COUNTRY REPORT

Cambodia Laos

August 2000

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Contents

3 Summary

Cambodia

5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2000-01 8 Political forecast 9 Economic forecast 10 The political scene 14 Economic policy 16 The domestic economy 16 Economic trends 18 Agriculture 19 Industry 20 Services 21 Foreign trade and payments

Laos

23 Political structure 24 Economic structure 24 Annual indicators 25 Quarterly indicators 26 Outlook for 2000-01 26 Political forecast 27 Economic policy outlook 27 Economic forecast 29 The political scene 34 Economic policy 35 The domestic economy 35 Economic trends 35 Agriculture 36 Industry 36 Infrastructure 37 Services 37 Foreign trade and payments

List of tables 17 Cambodia: consumer prices 18 Cambodia: money supply 18 Cambodia: rice production

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List of figures 10 Cambodia: gross domestic product 10 Cambodia: riel real exchange rates 15 Cambodia: foreign investment projects 17 Cambodia: consumer price inflation 21 Cambodia: tourist arrivals 28 Laos: gross domestic product 28 Laos: kip real exchange rates 38 Laos: textile and garment turnover

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August 10th 2000 Summary

August 2000

Cambodia

Outlook for 2000-01 Cambodia is likely to remain politically stable in 2000-01 although the local government elections scheduled for 2001 could lead to increased tension between the three main parties. The UN could still withdraw from the planned Khmer Rouge tribunal. The government will continue to adopt a bold and proactive approach on reform, although implementation will often fall short of what is intended. The economic recovery will become more entrenched in 2001 when GDP growth could rise to 6.5%. Inflation is likely to pick up but remain in single digits, while the riel is expected to remain broadly stable. The trade and current-account deficits are forecast to widen.

The political scene The UN and the government have agreed on the details of a Khmer Rouge tribunal but the legislation is yet to be approved by the National Assembly. It is still not known who will be tried. A Khmer Rouge commander accused of murdering three Western tourists has been acquitted. New legislation for local government elections scheduled for 2001 is still not ready, and there have been calls for electoral reform before the poll. Prince Norodom Ranariddh has backed the creation of a human rights commission. A border demarcation agreement has been signed with Thailand but border problems with Vietnam and Laos remain unresolved.

Economic policy The government has set out a broad policy strategy to 2005 and has detailed its preferred foreign investment goals. Working groups are to be established to foster dialogue with the private sector. The pilot military demobilisation programme is nearly complete. Plans for a new National Assembly building have come up against opposition. Relations with the EU have deepened. The land mine problem may not be as bad as official figures suggest.

The domestic economy Private investment picked up in the first half of 2000 but 51 inactive foreign investment projects have had their licences cancelled. Investment from Shanghai is increasing. Inflation remains low but money supply growth accelerated in the first quarter. The riel has remained stable against the US dollar. The 1999/2000 rice harvest exceeded expectations and the exportable surplus increased. The rubber harvest was good but output has been marred by low prices. The government has clamped down on illegal logging. Garment workers have won a small increase in the minimum wage but only after protests and strikes, which turned violent. Agro-processing has great potential but investors are struggling to raise the capital needed. Plans to establish a stockmarket have been reactivated. Tourism grew strongly in the January-May period, helped by continued political stability and an increase in regional flights. A South Korean firm is to develop Cambodia’s Internet server business.

Foreign trade and Port statistics suggest strong growth in the volume of external trade in the first payments half of 2000. The US has increased quota levels for Cambodian garments, and

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market access for textiles and garments exports to the EU has been assured until 2002. Société Générale de Surveillance (SGS) has resumed its inspections of Cambodian imports after a six-month dispute with the government. The external reserves have continued to strengthen.

Laos

Outlook for 2000-01 The Lao People’s Revolutionary Party will retain its hold on power in 2000-01 but could face an upsurge in political dissent, including further bomb attacks. Relations with Thailand will not suffer irrevocable damage despite the raid by anti-government rebels in southern Laos. The Seventh Party Congress is unlikely to be followed by a quickening of reform. Economic growth will remain at a modest 4.5-5% in 2000-01 reflecting low levels of public and private investment. Inflation should ease, but the trade and current-account deficits are likely to widen.

