6% in 2003. A slight fall in the import bill in 2004 was followed by a surge in imports in 2005, when the import bill increased by 47.5% year on year in the first three quarters of the year to reach US$552m. Laos remains dependent on imports for nearly all capital goods, all petroleum products and a significant proportion of cement requirements. The garment and assembly industries are also highly dependent on imported inputs.

Foreign trade, 2004 (US$ m)

Merchandise exports fob 361.1

Merchandise imports cif -505.8Trade balance -144.7


Textiles and garments have proved to be a stable source of export revenue, averaging around US$96m per year in 2000-04, and accounting for around 27% of total revenue in 2004. Exports of hydroelectric power rose sharply in the late 1990s and reached a record high of US$112m in 2000. However, in recent years, revenue from such exports has dropped off to average around US$100m per year. In 2004 exports of hydroelectric power stood at US$97m, equalling revenue received from exports of garments and textiles. Exports of forestry products have declined in importance, from 28.3% of total exports in 1997 to 18.6% in 2004, and down from a share of around 50% in the late 1980s. Coffee exports, which expanded rapidly in the late 1990s as a result of government policy, declined in 2002, to US$9m, in line with lower global prices, but have since rebounded to reach US$14m in 2004, accounting for around 4% of total export revenue.

Since the collapse of trade with the Eastern bloc, there has been a marked reorientation of Lao trade towards Asia. According to the IMF, Thailand is Laos's largest trade partner, in recent years accounting for around 20% of all exports

Exports and imports fluctuate

Exports of garments remain stable

Thailand is Laos's dominant trading partner

28 Laos


and 60% of all imports. Vietnam is Laos's second-largest export market and also the third-largest source of imports to Laos. Trade with China is more significant than official statistics suggest, as there is a large amount of smuggling across the northern border. However, in 2003 China became Laos's second-largest official source of imports. Exports to EU countries have picked up since the downturn in Asia. Trade with the US has been minimal, but will pick up following the granting of normal trade relations (NTR) status in late 2004.

Main trading partners, 2004 (% of total)

Exports to: Imports from: Thailand 19.3 Thailand 60.5Vietnam 13.4 China (incl Hong Kong) 11.1France 8.0 Vietnam 7.1Germany 5.3 Singapore 4.0UK 5.0 Germany 2.7

Source: IMF, Direction of Trade Statistics.

Invisibles and the current account

The current account has remained in deficit in recent years, although the deficit fell in 2004 to only US$18m from US$68.m in 2003 and way below the record deficit of US$230m recorded in 1996, according to data from the Asian Development Bank (ADB). The main element in the current-account deficit is the merchandise trade deficit, as Laos is forced to import many goods, owing to the lack of domestic production capacity. However, the trade deficit has been fairly stable in recent years, averaging around US$140m in 2002-04. The govern-ment's promotion of tourism in recent years has led to a steady increase in services revenue. Although the deficit on the income account has been increasing steadily, reflecting the slight upturn in outflows of profits from foreign-invested enterprises, the combined services and income account has remained in surplus. Net transfers dropped from a high of US$116.3m in 2000 to only US$4.8m in 2002, but have since picked up again. This improvement reflects a drop in transfers debits rather than any sharp increase in inflows in the form of aid and workers' remittances.

Current account, 2004 (US$ m)

Trade balance -144.8Services & income balance 86.1Current transfers balance 40.7Current-account balance -18.0

Source: Asian Development Bank, Key Indicators of Asian and Pacific Countries, 2005.

The current account remains in deficit

Laos 29


Capital flows and foreign debt

Laos has been financing its current-account deficits through foreign aid, with bilateral assistance, notably from Japan, Sweden, France, Germany and Australia, replacing assistance from the former Eastern bloc. According to the latest available data, in 2003 Laos received a total of US$298.6m in official development assistance (ODA), of which US$203.4m comprised grants and the remainder loans on a concessional basis. Inflows of foreign direct investment (FDI) are more modest, although there has been some growth in inflows in recent years. According to the ADB, in 2004 FDI inflows stood at US$16.9m, up from only US$4.8m in 2002, but still down from a peak of US$128m in 1996. However, in a positive sign of renewed investor interest, in 2004 the government reported increased FDI approvals. According to official figures, a total of 116 foreign-invested projects worth US$533m were approved in 2004, up from US$466m in 2003.

