Lao People’s Democratic Republic Andrew Rosser Introduction1
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Conclusion Between 1975 and the mid-1980s, the LPDR made little progress vis-à-vis turnaround. Although the victory of the Pathet Lao brought relative peace and stability to the country, this did not translate into sustained high rates of economic growth, improved levels of human development, and hence turnaround. Since the mid-1980s, however, the country has made much more significant progress vis-à-vis turnaround. Except for a brief downturn as a result of the Asian economic crisis, economic growth has been fairly strong while the country’s human development index rating has improved considerably. At the same time, the government has been able to maintain relative peace and stability. An ongoing armed insurgency led by ethnic Hmong rebels has led to periodic violent episodes in recent years but has thus far been more an irritant to the communist leadership than a serious threat to its power or to the political stability of the country. Despite this progress, however, Laos remains one of the poorest and least developed countries in the world. As the World Bank (2004a: 3) has pointed out, the country faces a variety of serious development challenges: life expectancy is low, two-thirds of households have no electricity, half lack access to safe water, 40 percent of children are underweight, and nearly a third of children between 6 and 14 do not attend school. There are serious concerns about the quality of governance within the country as well, corruption being a particularly serious problem. Whether the country will be able to overcome these challenges and make further progress vis-à-vis turnaround in the future will depend on three main factors. The first of these is the outcome of the political transition that will occur in the LPDR over the next few years. Currently, the leadership of the country is in the hands of a group of aging men who fought in the revolutionary struggle and who, notwithstanding their adoption of the NEM, appear to feel uncomfortable about economic liberalisation. Most are ‘reformers by necessity’ rather than ‘reformers by conviction’. It is likely that the next few years will see many of these figures pass from the scene, replaced by a new, better-educated, generation of political leaders. As Stuart-Fox (2004: 35) has noted, the impact that this transition will have on the nature of economic policy in Laos is hard to predict. While one might expect the new generation of leaders to be more favourably disposed towards market-based economic policies, they may be forced to share power for a period with remaining members of the old guard who will exercise influence from behind the scenes, as they have, for instance, in other Asian countries such as China and Singapore. The second factor is the extent to which neighbouring economies, particularly China, Thailand, and Vietnam, grow strongly in the future. Since the mid-1980s, the LPDR has been pulled along by the economic success of its neighbours, particularly Thailand. If its neighbours grow strongly in the future, it will probably continue to benefit from their growth, particularly if this translates into the realisation of a few major investments in hydroelectricity and mining; if its neighbours do not grow strongly, the benefits of proximity will probably be less significant. Finally, the LPDR’s prospects vis-à-vis turnaround are also likely also depend on future changes in donor policies concerning the distribution of aid. It is unlikely that the LPDR will again experience a large-scale withdrawal of foreign aid, as it did in the 1970s. Indeed, it may receive more aid in the future. The point is simply that, as a country dependent on aid from a few key donors (Figure Three), the LPDR’s prospects remain tied up to some extent with donor decisions concerning aid distribution. Figure One Human Development in the LPDR and its Neighbours 
Source: UNDP (2003: 240-243). Figure Two Real Economic Growth in the LPDR and its Neighbours, 1985-2002 
Source: World Bank, World Development Indicators CD ROM. Table One Level of Violent Conflict, 1989-2002
Notes: (i) Inter = Intermediate level of conflict; Min = minor level of conflict; (ii) A blank space means little or no violent conflict during that year; Source: Uppsala Conflict Database Table Two LPDR: FDI Inflows by Sector, 1988-1999 (US$ million pledged)
*First 10 months of 1999. Source: Freeman (2001a: 107). Table Three LPDR: Sources of Official Development Assistance (Commitment basis, millions US dollars)
Notes:
1. Council for Mutual Economic Assistance/Central and Eastern European countries. 2. Asian Development Bank, International Development Association of the World Bank, and United Nations agencies Sources: Lam (1997: 282) and OECD, Geographical Distribution of Aid Flows to Developing Countries, Statistical Database. Figure Three Aid Dependence in LPDR Aid per capita ($US) 
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World Bank (2005) Country Assistance Strategy for the Lao People’s Democratic Republic (Lao PDR), 10 March. Zasloff Joseph J (1991) 'Political Constraints on Development in Laos', in Joseph J. Zasloff and Leonard Unger (eds) Laos: Beyond the Revolution, Basingstoke: Macmillan, Chapter 1. Zasloff Joseph J and MacAlister Brown (1991) 'Laos 1990: Socialism Postponed but Leadership Intact', Southeast Asian Affairs. 1 I wish to thank Nick Freeman, Phil Keefer, Sarah Cliffe and officials at the World Bank’s office in LPDR for comments on earlier drafts of this paper. The usual caveat applies. 2 The King and his wife stayed behind, dying later in a Pathet Lao prison. 3 The most important such measures at this time included the elimination of the gap between official procurement prices and market prices, the introduction of a market-based exchange rate, the elimination of subsidies for agricultural inputs, the abolition of the forced procurement of rice by the government at below-market prices for in-kind payment of government salaries, the simplification of export and import taxes, the elimination of government monopoly trading practices in all areas except for a few strategic goods such as minerals and logs, the introduction of requirements for state-owned enterprises to pay market prices for capital and factor inputs and adopt new accounting and management practices, the granting of permission to state-owned enterprises to retain profits for reinvestment purposes, the granting of permission to private firms and farmers to purchase various imported products and borrow money from the country’s banking system, the introduction of tax equalisation measures for public and private enterprises, and the formulation of a foreign investment code to encourage greater foreign direct investment (UNDP 1991: 76-79; UNDP 2004: 6-8; Economist Intelligence Unit 2004: 21). |
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