LAOS

MONETARY UNIT:

Lao kip (K). There are no coins, and there are notes of 1, 5, 10, 20, 50, 100, 500, 1,000, 2,000, and 5,000 kip. With considerable inflation over the last several decades, kip notes under 500 are rarely seen or used now. The Thai baht and U.S. dollar are also commonly used, especially in larger transactions, though official policy calls for the exclusive use of the kip.

CHIEF EXPORTS:

Wood products, garments and textiles, electricity, coffee, tin.

CHIEF IMPORTS:

Machinery and equipment, vehicles, fuel.

GROSS DOMESTIC PRODUCT:

US$7 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$271 million (1999 est.). Imports: US$497 million (1999 est.).

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Lao People's Democratic Republic, or Lao PDR, is a land-locked nation bordered on the north by China, the east by Vietnam, the west by Burma (Myanmar), and the south by Thailand and Cambodia. The Mekong River forms much of the boundary between Laos and Thailand. The country's total land boundaries are 5,083 kilometers (3,159 miles). Its geographic area is 236,800 square kilometers (91,428 square miles), making it just slightly larger than the state of Minnesota. Its capital, Vientiane, the largest city in central Laos, is located on the Mekong River. The other 3 major cities are Luang Prabang, Savannakhet, and Pakxé.

POPULATION.

The Lao PDR differs from many other Asian countries in that it has an extremely low population density of only 23.2 persons per square kilometer (60 per square mile). Its population density is almost the same as the state of Minnesota. In July of 2000 its population was estimated as 5,497,459. This compares with a population of 3,586,083 in 1985; 2,886,000 in 1976; and 1,789,000 in 1953. The current population growth rate is a relatively high 2.5 percent. If this rate were to continue, the country's population would double to over 10 million by the year 2028. The major cause of this high population growth is the high fertility rate of Lao women. The Lao women on average currently have 5.21 children.

Thus, it is not uncommon to find families of 4 to 10 children, even in urban areas.

The ethnically diverse Lao PDR population is comprised of 3 major ethnic groups: Lao Lum, lowland; Lao Theung, upland; and Lao Sung, highland. Among prominent highland groups are the Hmong and Yao. Ethnic minorities comprise 47.5 percent of the total population, according to the 1995 census, which distinguished 47 main ethnic groups and 149 sub-groups. Thus, the Lao PDR is one of the most ethnically diverse countries in Asia.

With the country's low population density and the need to import labor (often Vietnamese guest workers), the government has been reluctant to adopt a strict birth control or family planning policy. Instead the policy has been the more moderate one of birth spacing (delaying natural pregnancies so that women have fewer children than the biological maximum).

With such high fertility, the Lao PDR has a very young population. Roughly 54.2 percent of the population is under the age of 20. With poor health conditions, particularly in rural areas and related high mortality rates, only 2.2 percent of the population is over 70 years of age.

OVERVIEW OF ECONOMY

Laos is one of the world's poorest countries, and thus its primary policy goal is to strengthen its economy and develop its own means to earn foreign exchange. Much of its population is involved in a subsistence economy, in which families produce by themselves what is needed for daily basic living. Laos' major economic disadvantage has been that it is a landlocked nation with weak infrastructure. Nearly 80 percent of the country is mountainous and/or forested with only 21 percent of the land cultivable and less than 4 percent actually cultivated. Laos perhaps has the highest ratio of forest cover to land area in all of Asia: 47 percent of the country is forested.

Laos' long history dates back to the founding of its first kingdom in 1353. It was then known as Lan Xang (the land of a million elephants). It reached its period of greatest glory and influence during the years 1633-90. Later succession struggles led Lan Xang to break into 3 smaller kingdoms. These weakened kingdoms then came initially under the Siamese orbit and later French colonialism. Under French colonialism, Laos suffered neglect.

