Laos: Continuing Financial Collapse, But Some Better Prospects Ahead


E.C. Chapman

In the first half of 1999 it seemed that the only item ever reported from Laos was the continuing collapse of its currency (kip). After its disastrous decline in 1998 the kip lost half its value between January and July 1999, while across the Mekong River from Vientiane the Thai baht has remained stable at 33-35 baht = US$1.00. Inevitably, private foreign investment has turned its back on the Lao People's Democratic Republic (PDR), apparently for the foreseeable future.

While Vientiane continues to suffer, in some rural areas there is now conspicuous evidence of better economic conditions. Probably the most significant recent achievement is the bumper dry-season rice harvest of 300,000 tons from 87,000 hectares of irrigated land. This area, now to a large extent pump-irrigated from the Mekong and its tributaries downstream from Vientiane, had increased by 64 per cent since early 1998. As late as 1995 the national dry-season rice harvest was less than 50,000 tons.

Why is this expansion so significant? First, it represents a dramatic change in irrigation policy. In a succession of reports in the 1990s the World Bank , the Asian Development Bank and others had trenchantly criticized the Government of Laos for neglecting substantial improvements in rice production and neglecting extension of irrigation in the lower Mekong provinces, despite population growth and a generally worsening situation in national rice supplies.

Secondly, the expansion of dry-season irrigation in the early months of 1999 is significant as a first step in the new 'lowland development strategy', planned and implemented by the Ministry of Agriculture and Forestry (MAF). In 1997 and 1998 the Government of Laos risked several million dollars in the purchase of fuel-powered pumps, particularly from India. When these were installed a common problem to be faced was that most villagers in new irrigation areas were experts at traditional wet-season cultivation, but not expert in dry-season cultivation of rice or higher-value 'cash crops' such as peanuts, soybeans, mungbeans, garlic or other vegetables. In response to this problem MAF organized provincial-level teams of its officers and technicians. By early February this year irrigated fields were bright green with recently transplanted rice and in ensuing weeks the growing crops, by good luck, escaped major losses to pests and diseases.

The next step in the MAF lowland development strategy, in the next dry season, is expected to be a major effort to expand dry-season cash crop cultivation in place of rice. Peanuts and other crops can be sold 'across the river' at higher prices than dry-season rice and, if necessary, rice can easily be bought from Thailand to augment Lao production. There is the further advantage that cash-crop cultivation is more economical in use of irrigation water. In turn, that may allow a further expansion of irrigated cultivation.

In the higher and less accessible parts of the central and northern provinces MAF's 'upland development strategy' faces more intractable problems. In place of rice-dominant shifting cultivation many smallholders are now adopting an integrated livestock-and-crop farming system, often harvesting planted forage for dry-season supplies, for their small herds of cattle and buffalo. Here again, change is now occurring rapidly, spurred on by the opportunities for achieving higher household incomes from the sale of livestock to the domestic market, or to Thailand. Their incomes are still modest, but significantly better than a few years ago.

WATCHPOINT: Lao Government Wins Rural Support'?


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