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Regionalisation has an undeniable allure for Laos, a least-developed country surrounded by larger, more prosperous and more powerful neighbours.
Economists predict that Laos, along with other less developed ASEAN members, would greatly benefit from the creation of a single regional market. These benefits of regionalisation are reflected in the Lao government's strategy to transform the nation from 'land-locked' to 'land-linked'. The World Bank's recently released assessment of regional programs that it supports also asserts the benefits of cross-border approaches, recommending the Bank expand its role in facilitating regional programs (The Development Potential of Regional Programs). The Bank emphasises that the benefits of regionalisation are not only for trade and infrastructure, but also for health and the environment. In fact, half of the regional programs supported by the World Bank have related to the environment, mostly through grants from its 'Global Environment Facility' (GEF).
Proponents of market liberalisation and sustainable development thus converge on the ideal of regionalisation. ASEAN has even adopted an ambitious aim to draft an ASEAN Charter by November this year, the charter seeking to transform ASEAN into a 'rules-based organisation' with a view to forming the ASEAN Economic Community (AEC) by 2015.
But the persistent issue is how regional rules will fare when they meet domestic practices that often allow selective enforcement of regulations.
The forestry sector is particularly relevant in Laos given the importance of exports of wood products for the national economy. Illegal logging in wood-producing nations such as Laos are seen as undermining the viability of the regional forestry industry as well as national economies, particularly through their limited contributions to tax revenue.
In March the Lao Prime Minister issued a remarkably frank warning about the extent of illegal logging occurring throughout the country and claimed that unregulated forestry will be challenged (Vientiane Times 02/03/07). Domestic regulation is clearly linked to the ideal of consistency across borders, for instance, proposed measures in Laos are to insure that sawmills meet national regulations and move towards 'international standards'.
This statement from the Prime Minister was made in the fortnight after the World Bank's Vice-President for East Asia went to Laos, notably including a visit to a Bank funded sustainable forestry project as well as progressing the Bank's drafting of an anti-corruption strategy for Laos (Vientiane Times 12/02/07).
The World Bank can exert considerable pressure on the Lao government given the extent of its financial support, currently 16 projects worth US$243 million with another US$81 million earmarked for 2006-08. Yet in a report on 'fragile states' - states with 'weak policies, institutions and governance' - released in January the Bank acknowledged that its financial aid to Laos had not been well directed because of failures to fully recognise political realities (Engaging with Fragile States).
This problem was made apparent with the closure of a World Bank supported regional environmental project that was based in Laos just after the release of the Bank's evaluation of its regional activities (Vientiane Times 28/03/07). Funding of US$31 million through GEF and other donors was directed towards sustainable use of wetlands in Laos, Cambodia, Thailand and Vietnam. The project stalled as different countries had contrasting priorities. Countering the World Bank's stated aim to enhance regional integration, now any countries wanting to continue initiatives from that project are to seek funding from the GEF individually.
WATCHPOINT: Regional integration - the aspiration of the ASEAN Charter and World Bank alike - may benefit national economies and sustainable development in the long-term but they will undoubtedly disadvantage some powerful domestic interests in the short-term. In Laos, in the environment and other sectors, it is likely that challenges to regionalisation will persist given the powerful vested interests in maintaining the status quo.
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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