After achieving complete independence from the French in 1953, the royalist Lao regime was gradually drawn into the vortex of the U.S. war in Vietnam. The economy became war-torn, suffering from extreme dependence on foreign aid. Extensive U.S. bombing of northern, northeastern, and eastern Laos from 1965 to 1973 seriously disrupted the rural economy. The U.S. dropped 33 percent more bombs on Laos than on Nazi Germany.

On 2 December 1975, the Lao People's Democratic Republic was established, representing the culmination of a long extended revolutionary war. This event brought peace and independence to the country. The economy was transformed into a Soviet-style state planned economy and received economic and technical assistance from other communist nations. The attempt to collectivize agriculture was rather quickly abandoned, however. In 1986, a new policy termed the New Economic Mechanism (NEM) was introduced to transform the economic system from a state-planned one to that of free market forces and prices. The major goal of this reform was to provide greater incentives to increase economic performance and productivity. With the collapse of the USSR in 1991, the Lao PDR opened its doors to active economic involvement with the West, both in terms of international aid and investment. The Lao PDR became a favorite of diverse donors, and foreign aid currently represents some 20 percent of the GDP. From 1991 to 1997, the Lao PDR enjoyed considerable macroeconomic success under the NEM system, with annual economic growth averaging 6.5 percent

During the 1990s, the Lao economy became increasingly interconnected with the Thai economy. Laos imports many basic modern consumer products from Thailand. On weekends, it is common to find many Lao families from Vientiane visiting Thailand via the Friendship Bridge, shopping for basic household items such as various packaged foods.

Initially, it appeared that the Lao economy (with no stock market and a currency not traded internationally) would be immune to the Asian economic crisis of 1997 which shook so many Asian economies. In a somewhat delayed effect, the Lao currency went into a free fall far greater than that of any other Asian country. Given Lao's dependence on imports, this had a serious, adverse effect on nearly all Lao, except a small number of elite individuals connected to the dollarized economy. The Asian economic crisis also adversely affected the Lao economy by reducing foreign direct investment from other Asian countries and reducing the demand for Lao electricity exports, a major source of foreign exchange.

Since it received foreign aid earlier from the Eastern block countries and in the past decade from multilateral agencies (primarily the World Bank and Asian Development Bank) and other countries, the country does have a debt burden. Total external debt in 1997 was estimated to be US$2.32 billion, and debt payments represented 4 percent of government expenditures in 1995-98. Many Lao loans are granted at highly concessional terms, meaning that the interest rates are quite low over a long payment period and thus are almost like grants.

The major challenge facing the Lao PDR currently is to restore the sound macroeconomic performance of the early and mid-1990s and develop its own sources of foreign exchange earnings. Hydroelectric power development on the tributaries of the Mekong, the development of light industries such as garments and textiles, marketing of natural resources such as gypsum, tin, and wood products, and tourism development are the primary economic sectors being promoted.

POLITICS, GOVERNMENT, AND TAXATION

The Lao PDR remains a 1-party state with complete dominance by the Lao People's Revolutionary Party (LPRP). The president since 1998 has been Khamtain Siphandon and the prime minister has been Sisavat Keobounphan. The National Assembly, last elected in 1997, has 99 members. Basic economic policies are determined in major Party Congresses which are held every 5 years. The LPRP is strongly supportive of the current mixed policy of having a privatized economy with a reduced role for state-owned enterprises but with a 1-party political system.

As part of the reform policies introduced in 1986, the government has attempted to reduce the size of the public sector, including the military. They have done this, however, in humanistic ways by avoiding the direct firing of people. International donors and agencies have been concerned that such reforms have slowed in the late 1990s.

The government's ability to tax is limited. Tax revenue is only 10 percent of the GDP, and major capital outlays are financed by external assistance, according to Bourdet. Major sources of revenues are business taxes, import/export taxes, and various fees (such as visa fees and fly-over fees). For smaller businesses, flat fixed taxes are used, which discourages tax evasion. In 1995-98, tax on foreign trade represented 27.1 percent of government tax revenues. The income tax represents only 6.3 percent of all revenues.

