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Economy - overview: The government of Laos - one of the few remaining official communist states - began decentralizing control and encouraging private enterprise in 1986. The results, starting from an extremely low base, were striking - growth averaged 7% in 1988-96. Since mid-1996, however, reform efforts have slowed, and the economy has suffered as a result. Because Laos depends heavily on its trade with Thailand, it was further damaged by the regional financial crisis beginning in 1997. From June 1997 to June 1999 the Lao kip lost 87%, and reached a crisis point in September 1999 when it fluctuated wildly, falling from 3,500 kip to the dollar to 9,000 kip to the dollar in a matter of weeks. Now that the currency has stabilized, however, the government seems content to let the current situation persist, despite 140% inflation in 1999 and limited foreign exchange reserves. A landlocked country with a primitive infrastructure, Laos has no railroads, a rudimentary road system, and limited external and internal telecommunications. Electricity is available in only a few urban areas. Subsistence agriculture accounts for half of GDP and provides 80% of total employment. For the foreseeable future the economy will continue to depend on aid from the IMF and other international sources; Japan is currently the largest bilateral aid donor; aid from the former USSR/Eastern Europe has been cut sharply. As in many developing countries, deforestation and soil erosion will hamper efforts to attain a high rate of GDP growth. GDP: |
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Laos is a poor, landlocked country with an inadequate infrastructure and a largely unskilled work force. The country's per capita income in 1999 was estimated to be $241. Agriculture, mostly subsistence rice farming, dominates the economy, employing an estimated 85% of the population and producing 51% of GDP. Domestic savings are low, forcing Laos to rely heavily on foreign assistance and concessional loans as investment sources for economic development. In FY 1999, for example, foreign grants and loans accounted for more than 20% of GDP and more than 75% of public investment. In 1998, the country's foreign debt was estimated at $1.9 billion. Following its accession to power in 1975, the communist government imposed a harsh, Soviet-style command economy system, replacing the private sector with state enterprises and cooperatives; centralizing investment, production, trade, and pricing; and creating barriers to internal and foreign trade. Within a few years, the Lao Government realized these types of economic policies were preventing, rather than stimulating, growth and development. No substantive reform was introduced, however, until 1986 when the government announced its "new economic mechanism" (NEM). Initially timid, the NEM was expanded to include a range of reforms designed to create conditions conducive to private sector activity. Prices set by market forces replaced government-determined prices. Farmers were permitted to own land and sell crops on the open market. State firms were granted increased decisionmaking authority and lost most of their subsidies and pricing advantages. The government set the exchange rate close to real market levels, lifted trade barriers, replaced import barriers with tariffs, and gave private sector firms direct access to imports and credit. In 1989, the Lao Government reached agreement with the World Bank and the International Monetary Fund on additional reforms. The government agreed to expand fiscal and monetary reform, promote private enterprise and foreign investment, privatize or close state firms, and strengthen banking. In addition, it also agreed to maintain a market exchange rate, reduce tariffs, and eliminate unneeded trade regulations. A liberal foreign investment code was enacted and appears to be slowly making a positive impact in the market. In an attempt to stimulate further international commerce, the Lao Government accepted Australian aid to build a bridge across the Mekong River to Thailand. The "Friendship Bridge," between Vientiane prefecture and Nong Khai, Thailand, was inaugurated in April 1994. Although the bridge has created additional commerce, the Lao Government does not yet permit a completely free flow of traffic across the span. These reforms led to economic growth and an increased availability of goods. However, the Asian financial crisis, coupled with the Lao Government's own mismanagement of the economy, resulted in spiraling inflation and a steep depreciation of the kip, which lost 87% of its value from June 1997 to June 1999. Tighter monetary policies brought about greater macroeconomic stability in FY 2000, and monthly inflation, which had averaged about 10% during the first half of FY 1999, dropped to an average 1% over the same period in FY 2000. The economy continues to be dominated by an unproductive agricultural sector operating largely outside the money economy and in which the public sector continues to play a dominant role. GDP: |
Following its accession to power in 1975, the communist government imposed a harsh, Soviet-style command economy system, replacing the private sector with state enterprises and cooperatives; centralizing investment, production, trade, and pricing; and creating barriers to internal and foreign trade.