According to the World Bank, Laos’s total external debt stock, comprising convertible currency and transferable rouble debt, stood at US$2.8bn at the end of 2003 (the latest data available). Nearly all of this is medium- and long-term debt, roughly half of which is from multilateral sources and the other half from bilateral creditors, and all but a fraction is on concessional terms (low interest rates and long repayment schedules). The ratio of debt to GNP was 136.6% at end-2003, the lowest level since 1997. However, the debt-service ratio (total debt service as a percentage of exports of goods and services) has picked up, rising to 10.3% at end-2003 from 6.3% in 1998.

In 2003 the Russian government agreed to write off 70% of the Soviet-era debt that it was owed by Laos. Prior to this agreement, over 70% of Laos's long-term debt comprised debt owed to former Eastern bloc creditors, mainly Russia. The value of this debt is artificially inflated by the use of an unrealistic rouble:US dollar exchange rate. The debt agreement with Russia leaves US$378m to be repaid under preferential terms over 33 years. Following this agreement, Laos is honouring all its debt-servicing commitments. In September 2000 Japan granted Laos debt relief worth ¥55.42m (US$520,000), covering the principal and interest on yen loans extended before 1988. However, yen-denominated debt is equivalent to around only 1% of the medium- and long-term debt that is held by Laos.

Laos is dependent on aid

Debt-servicing costs rise, but are manageable

A debt agreement is signed with Russia

30 Laos


Foreign reserves and the exchange rate

International reserves (excluding gold) have risen only steadily in recent years, reaching US$226m in November 2005, up from US$222m at the end of 2004, according to IMF figures. Although reserves have more than doubled since 1999, and now exceed pre-Asian crisis levels, they provide only around five months of import cover.

The Bank of the Lao People's Democratic Republic (the central bank) has operated a managed floating exchange-rate system since 1988 and the kip has been made convertible for almost all current-account transactions. As a result of Laos’s close economic ties with Thailand, the kip came under heavy pressure in the second half of 1997, following the floating of the Thai baht in July 1997, and as a result the kip plummeted from an annual average of K921:US$1 in 1996 to K7,100:US$1 in 1999. The annual average rate of depreciation slowed to just over 10% in 2000-02, and between 2003 and 2005 the kip recorded a relative degree of overall stability, dropping to an average of K10,655:US$1 in 2005 compared with K10,569:US$1 in 2003. However, the kip has fluctuated in the past couple of years, appreciating sharply in late 2004 to a high of K10,377:US$1 at the end of the year before falling back to around K10,920:US$1 in mid-2005. Foreign-exchange trading takes place on a parallel market, which has been quite active in recent years. There is usually a small premium between the parallel market rate and the official rate, driven partly by the continued heavy use of the US dollar and the Thai baht in the Lao economy.

The kip continues to weaken against the US dollar

Reserves rise steadily, but remain low

Laos 31


Regional overview

Membership of organisations

The Association of South-East Asian Nations (ASEAN) was established in 1967. The five original members were Indonesia, Malaysia, the Philippines, Singapore and Thailand. Brunei joined in 1984, as did Vietnam in 1995, Laos and Myanmar in 1997 and, most recently, Cambodia in 1999.

ASEAN summit meetings, which bring together the heads of government of member states, must now be held every three years. The most recent took place in Malaysia in December 2005. Informal summits of heads of governments are also held. In addition, the foreign and economic affairs ministers of member countries meet annually. Joint meetings of foreign and economic affairs ministers are held before each ASEAN summit. There is also a standing committee (consisting of the members' accredited ambassadors to the host country), which usually meets every two months. There is a permanent secretariat, based in the Indonesian capital, Jakarta, and a number of committees.

The organisation started with some grand objectives, but has failed to deliver in most areas, with the exception of tariff reform. Early hopes that ASEAN could engineer a regional economic development strategy—with particular countries concentrating on particular industries—were soon dashed. In 1977 the Basic Agreement on the Establishment of ASEAN Preferential Tariffs was concluded, but a decade later only about 5% of trade between the association's members was covered by this system. (Members had been permitted to exclude "sensitive" sectors, a let-out clause that a subsequent agreement in 1987 curtailed only slightly.)