The government plays an active role in evaluating and assessing potential international investments coming into the country. The government, with the strong support of the Lao Women's Union, has been active in preventing the development of a commercial sex industry. At this point, there is absolutely no standardized fast food industry in the country, such as KFC or McDonald's. Interestingly, in terms of the cola wars, Laos is a Pepsi country. Coke must be imported from Singapore or Thailand.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Overall, the Lao PDR has a weak physical infrastructure. As yet, there is no train system. Travel to remote provinces requires a plane. During the rainy season, roads to remote areas may be impassable. At other times, inexpensive bus transportation is available for ordinary people to travel through the country.

The country is served by a network of 21,534 kilometers (13,381 miles) of roads, of which 16.5 percent are paved. As part of the 1996-2000 National Plan, major work has been undertaken to improve the country's limited road infrastructure. A key project is the reconstruction of Highway 13 which links China in the north and Pakxé in the south.

The Lao PDR is receiving considerable international assistance to develop its infrastructure. The Japanese, for example, provided assistance in building a new international airport in Vientiane, and the Thais assisted with a new airport in Luang Prabang. The country's weak road infrastructure adversely affects the development of its rich natural resources, such as minerals and wood products

In April 1994, the Friendship Bridge, the first ever across the lower parts of the Mekong River, was completed with a US$40 million grant from Australia. Upon completion of the bridge, the Lao government issued a regulation not allowing private cars to use the bridge. The government feared a wave of private cars from Thailand

which would cause accidents, congestion, and pollution. Thus, the bridge is used mainly commercially by trucks and buses and has helped landlocked Laos connect economically with its neighbors in the region. A second new bridge over the Mekong, the Lao-Nippon Bridge, was completed in the south near Pakxé in August 2000 and was financed primarily by the Japanese. A third bridge across the Mekong at Savannakhet is scheduled for completion in 2003. This bridge connected to Route 9 will connect both central Laos and northeast Thailand to the Vietnamese port of Da Nang. These bridges, as well as better road infrastructure, will improve Lao links with major ports in Thailand and Vietnam.

With its many mountains and tributaries of the Mekong River, the Lao PDR has excellent hydroelectric power potential. The country's total hydropower potential is estimated to be 25,000 megawatts (MW). Laos has even been referred to as the potential battery of Southeast Asia. Currently the country has 10 major electric power plants with a total capacity of 1329.5 MW. In 1998, the nation consumed just over one-third of the 1.34 billion kilowatt hours (kWh) of electricity generated. The Lao PDR plans to construct a total of 12 dams on the Mekong's tributaries over the next decade. The decision has caused considerable controversy in the international environmental community. Major concerns include effects on displaced rural populations in Laos itself, the fish populations of the Mekong and its tributaries, and unintended effects on downstream communities in Cambodia and Vietnam, which are highly dependent on the natural flows of the Mekong River.

Only those of higher socioeconomic status have telephones in their homes, though cell phones are increasingly popular among those of higher socioeconomic status. The country has only a total of 18,139 conventional phone lines, of which 71.8 percent are in the capital. Phone cards are also now available. It is the goal of Lao Télécommunications to have 49,000 telephone lines installed by 2001. Televisions are widely used wherever there is access to electricity. About 72 percent of urban households and 22 percent of rural households have televisions. Much of the Lao population lives in the lowlands in close proximity to Thailand. Thus, they have access to popular Thai TV programming with related advertisements for a variety of popular Thai consumer goods. Shinawatra (a Thai telecommunications conglomerate) has been active in assisting the Lao PDR develop its telecommunications infrastructure.

Though Laos has not officially joined the World Wide Web (there is not yet a .lao suffix), some Lao people, especially in urban areas, are using the Internet. There are now a number of private cyber shops in Vientiane offering public Internet service.

