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In July 1997 the Lao PDR and Myanmar became the eighth and ninth member countries of ASEAN. Laos had long planned this further step in the very gradual opening of its economy to regional and global trade, but in the previous two years Malaysia and Thailand, in particular, pushed Laos towards early entry. July 1997 also saw the beginning of the 'financial meltdown' in Thailand, followed by the collapse of currencies in Malaysia, Indonesia, and South Korea. Laos was vulnerable, not because of imprudent financial management, but because its currency (kip) was in practice convertible in Laos. Laos used (and still uses) Kip, Baht and the US dollar. For the government in Vientiane the costs of entering a world where capital was highly mobile were soon apparent. By early March 1998 the Kip was being traded in Vientiane at 2,600 to the US dollar, compared with 700 a year earlier. The Kip continued to fall, even as the Baht strengthened. ASEAN membership proved to be no help for the poorest member of the alliance. Funds in hard currencies repatriated by Laotians help to pay for Laos' membership of ASEAN. Upon joining, Laos faced a once-only contribution of US$1.0 million, plus an annual membership fee of $550,000 towards the costs of the ASEAN Secretariat in Jakarta. In addition, Laos incurs the continuing costs involved in sending representatives to more than 250 meetings each year. The same fees are paid by all nine members. Laos' proposal for a two-tier structure of charges, with lower costs for the poorer countries (Laos, Myanmar and Vietnam) has so far fallen on deaf ears. While ASEAN as a whole has been no help in the crisis, the same is especially true of Thailand. Laos was left vulnerable to depreciation of the Baht and also to Thailand's previous level of investment, or promised investment, nominally worth US$2.5 billion, amounting to 38 per cent of all foreign investments in Laos. Many investments were from speculators who by early 1998 had put their modest offers on hold. Faced with this situation the Lao Government scrapped more than 30 projects (mostly Thai) by early February and put another 21 Thai projects under close review. The new Lao government, which took power in February 1998 after the election of a new National Assemby two months earlier, has installed General Kamtay Siphandone (former Prime Minister) as President of Laos. The new Prime Minister for five years is General Sisavat Keobounphan, a relative outsider in the nine-man Politburo. General Sisawat is seen as a cautious conservative, capable of firm decision-making and experienced in international negotiations, particularly with Thailand. It is expected that President and Prime Minister will adopt a more rigorous approach in assessing foreign investments.
WATCHPOINT: After the financial crisis, will Laos be firmer and more purposeful in its economic relations with Thailand and other ASEAN members?
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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