The political scene There have been further bomb explosions in Vientiane. The authorities are blaming Hmong rebels but other observers think rival factions in the government might be to blame. Anti-government rebels embarked on a cross- border raid in the southern province of Champassak province before retreating into Thailand. The government has called on the Thai government to extradite the rebels. Vietnam has denied it has sent troops to suppress the Hmong. Amnesty International has appealed for information on dissidents detained since October. The ruling party has been preparing for next year’s Seventh Congress. The Lao president, General Khamtay Siphandone, has visited China. The government is to host the next ASEAN-EU (ASEM) summit. It has requested foreign financial support to tackle the country’s drug problems.

Economic policy A dialogue with the IMF is continuing about a possible poverty reduction and growth facility arrangement. The government has rejected debt relief for the timebeing. Laos and Vietnam are planning to establish trade promotion centres.

The domestic economy Inflation is continuing to fall and the kip has been stable. A small increase in the wet season rice crop is expected. Foreign investment is falling overall, but rising from Vietnam. A memorandum of understanding on Nam Theun 2 electricity price has been signed. Japanese package tourists have cancelled their planned visits, citing instability fears.

Foreign trade and The government has imposed restrictions on Thai imports. A market access payments agreement guaranteeing Lao textiles and garments quota-free access to the EU until 2001 has been formally signed.

Editor: Graham Richardson Editorial closing date: August 10th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

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Cambodia

Political structure

Official name Cambodia

Form of government Constitutional monarchy

The executive The cabinet is constitutionally responsible to the National Assembly

Head of state King Norodom Sihanouk. The king is selected by the Throne Council and holds office for life

National legislature The 122-seat National Assembly has a term of five years and consists of 120 directly elected members

National elections Last National Assembly election held on July 26th 1998; next election due May 2003

National government The Cambodian People’s Party (CPP) won 64 seats in the July 1998 election, followed by the National United Front for an Independent, Neutral, Peaceful and Co-operative Cambodia (FUNCINPEC) with 43 and the Sam Rainsy Party with 15. A coalition government was formed in November 1998, comprising the CPP and FUNCINPEC

Main political organisations Cambodian People’s Party (CPP); National United Front for an Independent, Neutral, and groups Peaceful and Co-operative Cambodia (FUNCINPEC); Sam Rainsy Party (SRP)

Main members of the Prime minister Hun Sen (CPP) government Deputy prime ministers Tol Lah (FUNCINPEC) Sar Kheng (CPP)

Key ministers Agriculture, forestry & fisheries Chhea Song (CPP) Commerce Cham Prasidh CPP) Construction Im Chhun Lim (CPP) Defence Tea Banh (CPP) Prince Sisowath Sirirath (FUNCINPEC) Education Tol Lah (FUNCINPEC) Finance & economy Keat Chhon (CPP) Foreign affairs Hor Nam Hong (CPP) Health Hong Son Huot (FUNCINPEC) Hydroelectricity & meteorology Lim Kean Huor (FUNCINPEC) Industry, energy & mines Suy Sem (CPP) Information Lou Laysreng (FUNCINPEC) Interior Sar Kheng (CPP) Yu Hokkry (FUNCINPEC) Justice Ouk Vithun (FUNCINPEC) Planning Chhay Than (CPP) Post & communications So Khun (CPP) Public works & transport Khy Taing Lim (FUNCINPEC) Rural development Chhim Seak Leng (FUNCINPEC) Tourism Veng Sereyvuth (FUNCINPEC)

Central bank governor Chea Chanto (CPP)

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Economic structure

Annual indicatorsa

1995 1996 1997 1998 1999 GDP at current prices (CR bn) 7,200 8,251 9,100 10,750 11,670b Real GDP growth (%) 7.6 7.0 1.0 1.0 4.3 Consumer price inflation (av; %) 1.0 10.1 3.2 14.7 4.1 Population (m) 9.7 9.9 10.2 11.4 11.7b Exports fob (US$ m) 855.2 643.6 736 705.4 n/a Imports fob (US$ m) 1,186.8 1,071.8 1,064.0 1,096.8 n/a Current-account balance (US$ m) –185.7 –184.9 –209.9 –223.9 n/a Reserves excl gold (US$ m) 192.0 265.8 298.5 324.3 393.2 Total external debt (US$ m) 2,035 2,100 2,129 n/a n/a Debt-service ratio, paid (%) 0.6 1.2 1.1 n/a n/a Exchange rateb (av; CR:US$) 2,450.8 2,624.1 2,946.3 3,744.4 3,807.8