ECONOMIC SECTORS

Like many undeveloped countries, Laos generates a majority of its GDP from the agricultural sector. Agriculture accounted for 51 percent of the GDP in 1999 and employs about 80 percent of the total workforce of 2,220,000. In most areas of the country, 90 percent of the people work in agriculture. Industry accounted for 22 percent of the GDP but employed only 3.3 percent of the people (though this figure was 20 percent in the capital). The services sector accounts for 27 percent of the GDP and roughly 10.3 percent of the workforce.

Traditionally, Laos has been a subsistence agricultural economy. That remains true today, though other economic sectors are growing in the Lao PDR. While the Lao PDR has no intention to develop heavy industry, it is developing its light industry, particularly the production of garments and textiles. The Lao PDR has excellent capability in producing attractive traditional textiles and handicrafts. Lao silk and cotton textiles are becoming known for their quality around the world.

The Lao PDR is also developing an important service sector, which has 2 new components: banking and tourism. There are now many newly established foreign banks located in the Vientiane area, most of which were established in the 1990s. Among 6 such Thai banks are the Bangkok Bank and Siam Commercial Bank. The 1999-2000 year was called the "Visit Laos Year" to promote tourism. In the late 1990s travel to Laos was dramatically liberalized with visas available on arrival. The tourist infrastructure was also improved substantially. Tourism has expanded dramatically in the 1990s from only 14,400 visitors in 1990 to 500,200 in 1998. In 1997 tourism contributed US$73.3 million to the economy, representing 23 percent of export earnings. The designation of Luang Prabang, perhaps the best preserved traditional Southeast Asian city, as a world heritage site was definitely a positive development for Lao tourism. Other important tourist attractions in Laos are the Wat Phu ancient Khmer ruins in southern Laos, the Khon waterfalls in the same region, and the Plain of Jars in Xiengkuang Province. The latter area was heavily bombed during the U.S. War in Vietnam. In fact, as of 2001 Laos is the most heavily bombed country in the history of the world.

AGRICULTURE

The Lao PDR is primarily an agricultural economy, with this sector contributing 51 percent of the GDP. Approximately 1,880,000 individuals are involved in agricultural work. Recently the Lao PDR conducted a major agricultural census which provides an excellent overview of the basic nature of Laos' agricultural system. The results of this survey indicate that 79.7 percent of the total population is engaged in farming. The average land holding is 1.62 hectares with 27 percent of households having 2 hectares or more and 36 percent having less than 1 hectare. An impressive 97 percent of farmers own their own land. About 93 percent of the area devoted to rice production is for the production of sticky rice, a subsistence crop used primarily for home consumption. Tree farming is another important part of Lao agricultural life. About 23 percent of such farms have mango trees, 17 percent coconut trees, 17 percent banana trees, 11 percent jackfruit trees, and 11 percent tamarind trees. Also 8 percent of farmers are engaged in aquaculture, and 71 percent do other fishing. Roughly 31 percent of farmers have cattle, 48 percent water buffaloes, 49 percent pigs (73 percent in the case of Hmong people), and 73 percent chickens.

Only 6 percent of farmers sell their total output, while 35 percent sell some of their farm output. This means that the majority of farmers (59 percent) are engaged solely in subsistence agriculture. The basic staple of such farmers is the production of sticky rice for local consumption. Unlike its neighbors Thailand and Vietnam, the Lao PDR is not a rice exporting country. Their goal is simply to attain self-sufficiency in rice production, which is possible in good weather years. The production of sticky rice may be supplemented by vegetable gardens; animal raising (goats, chickens, ducks, turkeys, pigs); and mango, coconut, or banana trees. Some maize is also grown. In the tropical forests of Laos, there are also many edible wild plants and foods that are gathered, primarily by women. Hunting and fishing also supplement the subsistence diet and provide valuable protein. Lao greatly enjoy fishing.

In terms of tons of agricultural production, the top 5 crops in Laos in order of importance are rice, vegetables and beans, sugarcane, starchy roots, and tobacco. Since 1990, among these 5 leading crops, production of vegetables and beans has grown the fastest in percentage terms, followed by sugarcane. In the decade since 1990 rice production has increased 47.9 percent. Among agricultural products often produced as cash crops are mung-beans, soybeans, peanuts, tobacco, cotton, sugarcane, coffee, and tea.

