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Economic troubles in Southeast Asia may seem like old news, but while the recent currency crisis has now largely stabilised in Thailand, inflation continues at a dramatic rate in Laos, despite the fact that the economy is actually growing. The Lao Kip has plummeted to little over 10 per cent of its formerly stable 1997 value; the exchange rate in February rose to more than 6000 Kip to the US dollar. The continually spiralling value of the local currency has meant that the price of a bowl of noodle soup in Vientiane has recently risen from around 500 to around 3000 Kip. Public servants' salaries (in dollar terms) have halved and halved again. Despite the government's recent 50 percent pay-rise in Kip terms (with the average worker now receiving some 60 000 Kip per month), the dollar value of a month's wages has actually dropped to the equivalent of less than US$10 per month.
At the same time, however, the semi-privatised areas of government - such as the electricity and telephone companies - are actually turning over profits, and are able to keep their staff on somewhat more realistic salaries. In general, the private sector is rapidly developing in the larger towns, and those who are able to earn foreign currency - either Thai Baht or US dollars - are at an enormous advantage.
One result of the average wage being so low is that foreign workers and/or business people are able to pay minuscule wages to locals, while appearing to be paying them quite well. For example, the many garment factories that have opened in the last few years across Vientiane and in other urban centres, most set up by businessmen from nearby countries, are considered by locals to pay well, although a month's salary would seldom be worth more than US$40.
A richer source of funds - often in foreign currency - for many locals is in the aid and development industry. International aid to Laos provides most of the national budget allocated to infrastructure and other areas of development, and many highly-paid expatriates are able to afford luxurious lifestyles at very low cost. An average foreign resident can very easily keep a number of house staff on at a minimal cost (average $US80-100 per person per month). Such wages as foreign-funded industries provide are low by international standards, yet in Lao terms they are very high.
The currency crisis in Laos is part of a vicious circle, in which locals' need for foreign currency has cause the runaway inflation of the Lao Kip, which in turn feeds people's need to obtain the more stable foreign currency.
WATCHPOINT: The government needs urgently to find a way to break the cycle of currency inflation.
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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