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dam-l LS: Laos' economic management draws flak

The Nation / 19 April 2000

Laos' economic management draws flak

   THE Asian Development Bank (ADB) yesterday described communist Laos'
macroeconomic management as "inadequate" in recent years, leading to
hyperinflation and a substantial depreciation in the kip currency.
   ADB, the largest aid donor to landlocked Laos, said in its "Annual Report
1999", the Lao government's macroeconomic management over the past several
years "has been characterised by expansionary fiscal policy, resulting in
large fiscal deficits, accompanied by an inflationary monetary policy".
   It added: "The government has been slow to reduce liquidity, because of a
reluctance to finance the cost of issuing high interest rate bonds."
   Laos, whose economy grew 4 per cent in 1999, has been plagued by
hyperinflation and a volatile local currency for the past three years.
   The government finally initiated a tight fiscal policy in the second half
last year, after bowing to international criticisms it was printing money to
meet budgetary expenses
   "As a result, yearend inflation decreased from 142 per cent in 1998 to
86.7 per cent in 1999," said the ADB report, made available in Bangkok.
   However, it said improvement in inflation was accompanied by substantial
volatility in the kip, resulted in a whopping 40 per cent depreciation of
the local currency last year.
   Gross economic mismanagement by Laos' ageing communist leaders reportedly
sparked a public protest led by disgruntled students in Vientiane last
October.
   The brief and highly unusual demonstration of discontent was quickly
suppressed by authorities. The government has yet to officially acknowledge
the protest took place.
   Donors are getting frustrated with Vientiane's slow-paced reform and
economic mismanagement, seen as one of the main reasons for the protest.
   Donors are due to meet in Vientiane later this month to discuss new
financial assistance for the country, which will then be adopted by the
Round Table Conference for Laos in September.
   ADB has extended a technical assistance package worth US$2.02 million
(Bt76.48 million) to strengthen Lao's rural financial sector.
   The Rural Finance Development Project aims to develop a sustainable and
market-oriented system which is accessible to rural households and
enterprises.
   More than half of Lao's rural population is very poor. Because almost all
people in rural areas are engaged in agriculture, the government's approach
to reducing poverty focuses on rural development and raising agricultural
productivity. Providing access to financial services is an important
component of this approach but, at present, financing is available mainly
from informal sources, such as traders and moneylenders.
   In line with its transition to a market economy, the government in 1993
set up the Agricultural Promotion Bank (APB) to act as an agricultural
development bank. However, the APB does not operate on a viable basis and
lacks branches in many parts of the country.
   There is, moreover, virtually no private sector provider of financial
services. And the capacity of the central bank, the Bank of Lao PDR, to
provide training in rural finance is weak.

Deutsche Presse-Agentur, The Nation

http://www.nationmultimedia.com/new/na3.shtml

=====
Denis Johnson
Minneapolis, MN, USA
drjohnson1@uswest.net