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E.C. Chapman & Ian Wilson
The Lao People's Democratic Republic, the poorest and least developed state in the Southeast Asian region, was included in several plans for sub-regional development and then admitted to ASEAN in July in 1997, the month when Thailand devalued and the 'Asian meltdown' began.
The regional economic downturn has had a severe impact on the Lao PDR, and the Kip is now traded at about 4000 to the US Dollar, a much greater fall than that of the Thai Baht, to which the Kip had been linked. In the 16 months between May 1997 and September 1998, the Kip fell in value by 80 per cent and continues its decline.
Imports have risen in price, but trade has been curtailed by measures taken by central and provincial authorities to control the export of certain key items, particularly buffalo, cattle, pigs and meat. Economic nationalism and import substitution are also evident in the preference for the few Lao products that compete in price with foreign products, such as Beerlao which now dominates the domestic market to the virtual exclusion of beer from China, Thailand, and elsewhere.
The state never really abrogated its control function in favour of the market. It is now intervening to keep down the prices of key commodities such as petrol, diesel, rice, and electric power. Urban dwellers are most affected by inflation and rising prices for imported goods, but the government has been able to supplement official salaries with a flat subsidy to its employees. The rural and semi-rural 80 per cent of the population that was never fully integrated into the money economy has taken one step back into an agrarian, quasi-barter economy with a high degree of self-sufficiency.
The longer-term prospects are not encouraging, and recovery is clearly affected by developments in the region. Strategic restructuring remains highly dependent on the capacity of Thailand and Vietnam to use and pay for hydro-electric power generated by the planned Lao dams on the Mekong system. Thailand's demand has fallen away for the time being, and the international climate is not conducive to funding large projects with long lead times. Logging activities continue, largely in the hands of Army-associated companies and Thai-Lao joint ventures. Tourism is being promoted officially ('Visit Laos Year, 1999') but existing transport and accommodation facilities are unlikely to attract many visitors, beyond the now considerable number of back-packers.
The Lao PDR remains a highly dependent economy, not so much because of excessive foreign investment and ownership of resources, but because of its chronic reliance on foreign aid to fund the state budget. Its small size and the enthusiasm for Laos of successive donors - in the first instance France, then the USA, and then Vietnam and the USSR - leave the nation exposed to changes outside its borders.
WATCHPOINT: Any progress Laos has made could be negated if the crisis in the international economy becomes more serious.
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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