Within a few years, the Lao Government realized these types of economic policies were preventing, rather than stimulating, growth and development. No substantive reform was introduced, however, until 1986 when the government announced its "new economic mechanism" (NEM). Initially timid, the NEM was expanded to include a range of reforms designed to create conditions conducive to private sector activity. Prices set by market forces replaced government-determined prices. Farmers were permitted to own land and sell crops on the open market. State firms were granted increased decisionmaking authority and lost most of their subsidies and pricing advantages. The government set the exchange rate close to real market levels, lifted trade barriers, replaced import barriers with tariffs, and gave private sector firms direct access to imports and credit.
In 1989, the Lao Government reached agreement with the World Bank and the International Monetary Fund on additional reforms. The government agreed to expand fiscal and monetary reform, promote private enterprise and foreign investment, privatize or close state firms, and strengthen banking. In addition, it also agreed to maintain a market exchange rate, reduce tariffs, and eliminate unneeded trade regulations. A liberal foreign investment code was enacted and appears to be slowly making a positive impact in the market. In an attempt to stimulate further international commerce, the Lao Government accepted Australian aid to build a bridge across the Mekong River to Thailand. The "Friendship Bridge," between Vientiane prefecture and Nong Khai, Thailand, was inaugurated in April 1994. Although the bridge has created additional commerce, the Lao Government does not yet permit a completely free flow of traffic across the span.
These reforms led to economic growth and an increased availability of goods. However, the Asian financial crisis, coupled with the Lao Government's own mismanagement of the economy, resulted in spiraling inflation and a steep depreciation of the kip, which lost 87% of its value from June 1997 to June 1999. Tighter monetary policies brought about greater macroeconomic stability in FY 2000, and monthly inflation, which had averaged about 10% during the first half of FY 1999, dropped to an average 1% over the same period in FY 2000. The economy continues to be dominated by an unproductive agricultural sector operating largely outside the money economy and in which the public sector continues to play a dominant role.
GDP: purchasing power parity - $7 billion (1999 est.)
GDP - real growth rate: 5.2% (1999 est.)
GDP - per capita: purchasing power parity - $1,300 (1999 est.)
GDP - composition by sector:
agriculture:
51%
industry:
22%
services:
27% (1999 est.)
Population below poverty line: 46.1% (1993 est.)
Household income or consumption by percentage share:
lowest 10%:
4.2%
highest 10%:
26.4% (1992)
Inflation rate (consumer prices): 140% (1999 est.)
Labor force: 1 million - 1.5 million
Labor force - by occupation: agriculture 80% (1997 est.)
Unemployment rate: 5.7% (1997 est.)
Budget:
revenues:
$202.7 million
expenditures:
$385.1 million, including capital expenditures of $NA (FY97/98 est.)
Industries: tin and gypsum? mining, timber, electric power, agricultural processing, construction, garments
Industrial production growth rate: 7.5% (1999 est.)
Electricity - production: 1.34 billion kWh (1998)
Electricity - production by source:
fossil fuel:
2.99%
hydro:
97.01%
nuclear:
0%
other:
0% (1998)
Electricity - consumption: 514 million kWh (1998)
Electricity - exports: 782 million kWh (1998)
Electricity - imports: 50 million kWh (1998)
Agriculture - products: sweet potatoes, vegetable?s, corn, coffee, sugarcane?, tobacco, cotton?; tea, peanuts?, rice?; [water buffalo]?, pig?s, cattle, poultry
Exports: $271 million (f.o.b., 1999 est.)
Exports - commodities: wood products, garments?, electricity, coffee, tin
Exports - partners: Vietnam, Thailand, Germany, France, Belgium
Imports: $497 million (f.o.b., 1999 est.)
Imports - commodities: machinery and equipment, vehicles, fuel
Imports - partners: Thailand, Japan, Vietnam, China, Singapore, Hong Kong
Debt - external: $2.32 billion (1997 est.)
Economic aid - recipient: $345 million (1999 est.)
Currency: 1 new kip? (NK) = 100 at
Exchange rates:
new kips (NK) per US$1 - 7,674.00 (January 2000),7,102.03 (1999), 3,298.33 (1998), 1,259.98 (1997), 921.02 (1996), 804.69 (1995)
note:
as of September 1995, a floating exchange rate policy was adopted
Fiscal year: 1 October - 30 September
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