Plans for a proper ASEAN free-trade area (AFTA) were unveiled in 1992, with the aim of achieving it by 2008. A common effective preferential tariff (CEPT) scheme was applied in 1993, providing for the gradual reduction of tariffs on intra-ASEAN trade in certain goods over a number of years. Again, however, member states could exclude sensitive items, limiting progress. A new AFTA programme, covering a wider range of products, was launched in 1994. During the mid-1990s the timescale for implementing the programme was steadily tightened, with the aim of reducing tariffs on most goods to below 5% by 2000. A limited AFTA, between the original six members of ASEAN and involving a reduction of tariffs on intra-ASEAN trade to between zero and 5%, came into operation on January 1st 2002. (Countries joining recently have been allowed more time.) The momentum for change has been maintained in recent years. An ASEAN finance ministers' meeting in September 2004 agreed to abolish tariffs in 11 industrial sectors by 2012.

Before the recent acceleration in tariff reform, ASEAN's slow progress towards AFTA had encouraged some of its members, notably Singapore, to opt instead for bilateral trade pacts. But ASEAN's hopes of further multilateral deals have not been extinguished. In December 2004 ASEAN and China signed a major trade deal, which aims to eliminate most tariffs on trade between ASEAN and China by 2010 (2015 for the less developed members of ASEAN). Tariffs will

Association of South-East Asian Nations (ASEAN)

32 Laos


not go completely: countries will be able to designate a number of sectors as sensitive, and the greatest liberalisation is therefore likely to occur in areas where Chinese and ASEAN trade is complementary.

The 1997-98 regional financial crisis exposed ASEAN's failings in other areas in a brutal fashion. The organisation was unable to stop the regional currency devaluations or alleviate the subsequent economic hardship. A Statement on Bold Measures, issued at end-1998, was exactly the opposite of what the title implied. Unfolding events in Indonesia then moved the focus on to the organisation's security plans. ASEAN members' commitment to the principle of non-interference in the internal affairs of other member countries complicated the response to the crisis in East Timor in 1999. (Some members did eventually participate in the multinational force that intervened in East Timor, but not under ASEAN auspices.)

The non-interference principle has also enabled the ruling military junta in Myanmar to escape strong criticism from the governments of other ASEAN countries. However, in July 2005 Myanmar gave in to international and regional pressure and agreed to forgo its turn to chair the association, thus sparing ASEAN embarrassment in its relations with the US and the EU. In another sign that the policy of non-interference in domestic issues is becoming more flexible, in August 2005 the Indonesian government asked ASEAN countries to provide representatives to help monitor progress on the restoration of peace in the province of Aceh, in northern Sumatra. Further, in December 2005 it was announced that ASEAN was to send an envoy to meet not only Myanmar's ruling generals but also the opposition leader, Aung San Suu Kyi, whose National League for Democracy won elections in 1990 but was denied power by the junta. In the event the envoy, Syed Hamid of Malaysia, was not allowed to see Aung San Suu Kyi, and it appears that ASEAN's patience with Myanmar's glacial progress on political reform is running out. Myanmar is increasingly being seen as a serious impediment to ASEAN's attempts to raise its profile and increase its credibility.

Laos 33


Appendices

Sources of information

State Planning Committee, National Statistical Centre, Basic Statistics, Vientiane, 2000

Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries

IMF, International Financial Statistics

IMF, Lao People's Democratic Republic: Selected Issues and Statistical Appendix, November 2004.

OECD, Geographical Distribution of Financial Flows to Aid Recipients

UN Development Programme, Human Development Report

World Bank, Global Development Finance

World Bank, World Development Indicators

Asian Development Bank, Laos page: www.adb.org/laopdr

IMF, Laos page: www.imf.org/external/country/lao/index.htm

UN Development Programme, Laos office: www.undplao.org

Vientiane Times: www.vientianetimes.org.la

Y Bourdet, Laos: The Sixth Party Congress, and After?, South-east Asian Affairs, 1997

L Brahm and N Macpherson, Investment in the Lao People's Democratic Republic, Hong Kong, 1992

G Evans, A Short History of Laos, Crows Nest NSW, 2002

B Funck, Laos: Decentralisation and Economic Control, in B Ljunggren (ed), The Challenge of Reform in Indochina, Harvard, MA, 1993

M Stuart-Fox, Laos: Politics, Economics and Society, London, 1986

Vientiane Times (twice-weekly in English), Vientiane

R Warner, Back Fire: The CIA's Secret War in Laos, New York, 1995

J J Zasloff, and L Unger (eds), Laos: Beyond the Revolution, Basingstoke, 1991

National statistical sources

International statistical sources

Select bibliography

Internet homepages

34 Laos


Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Population (mid-year estimates)