Given its subsistence nature, Lao agriculture has not played a major role in the country's foreign trade. The major export products from Laos' agricultural sector are timber, lumber, plywood, and coffee. The major agricultural imports are sugar, condensed milk, and long-grain rice.

Numerous city dwellers have rural roots and the Lao love gardening. Thus, some urban dwellers supplement limited cash incomes by having gardens, small fish ponds, or raising animals. They also may engage in fishing in the Mekong River, hunting, and the gathering wild foods. Some urban dwellers in the capital of Vientiane cultivate gardens along the Mekong River during the dry season.

FORESTRY AND LOGGING.

The Lao PDR has extensive tropical forests containing many valuable hardwoods such as teak. With a total ban on logging in Thailand, there is considerable demand for Lao wood products from other Asian countries such as Thailand, Malaysia, and Japan. Malaysia has projects for teak cultivation in southern Laos. The Lao military is involved in timber exploitation. In 1991, timber and furniture exports totaled 39.2 percent of all exports, while in 1996 such exports dropped to 28 percent. In 1998, export of all types of wood products brought in US$115.4 million to the Lao economy.

Deforestation and the need for sustainable forestry are major environmental issues facing the Lao PDR and its agricultural/rural sector. The Lao are very conscious that much of Thailand's northeast was deforested as the result of expanded rice field acreage. Also, upland agricultural production can result in serious deforestation. The reduction of upland rice production and the expansion of irrigated rice lands to allow more crops on a given piece of land should help preserve Lao forests by reducing the need to expand acreage at the expense of forests.

IRRIGATION PROJECTS.

A major recent policy is an ambitious irrigation project. Given the spread of the contagion of the Asian economic crisis to Laos, organizations such as the IMF strongly urged restrictive monetary and fiscal policies. The Lao PDR ignored the policy dictates of the IMF and instead they moved boldly ahead with a major rural irrigation infrastructure project. For doing this they were severely criticized by the international financial community, and no doubt this expansionary program contributed to both inflation and the devaluation of the Lao kip. In continuing their agricultural irrigation program, the Lao government was both demonstrating its economic sovereignty and also clearly putting the interests of the Lao agricultural sector ahead of those in urban communities which are most severely affected by inflation.

The French scholar Catherine Aubertin argues that Lao agricultural policy favors the lowland Lao over the upland Lao because of its resettlement schemes to decrease slash and burn agriculture in mountainous areas. The Lao government feels such policies are essential for forest conservation.

INDUSTRY

The Lao PDR has relatively little industry. This sector employed only 3.3 percent of the workforce in 1995. There is no heavy industry and much of the country's industry is comprised of smaller companies. In 1999, there were only 108 establishments in the whole country with more than 100 employees. However, there were 19,797 establishments with fewer than 9 employees. These small establishments are involved primarily in the production of textiles and handicrafts. Laos is well known for the high quality of its aesthetically attractive textiles. Even though industry plays a small role in the Lao economy, its importance has increased significantly. In 1987, industry represented only 11 percent of the GDP of the Lao PDR, while in 1999, it represented 22 percent, doubling since the introduction of the New Economic Mechanism policy.

MANUFACTURING.

The following are the principal products manufactured in the Lao PDR: oxygen-acetylene, battery acid, industrial alcohol, detergent powder, soap, shoes made of animal skin, leather, medical drugs, fans, vaccines, plastic goods, timber, lumber, plywood, flood lumber, rattan furniture, books, fabrics, clothing, bricks, blocks, cement, tiles, chalk, lime, electric poles, agricultural tools, tin plates, nails, electric wire, and barbed wire. For the economy, the most significant of these are clothing/fabrics and rattan furniture. Manufacturing represented 16.5 percent of the GDP in 1999, up from 13.9 percent in 1995. Except for fabrics and clothing, most of these manufactured products are for local consumption. Laos' manufacturing export potential is currently limited by its status as a "non-market economy" restricting its access to U.S. and other developed country markets. Admission to the WTO and completion of a trade agreement with the United States are essential to enable Laos to have more secure access for its exports.

