The relatively
small country of Laos, (population approx. 5.2-5.6 million) depends
on rice farming to keep the economy stable. Just fewer than eighty
percent of the population are employed in this field, offering both
foreign aid and trade with countries such as Japan and Thailand.
Other industry within the country consists of tin and gypsum mining,
timber, electric power (97% hydroelectric power, 3% fossil fuel),
agricultural processing, construction, and to a greatly increasing
extent, tourism. Aside from rice, a number of agricultural products
are produced for export, including sweet potatoes, vegetables, corn,
coffee, sugarcane, tobacco, cotton, water buffalo, pigs, cattle,
poultry and coffee. Unfortunately for the country's economy it also
has a large number of imports, mainly industrial machinery, chemicals,
iron, and parts, steel, oil, construction material, consumption
good and electrical machinery. The GDP with purchasing power parity
(PPP) included is $9 billion USD (2000). Without PPP included, the
GDP is approx. $2 billion. This is an average growth of five percent
in the last five years (as of 2002). For 2002, the country has an
average inflation rate of fifty-five percent, placing Laos 136 (out
of 191 countries) in terms of GDP, 101 in terms of population and
155 in regards to GDP per capita. Currently the GNP per capita and
GDP per capita are $263 USD and $1726 USD respectively.
A Brief History
At its peak
in the 14th century Laos controlled most of North and Northeast
Thailand and large parts of what is now northeastern Cambodia. It
was essentially a rich, stable country with a far greater amount
of political power than it currently holds. The economy first began
to crumble in the 18th century when the Kingdom split into three
ruling factions. Constantly quarreling amongst themselves, the size
and value of the country steadily decreased until in 1893 the French
took control of the country. Following World War II, in which the
Japanese took over Laos, an independence movement (Lao Issara)
set up a government, aiming for a non-foreign influence over the
country. Unfortunately the economic stability quickly collapsed
in 1946 and several years of political distraught ensued. During
this time the economy hit rock bottom. When in 1953 the country
regained its independence and the monarchy ruled, civil war then
broke out and the economical development of this country ceased.
Finally in
1975 the six-century-old monarchy fell after a two decade civil
war, when the communist group Pathet Lao took control of the government
(the Lao People's Democratic Republic was declared the ruling
party). The country's economic policies began to change drastically
in 1986 when the Communist government embarked upon a campaign
to revitalize the struggling economy - the New Economic Mechanism
(NEM). This campaign, the figures show, was for the most part
successful as the GDP growth was seven percent from 1988 - 1996.
The campaign increased private enterprise and decreased centralized
control. It also reformed both the tax and banking systems, and
set up international links with low-tariffs. It is thought that
Laos will join the organization WTO (World Trade Organization)
in the near future, and has been a member of the Association of
South East Asian Nations (ASEAN) since 1997. As of 2004, the US
granted normalized trade (NTR) status to Laos, one of the last
remaining countries not to have such status with America. The
new trade status will help to pave the way towards entrance into
the WTO.
The stability
of the country's economy, however, fluctuated greatly in the five
year time period, 1995 - 2000. In 1997 reverberations from the
Asian Financial Crisis (due to the heavy trade with Thailand)
marked a negative turning point as the GDP growth was slowed to
just four percent. Mismanagement of this crisis and the heavy
reliance on the Thai baht and trade resulted in a decrease
of eighty seven percent of the value of the currency (kip)
from 1997 - 1999, peaking in September 1999 when the kip fell
from 3500 to the dollar, to 9000 to the dollar in just a few short
weeks. This has now begun to stabilize (7500 in December 2000)
and the economic stability on the whole increased. However, for
the immediate future the country will remain dependent on official
development aid (ODA) from international sources including the
UNDP, the International Monetary Fund (IMF), Asian Development
Bank (ADB). In 1994 the government of Laos declared they would
improve the foreign investment law. As a result foreign investment
in Laos indeed has been steadily increasing. Unfortunately, one
of the downsides in many poor but growing economies such as Laos,
is in the area of timber. Like many other Asian countries there
has been clearcutting of trees and large forested areas that are
habitats to people and rare animal species. According to the World
Bank, wood products account for the highest percentage of Lao
exports ($120M in 2000). And while Laos does have and is increasing
its environmental laws, there is still the obstacle of the lack
of funding or cooperation among the cities/provinces to enforce
such laws.
For the Future
While Laos
is still considered one of the poorest countries in Asia having
been designated a least developed country (LDC), the government
is working towards poverty reduction/eradication. The government
has been working to increase the tourism levels in the country as
well as trying to gain maximum income from the hydroelectric power
that Laos possesses within its borders. Moreover, there is a continually
emerging entrepreneurial class of workers in the country. While
the Asian Financial Crisis has indeed affected the country, it is
also evident that it is business as usual. The rising GDP and exports
are an example. Also notable, in a speech on June 9th 2001, Prime
Minister Sisavath Keobounphanh stated "Socio-economic development
in the Lao PDR has been satisfactorily achieved. Laos' plans to
liberate itself from being the least developed country in 2020".
The future
of Laos, as many hope, continues to look promising as it continues
to open its economy and as more politicians and policy makers help
push the country forward by focusing on economic changes that will
help to expand and diversify the economy. The economic issues for
Laos however still remain. These issues include bettering revenue
collections, reducing corruption and poverty, opening the country
more to foreign investment and to help create more jobs, increasing
and improving educational opportunities, among others.
