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As Laos approaches the end of the year, there is little for even the wildest optimist to celebrate. Economic growth continues to fall, the currency remains in decline, political stability has been challenged by protests against the ruling clique by students and some ethnic groups and there have been reports of large bodies of Vietnamese troops being stationed in Lao territory. It is little wonder that some observers question the long-term viability of the Lao state itself.
The outlook for the economy had been good on the eve of the 1997 regional crash and Laos adopted survival strategies which softened its impact. Unfortunately there has been no bounce-back effect since then and the nation is now mendicant and chronically stagnant. The leadership had signalled a program of economic reform in 1986 which should have provided some protection but any systemic reconstruction proved threatening for the conservative military interests. They reacted by quietly removing or sidelining the reformers, leaving control more firmly in the hands of elderly army figures, most with strong connections to Vietnam. It is this policy of immobilism and the lack of any legitimate channel for political debate that has antagonised the student oppositionists. Foreign donors and investors are also pressing for transparency and economic reform but growing increasingly disillusioned.
The strongest organised ethnic group is the Hmong, and they remain alienated, partly because of their anti-Pathet Lao activities during the Indo-China War and partly because they feel discriminated against by the regime. The Hmong, and possibly other dissidents, have responded this year with several bomb incidents in public places. This has provided the pretext for Vietnamese concern about law and order and their unacknowledged military presence. Other players in this confused scenario, such as the pro-royalist government in exile and elements of the Thai armed forces, have lesser roles from time to time. Even India, watchful for any strengthening of Chinese influence in the region, has established a minor presence by providing military services to Hanoi.
China entertains different concerns about Laos. Vietnam’s predominant influence there has never been fully accepted in Beijing and in Yunnan province a different set of regional economic interests have sought to assert a new influence, particularly in the northern provinces. China is also anxious to restrict Japanese influence in Lao development plans. Advantageous trading terms from China, barter deals, investment in road construction and outright economic aid have benefited the poorer provinces near the border in ways Vietnam cannot always match. China’s roads in northern Laos facilitate Chinese access and trade, whereas Vietnamese road building would provide routes to ports on the Gulf of Tonkin and tie Laos into a regional trading pattern between Thailand and Vietnam. Here, ASEAN leadership is lacking and it has proved economically ineffective and weak, restrained by its own policy of non-intervention. Cooperation with Hanoi and Phnom Penh is preferable for the Lao army and their powerful but unpublicised trading corporations, which now account for a significant proportion of the Lao Gross National Product.
Not for the first time, Laos may yet be able to exploit its swing position and play China off against Vietnam and its friends. But the danger is always that Laos will be too small and weak to resist its powerful neighbours and find its sovereignty and independence constrained once again.
WATCHPOINT: : Will the Lao leadership be able to retain control long enough to initiate reform measures which might re-start the 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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