GeographyIQ.comGeographyIQ.com
  Home
  Rankings


A B C D E F
G H I J K L
M N O P Q R
S T U V W Y
Z          


Currency Converter

 


World > Asia > Laos > Economy (Notes)

Laos - Economy (Notes)


ECONOMY
Laos is a poor, landlocked country with an inadequate infrastructure and a largely unskilled work force. The country's per capita income in 2006 was estimated to be $572. Agriculture, mostly subsistence rice farming, dominates the economy, employing an estimated 78% of the population and producing 43.4% of GDP. Domestic savings are low, forcing Laos to rely heavily on foreign assistance and concessional loans as investment sources for economic development. In 2006, donor-funded programs accounted for 13% of GDP and 70% of the capital budget. In 2006, the country's foreign debt was estimated at $3.2 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 its 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 decision-making 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 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. The pace of reform slowed during the Asian financial crisis in 1997-98. Currently, completion of several hydroelectric power projects is a key Lao objective to increase revenue through selling electric power to its neighbors.

These reforms led to economic growth and increased availability of goods throughout most of the 1990s. 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 when inflation dropped to less than 1% per month. The economy continues to be dominated by an unproductive agricultural sector operating largely outside the money economy, and the public sector continues to play a dominant role. Tourism is a growing industry and important source of foreign exchange. The Government of Laos continues to promote infrastructure development, especially in the hydropower and mining sectors. Recently, garment manufacturing has increased significantly.

International indices rate Laos poorly on transparency and ease of doing business. Corruption continues to hamper economic development. Laos has begun the World Trade Organization accession process, with the intention of joining that organization by 2010.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





   Privacy & Disclaimer

   Portions of this site are based on public domain works from the U.S. Dept. of State and the CIA World Fact Book
   All original material copyright © 2002 - GeographyIQ.com. All Rights Reserved.
   For comments and feedback, write to us at [email protected].