ELECTRICITY AND WATER.

Electric power generation is one of Lao's most significant industries. In 1998, the country produced 1.34 billion kWh of electric power. About 43 million cubic meters of water were produced and distributed, primarily in the 4 major urban areas for household and industrial use. Electricity and water production represented 2.3 percent of the GDP in 1999. As of the mid-1990s, only 1 percent of the country's vast electric potential had been exploited.

MINING.

The Lao PDR has an abundant supply of minerals. Gypsum, for example, is exported to Vietnam. Tin, coal, lignite, and limestone are also mined. In the Vanvieng area, there is a major cement works, established with the assistance of the Chinese. Mining and quarrying, however, represented only .051 percent of the GDP in 1999, and minerals are not yet a significant export. The major problem in exploiting Lao mineral resources is their inaccessibility.

CONSTRUCTION.

In recent years there have been a number of new construction projects mainly in the capital of Vientiane. International funding has assisted many of these projects. Among notable recent projects have been the Lao-Nippon Bridge, the new International Airport, the Lao Plaza Hotel, and the National Cultural Hall (with funding provided by the PRC). Construction in 1999 represented 2.6 percent of the GDP.

SERVICES

Services represented 27 percent of the Lao economy in 1999 and employed roughly 10 percent of the work-force. The largest component (37.2 percent) of the service sector is wholesale and retail trade. Perhaps the largest entities in this arena are Honda and Shell. Honda retails a wide variety of products, particularly motorcy- cles. With Laos' rapid economic development in the 1990s, many Lao in urban areas have up-graded from bicycles to motorcycles or scooters, or among elites from motorcycles to private cars or SUVs. Toyota, Pepsi Cola, and Bier Lao are also active retailers. In urban areas there are a large number of formal retail shops as well as a large informal economy. Those in the formal retail sector market a wide range of consumer goods. A large number of small family-owned stores sell a variety of low cost products for basic everyday needs. Those selling goods in the large informal economy are often selling agricultural products.

The next largest component of the service sector is represented by transportation, communications, and postal services (23 percent), followed by ownership and rental of dwellings (12.1 percent). The latter grew significantly in the 1990s with the presence of a growing expatriate community associated with diverse development aid activities who are in need of modern housing.

The public service still represents an important element of the service sector (11.6 percent), though the government, with assistance from organizations such as the World Bank has sought to reduce the size of the public sector. For the most part, the Lao government has used non-draconian methods to reduce the size of this sector. Considerable success has been achieved in reducing the size of the military, for example. The next most important component of the service sector is represented by hotels and restaurants (7.6 percent), reflective of the growing importance of tourism in the Lao economy.

TOURISM.

In the Lao service economy, tourism has been a major growth area. Between 1991 and 1995, tourism grew approximately 60-fold, and from 1995 to 2000 it has more than doubled. On a per capita basis, Laos has even more tourists than Thailand. The major tourist attractions of the country are its rich culture and many Buddhist temples; Luang Prabang, the former royal capital in the north and a world cultural heritage site; the majestic Mekong River which flows through the country; and shopping for Lao textiles and handicrafts in Vientiane. Laos is also noted for its genuinely friendly people who warmly welcome tourists. By April 1999, tourism was the country's highest revenue earner, contributing US$79.9 million to the Lao economy. Despite such economic contributions, tourism employs at most only 3 percent of the non-farm workforce. Tourist facilities have improved significantly in recent years. There are now large numbers of hotels, guesthouses, and restaurants in major cities. Both Vientiane and Luang Prabang now offer some up-scale tourist facilities.

BANKING.