2000 2001 2002 2003 2004Total (m) 5.25 5.40 5.53 5.66 5.79 % change, year on year 2.3 2.3 2.4 2.4 2.3


Transport statistics 1996 1997 1998 1999 2000Roads Total road length ('000 km) 22.3 21.6 23.2 23.2 24.0 Tarred roads 3.5 3.5 3.7 3.7 3.9 Gravelled roads 8.5 6.1 6.7 6.7 6.9 Earth roads 10.3 12.0 12.8 12.8 13.2Passengers ('000) 17,557 18,009 18,537 22,518 24,993Freight ('000 tonnes) 978 1,029 1,004 1,225 1,312

Waterways Passengers ('000) 1,252 1,599 1,262 1,603 1,785Freight ('000 tonnes) 537 604 567 602 695

Air Passengers ('000) 365.6 387.9 381.0 433.0 499.8Freight ('000 tonnes) 1.2 1.2 1.4 1.4 1.5

Source: National Statistical Centre, Basic Statistics, 2000.

National energy statistics 1999 2000 2001 2002 2003Electricity production (m kwh) 2,849 3,678 3,590 3,602 3,179Coal production ('000 tonnes) 210 220 210 270 n/a


Laos 35


Government finances (K bn unless otherwise indicated; fiscal years)

1999/2000 2000/01 2001/02 2002/03 2003/04a

Total revenue 1,691 2,000 2,324 2,341 2,817

Tax revenue 1,367 1,629 1,875 1,924 2,379

Non-tax revenue 324 372 449 417 437

Total expenditure 2,754 3,141 3,268 4,017 4,261

Current expenditure 1,050 1,229 1,483 1,647 2,082

Capital expenditure 1,704 1,911 1,785 2,370 2,179

Grants 475 476 235 453 465

Balance (incl grants) -588 -665 -706 -1,222 -980

Total financing 588 665 706 1,361 1,087

Domestic (net) -148 187 130 253 14

Foreign (net) 736 478 577 1,108 1,073

Memorandum items (% of GDP)

Revenue 13.2 13.2 11.1 11.1 11.3

Expenditure 21.5 20.7 18.4 19.0 17.2

Current expenditure 8.2 8.1 8.4 7.8 8.4

Capital expenditure 13.3 12.6 10.1 11.2 8.8

Balance (incl grants) -4.6 -4.4 -4.0 -5.8 -3.9

Balance (excl grants) -8.3 -7.5 -5.3 -7.9 -5.8

a Estimates.

Source: IMF, Lao People's Democratic Republic: Selected Issues and Statistical Appendix, November 2004.

Money supply and credit (K bn unless otherwise indicated; end-period)

2000 2001 2002 2003 2004Money (M1) 344.4 371.8 587.0 836.5 1,207.3 % change, year on year 57.3 8.0 57.9 42.5 44.3

Quasi-money 1,911.3 2,193.2 2,942.4 3,401.4 3,947.6Money (M2) 2,255.6 2,565.0 3,529.4 4,237.9 5,154.9 % change, year on year 46.0 13.7 37.6 20.1 21.6

Net foreign assets 1,524.9 1,400.4 2,321.3 2,723.3 n/aDomestic credit 1,441.2 2,404.0 2,259.2 2,267.6 2,470.1


Gross domestic product 2000 2001 2002 2003 2004

Total

At current prices (K bn) 13,670 15,702 21,499 25,600 29,204

At constant (1990) prices (K bn) 1,127 1,192 1,318 1,405 1,403

% change, year on year 5.8 5.8 10.5 6.7 -0.2

Per heada

At current prices (K '000) 2,589.0 2,907.8 3,887.7 4,523.0 5,043.9

At constant (1990) prices (K '000) 213.4 220.8 238.3 248.2 242.3

% change, year on year 3.4 3.5 4.3 4.2 -2.4

a Based on IMF population estimates.


