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The Lao People's Democratic Republic has been opening up both economically and politically since the decline and collapse of socialism in Europe beginning in the late 1980's, with the active pursuit of free market economic policies. This has resulted in an explosive increase in private enterprise, most obviously attested by the great number of factories and private businesses, joint ventures, and import-export companies which have appeared around the country. Many of the larger companies, particularly those involved in forestry, are owned and run by the military. Despite this great increase in trade activity, however, national income remains very low. In the words of one Western diplomat, the Lao government is "broke". Almost all major infrastructure work (such as current construction of bridges across the Mekong River at Savannakhet and Pakse in Southern Laos) is being funded by foreign governments. One exception is the major overhaul of roads and stormwater drains under way in the capital Vientiane (funded by the Vientiane Prefecture, and carried out by a Vietnamese company). Despite recent significant economic reform, Laos remains one of the world's few surviving single-party socialist regimes, and the government installed in 1975 is in firm control. Government under the Lao People's Revolutionary Party is today more open and less harsh than in, say, the period 1975-1985, but the political situation remains both restrictive and unpredictable. The lead-up to elections in December 1997 saw a marked swing towards traditional socialist values, with a major round of political education for government employees, and the publication of documents by the Party Central Committee with somewhat conservative socialist sentiment. This official assertion of "traditional values" comes in the context of ever-increasing exposure of lowland Lao people to the culture of Thailand through its media, especially television and radio. Exposure to Thai media not only exposes the Lao to "decadent" culture, but also to a rather free press reporting the fortunes of a multi-party democracy. For example, many Lao may now regularly follow Thai reportage of industrial action, or critical analysis of political figures, neither of which are possible in Laos. Even so, there is no hint that the Lao would prefer a different political system to the one they currently have. While political ties remain strong with Vietnam, the rapidly growing urban population of Laos lives at the mercy of the Thai economy. Most economic activity is based in areas on the border with Thailand, particularly along the Mekong River, with the result that most goods (from cooking oil to television sets) are imported from Thailand. In the last nine months the value of the Kip has gone from 1000 per US$ to over 2500, sending the average government employee's monthly salary (40,000 Kip) plummeting from US$40 to a mere US$16. While the Kip lost value along with the Thai baht, the baht's partial recovery was hardly echoed in Laos. Thus, Lao urban populations are now facing harder and more frustrating economic times than they have faced in years.
WATCHPOINT: No early improvement can be expected in the Lao economy.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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