In the early 1990s banking reforms were introduced which diversified Laos' banking system. These reforms led to the National Bank being separated from 7 state-owned commercial banks such as the Lao Foreign Trade Bank (BCEL) and 5 regional banks. The reforms also opened the sector to international banks from Thailand, Vietnam, and Malaysia. In 1999, 6 of the 8 state-run commercial banks were merged into just 2 entities. Thus, the Bank of the Lao People's Democratic Republic (the national bank) now monitors a total of 14 banks consisting of 4 government banks, 3 joint banks (for example, the Lao-Viet Bank), and 7 foreign banks (6 Thai and 1 Malaysian). This network of local and international banks provides standard banking and financial services for both the average citizen and the commercial community. This banking component represents 5 percent of Laos' service sector. A major current issue facing the industry relates to questions about the solvency of the banking system as a result of the Asian regional economic crisis.

INTERNATIONAL TRADE

In the 1990s there were considerable diversification of Lao exports. Laos' largest export earner is timber and furniture (28 percent of exports), followed by garments (19.9 percent), raw logs (10.6 percent), electricity (9.2 percent), manufactured products (8.6 percent), coffee (7.7 percent), agricultural products (5.5 percent), gold re-ex-port (4.7 percent), and motorcycle assembly (3.9 percent). With respect to garment exports, Nike, for example, is now sourcing some apparel production in Laos. Imports are comprised primarily of consumer goods (44.6 percent), capital goods (40.2 percent), and industrial inputs (11.9 percent).

Approximately 52 percent of Laos' imports are from neighboring Thailand, while only 22 percent of its exports go to Thailand, reflecting a strong negative trade balance with that country. In contrast, 42.7 percent of Laos' exports go to Vietnam, while only 3.9 percent of its imports are from that country. Thus, Laos has an extremely favorable trade balance with Vietnam. Other leading export destinations for Laos are in order of importance (after Vietnam and Thailand): France (6.3 percent), Germany (5.1 percent), and the U.K. (4.7 percent). Since the Lao PDR does not have most favored nation

status with the United States, it is difficult to export to the U.S. market. Major sources of imports (after Thailand and Vietnam) are Japan (1.6 percent) and Hong Kong (1.5 percent).

Prior to the communist revolution, Laos had a severe trade imbalance with exports being only a tiny fraction of imports. While Laos still imports much more than it exports, the ratio of exports to imports has steadily improved. In 1975, the first year of the current communist regime, Lao exports were only adequate to cover 12 percent of imports. In 1999, exports of US$271 million were sufficient to cover 55 percent of imports, which stood at US$497 million. Also, the total of exports plus imports divided by the GDP has also steadily increased, reflecting the internationalization of the Lao economy. By 1998 this ratio had reached 72 percent. To decrease its dependence on international aid and to alleviate poverty, the Lao government seeks to expand its exports. That is the primary rationale for its long-term plan to build more dams to produce electricity exports, an area in which Laos has a clear comparative advantage. Laos also has a comparative advantage in the export of textiles such as clothing and garments.

Laos' current trade deficit is financed by 2 primary sources: international aid, primarily provided by Japan, Australia, and Sweden; and growing financial remittances from Lao living overseas. The State Planning Committee in a December 1999 report indicated that the latter was the single most important source of income in the Vientiane Valley. Given the recent economic crisis, the government has also turned to both China and Vietnam for important economic assistance.

MONEY

Since the establishment of the Lao PDR in 1975, the country has experienced periods of both currency stability and instability with related fluctuations in inflation. As part of the New Economic Mechanism introduced in 1986, the policy was to have a single exchange rate determined by market forces. During the early and mid-1990s the Lao PDR achieved impressive macroeconomic stability. However, contagion from the Asian economic crisis, especially in neighboring Thailand, eventually affected the Lao PDR dramatically in 1998 and 1999. The Lao currency at one point was worth only one-tenth of its previous value. It has since improved to be worth about one-seventh of its previous value. This led to 87.4 percent inflation in 1998 and 134 percent inflation in 1999.