36 Laos


Gross domestic product by sector (K bn at constant 1990 prices unless otherwise indicated)

1999 2000 2001 2002 2003

Agriculture 556 584 606 630 644

Industry 234 254 281 309 344

Mining & quarrying 5 5 6 6 22

Manufacturing 176 189 212 239 254

Construction 28 25 29 27 30

Electricity & water 25 35 34 36 37

Services 268 282 298 315 337

Transport, communications & post 60 65 71 77 84

Wholesale & retail trade 100 105 114 123 136

Banking 13 9 10 5 6

Public wage bill 31 33 34 39 40

Other services 64 70 69 71 71

Indirect taxes less subsidises 6 8 9 10 11

GDP at factor cost 1,059 1,120 1,183 1,253 1,325

% change, year on year 7.7 5.8 5.5 5.9 5.7

GDP at market prices 1,065 1,127 1,192 1,262 1,336


Consumer prices 2000 2001 2002 2003 2004Consumer prices (2000=100) 100.0 107.8 119.3 137.7 152.2 % change year on year 25.1 7.8 10.6 15.5 10.5


Principal crop production ('000 tonnes)

2000 2001 2002 2003 2004Paddy 2,202 2,335 2,417 2,646 2,700Maize 117 111 124 112 112

Sweet potatoes 118 101 194 194 194Cassava 71 71 83 83 83Potatoes 33 34 35 35 35


Livestock ('000 tonnes)

1997 1998 1999 2000 2001Buffalo 47 48 49 50 51

Cattle 40 42 43 44 46Pigs 85 87 89 91 90Goats & sheep ('000 head) 165 122 94 100 n/a

Poultry 17 17 18 19 20


Laos 37


Forestry output ('000 cu metres)

1997 1998 1999 2000 2001Timber 625 558 568 378 239


Mining and quarrying output 1999 2000 2001 2002 2003Tin (tonnes) 691 800 816 n/a n/a

Gypsum ('000 tonnes) 165 185 150 99 98


Output of selected industrial goods 1999 2000 2001 2002 2003Textiles, shoes & clothing Clothing (m pieces) 21 24 32 33 34Plastics & chemicals Plastic products (tonnes) 3,900 3,850 4,350 4,420 4,530Detergent (tonnes) 879 900 700 700 710Construction & stone goods Bricks (m pieces) 65 66 87 89 90Cement ('000 tonnes) 75 75 75 263 280Wood & wood products Wood ('000 cu metres) 251 240 230 235 198Wood furniture (K m) 12,725 12,700 15,240 15,350 15,550Plywood (m sheets) 2,086 2,150 2,200 2,250 1,550Other Nails (tonnes) 691 650 740 745 760Agricultural tools ('000 pieces) 4 4 4 4 4


Principal exports (US$ m fob)

2000 2001 2002 2003 2004Garments 92 99 100 91 97Wood & wood products 73 79 71 64 67

Hydroelectric power 112 106 104 91 97Coffee 12 15 9 10 14Total exports incl others 330 320 301 336 361


38 Laos


Principal imports (US$ m cif unless otherwise indicated)

1999 2000 2001 2002 2003Consumption goods 252.7 288.0 280.1 280.1 304.0Investment goods 184.0 161.8 182.3 209.6 231.2 Construction & electrical equipment 90.5 43.2 60.9 71.0 74.0 Machinery & equipment 21.0 16.2 36.2 53.0 63.0Intermediate goods Inputs for garment industry 66.5 60.4 65.6 62.6 65.4 Motorcycle parts 38.4 22.6 0.0 0.0 0.0Gold & silver 2.1 7.5 5.4 8.1 6.9

Total incl others 554.3 562.0 542.1 570.1 618.2 % change, year on year 0.2 1.4 -3.5 5.2 8.4


Main trading partners (US$ m)

2000 2001 2002 2003 2004Exports to: Asia (excl Japan) 176.8 155.3 155.3 165.6 196.3 Thailand 68.9 81.0 85.0 94.4 104.3 Vietnam 96.1 61.8 56.9 55.2 75.5 China (incl Hong Kong) 4.9 6.8 8.8 10.3 11.4Industrial countries 127.3 125.9 126.9 139.1 168.7 Germany 20.8 25.5 22.0 23.6 28.8 France 27.1 33.7 33.8 33.6 43.2 UK 7.2 9.3 13.4 14.1 26.8 Belgium 13.6 10.4 13.6 18.0 13.4 Italy 9.0 10.9 10.1 10.3 11.9Imports from: Asia (excl Japan) 596.8 641.4 623.7 713.4 894.8 Thailand 419.1 451.7 444.0 501.6 639.4 Vietnam 77.7 70.8 71.2 57.0 74.8 China (incl Hong Kong) 45.7 70.0 65.8 116.2 116.8 Singapore 32.9 28.9 29.1 22.4 42.3Industrial countries 79.6 59.6 77.8 76.0 126.2 Germany 3.6 7.4 4.1 7.5 28.0 Australia 4.2 8.3 12.6 7.9 18.3 Japan 23.6 13.0 19.6 15.0 15.4

Source: IMF, Direction of Trade Statistics.