In the year 2000 the currency stabilized and inflation fell to 33 percent. Monetary policy is implemented by the Bank of the Lao PDR, but it is certainly directly influenced by economic policies of the Party and Government.

POVERTY AND WEALTH

Though Laos is an extremely poor country with 46.1 percent living below the material poverty line in 1993, the country does not have the gross economic inequalities typical of many developing countries. Rural farmers generally have their own land and are engaged in subsistence agriculture which provides for certain basic needs. Major problems for the rural poor are access to quality health care and education.

There are also serious regional income disparities primarily between urban centers and remote rural areas, often mountainous areas with a large proportion of ethnic nationalities. An average person in the richest province, Vientiane, has approximately 2 and a half times more income than the average individual in the poorest province, Huaphanh. The incidence of poverty in rural areas (53 percent) is double that of urban areas (24 percent). The areas most economically disadvantaged tend to be those more remote areas inhabited by diverse ethnic communities.

WORKING CONDITIONS

Because of the country's low population density and its former socialist economic system, unemployment has not been a serious problem in the Lao PDR. The visible urban unemployment rate in Laos was 3.5 percent overall in 1994. The large informal sector also provides opportunities for those who cannot find meaningful em-

ployment in the formal sector. The Lao PDR has a progressive labor law, which is extremely specific related to working age, minimum wage, and overtime payments, for example. This labor law primarily covers those employees working in the modern formal sector. Women and children are active in the labor force, particularly in the agricultural sector and informal economy. Those able to attain higher levels of education can gain access to work in the public sector, the modern private sector, or with various international agencies and organizations present in the Lao PDR. Those with superior English language skills are particularly advantaged in the modern, urban labor market.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1353-73. Reign of Fa Ngum, king of Lan Xang (the land of a million elephants), marks the beginning of recorded Lao history.

1633-90. The height of the Lan Xang kingdom occurs.

18TH CENTURY. Lan Xang breaks into 3 independent kingdoms.

19TH CENTURY. Lao kingdoms fall under the Siamese orbit, and many Lao people are repopulated to Siam as slave labor.

1890. French colonial rule in Laos begins.

1953. On 22 October, Laos achieves its independence from France.

1975. Declaration of the Lao People's Democratic Republic occurs on 2 December.

1981. First 5 Year Plan begins.

1986. New Economic Mechanism approved at Fourth Lao People's Revolutionary Party (LPRP) Congress paves the way for major economic reforms.

1994. Completion of Friendship Bridge across the Mekong River connects Laos and Thailand.

1997. Lao PDR becomes the eighth member of the Association of Southeast Asian Nations (ASEAN).

1998-99. Asian economic crisis contagion spreads to the Lao PDR, leading to free fall of the Lao kip and triple digit inflation.

2000. The Lao-Nippon Bridge across the Mekong River is completed.

2000-01. Macroeconomic stability is restored.

FUTURE TRENDS

With its low population density and favorable natural resources/people ratio, the Lao PDR has a potentially bright economic future. Assuming recovery from the Asian economic crisis, there should be growing demand in the long term for Laos' valuable energy exports, which will enable the country to become more economically self-sufficient and less dependent on international aid. There are many in the West who would like Laos to adopt a multi-party system similar to that in liberal democracies. Given the problems of money politics and instability in such systems, however, the Lao PDR is more oriented toward a single party political system to ensure stability and avoid policy gridlock often associated with unstable multiple party systems. Given the past economic performance of areas such as Hong Kong, Singapore, South Korea, Taiwan, and Malaysia, the Lao are confident that their current political system is compatible with dynamic economic growth and reaching its goal to liberate the country from underdevelopment and mass poverty by the year 2020.

DEPENDENCIES

Laos has no territories or colonies.

BIBLIOGRAPHY

Anderson, Kym. Lao Economic Reform & WTO Accession: Implications for Agriculture and Rural Development. Adelaide: Center for International Economic Studies, 1999.

Annual Report 1999. Vientiane: Bank of the Lao PDR, 1999.

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—Gerald W. Fry