Laos 39


Balance of payments (US$ m unless otherwise indicated)

2000 2001 2002 2003 2004Goods: exports fob 330.3 319.5 300.6 335.5 361.1Goods: imports cif -535.3 -510.3 -446.9 -462.1 -505.9

Trade balance -205.0 -190.8 -146.3 -126.6 -144.8Services and income balance 80.2 101.0 118.0 43.5 86.1Transfers balance 116.3 33.7 4.8 14.8 40.7

Current-account balance -8.5 -56.0 -23.5 -68.3 -18.0Foreign direct investment 33.9 23.9 4.5 19.5 16.9

Other private flows 81.3 106.6 64.4 99.1 129.8Capital and financial-account balance 115.2 130.5 68.9 118.6 146.7Net errors and omissions -72.1 -82.0 -9.8 -55.7 -144.8

Overall balance 34.7 -7.5 35.5 -5.4 -16.1Memorandum items Current-account balance (% of GDP) -0.5 -3.2 0.2 -1.2 n/a


Net official development assistancea (US$ m)

1999 2000 2001 2002 2003Bilateral 210.5 194.9 151.0 177.8 188.8 Japan 132.5 114.9 75.5 90.1 86.0 Sweden 11.6 14.6 12.1 15.4 22.7 France 10.7 12.8 10.7 14.9 18.5 Germany 21.7 12.3 13.6 12.0 15.9Multilateral 84.5 86.1 93.4 98.8 107.5 Asian Development Bank 43.8 47.3 40.2 43.7 47.6 International Development Association 18.5 16.7 26.9 27.2 41.7 IMF -8.0 -7.7 -4.5 2.6 -2.8Total 295.5 281.8 245.2 278.3 298.6

a Defined as grants and loans with at least a 25% grant element, provided by the OECD and OPEC member countries and multilateral agencies,and administered with the aim of promoting development and welfare in the recipient country.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

40 Laos


External debt (US$ m unless otherwise indicated; year-end)

1999 2000 2001 2002 2003Total external debt 2,527 2,502 2,495 2,665 2,846 Medium & long-term debt 2,471 2,453 2,456 2,620 2,801 Short-term debt 3 7 1 1 1 Interest arrears on long-term debt 0 0 0 0 0 Use of IMF credit 53 42 37 43 44Memorandum item Principal arrears on long-term debt 1 1 0 0 0Public & publicly guaranteed long-term debt 2,471 2,453 2,456 2,620 2,801 Official creditors 2,471 2,453 2,456 2,620 2,801 Multilateral 1,050 1,041 1,049 1,223 1,412 Bilateral 1,421 1,412 1,407 1,397 1,388 Private creditors 0 0 0 0 0Total debt service, paid 37 41 44 44 51 Long-term debt 28 32 34 35 40 IMF repurchases & charges 8 8 10 9 11 Short-term debt (interest only) 0 0 0 0 0Ratios (%) External debt/GNP 176.9 151.0 145.5 157.3 136.6Debt service paid/exports of goods & services 7.7 7.9 9.0 10.3 10.3Short-term debt/total debt 0.1 0.3 0.0 0.0 0.0Concessional long-term loans/total debt 97.7 98.0 98.4 98.3 98.4

Note. Long-term debt is defined as having an original maturity of more than one year.

Source: World Bank, Global Development Finance.

Foreign reserves (US$ m)

2000 2001 2002 2003 2004Total reserves excl gold 139.0 130.9 191.6 208.6 222.3Gold (national valuation) 0.6 2.5 2.5 4.1 4.1


Exchange rates (K:US$)

2001 2002 2003 2004 2005Annual average 8,955 10,056 10,569 10,586 10,655Year-end 9,490 10,680 10,467 10,377 10,743


Editors: Danny Richards (editor); Caroline Bain (consulting editor) Editorial closing date: May 15th 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected]

laos - international university of japan · thailand cambodia laos vietnam indonesia myanmar 02468...

Documents