August 7th 2000 CR3,887:US$1

Origins of gross domestic product 1998 % of total Expenditure of gross domestic product 1997 % of total Agriculture 43.0 Private consumption 86.4 Industry (incl construction) 20.1 Public consumption 8.8 Services 36.9 Gross fixed investment 16.5 Total 100.0 Exports of goods & services 18.7 Imports of goods & services –30.4 Total 100.0

Principal exports 1998c US$ m Principal imports 1998d US$ m Garments 390 Cigarettes 149 Logs & sawn timber 178 Petroleum products 139 Rubber 25 Vehicles & motorcycles 53 Fishery products 3 Clothing & cloth 24 Re-exports 396 Construction materials, cement & steel 22 Total incl others 999 Total incl others 1,227

Main destinations of exports 1997 % of total Main origins of imports 1997 % of total Vietnam 18.0 Thailand 15.9 Thailand 15.1 Vietnam 8.7 US 9.8 Japan 6.8 Singapore 8.5 Hong Kong 5.4 China 5.3 China 4.6 a IMF, International Financial Statistics unless otherwise stated. b EIU estimates. c Including re-exports. d Excluding non-retained imports.

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Quarterly indicators

1998 1999 2000 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Consumer prices (1995=100) 127.7 134.3 136.2 133.7 135.8 136.8 136.2 133.8 % change, year on year 17.0 13.9 12.7 8.5 6.3 1.9 0.0 0.1 Financial indicators Exchange rate CR:US$ (av) 3,787 3,796 3,816 3,778 3,794 3,844 3,815 3,798 CR:US$ (end-period) 3,995 3,800 3,770 3,790 3,800 3,895 3,770 3,810 Interest rates (av; %) Deposit 7.9 7.9 7.5 7.7 7.2 7.1 7.3 7.3 Lending 18.5 18.6 17.7 17.7 17.8 17.5 17.3 17.3 M1 (end-period; CR bn) 428.5 474.6 543.3 527.3 499.7 501.3 532.0 549.7 % change, year on year 29.6 36.1 41.2 27.2 16.6 5.6 –2.1 4.2 M2 (end-period; CR bn) 1,081.3 1,080.5 1,230.1 1,315.1 1,316.2 1,405.7 1,442.5 1,733.1 % change, year on year 19.9 19.8 15.7 22.8 21.7 30.1 17.3 31.8 Sectoral trends Rice production (annual totals; '000 tonnes) ( 3,510 ) ( 3,800a ) n / a Rubber exports, net ('000 tonnes) 4.5 10.5 12.5 5.5 4.5 11.7 13.5 n/a Foreign trade & payments (US$ m) Goods exports fob 165.0 192.1 204.4 n/a n/a n/a n/a n/a Goods imports fob 277.3 254.2 302.1 n/a n/a n/a n/a n/a Merchandise trade balance –112.3 –62.1 –97.7 n/a n/a n/a n/a n/a Services balance –20.7 –20.3 –20.8 n/a n/a n/a n/a n/a Income balance –13.9 –21.4 –11.7 n/a n/a n/a n/a n/a Current-account balance –72.5 –29.4 –56.0 n/a n/a n/a n/a n/a Reserves excl gold (end-period) 299.8 284.9 291.7 324.3 357.5 363.1 393.2 480.5 a Estimate.

Sources: FAO; International Rubber Study Group, Rubber Statistical Bulletin; IMF, International Financial Statistics.

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Outlook for 2000-01

Political forecast

Domestic politics The Cambodian People’s Party (CPP) and the National United Front for an independent, Neutral, Peaceful and Co-operative Cambodia (FUNCINPEC) have both pledged continued co-operation in the context of the coalition government established in November 1998. Some politicians have gone further stating that the use of force to settle their differences is a thing of the past while recognising the adverse effect it has on economic development. Certainly, Cambodia has enjoyed a period of unprecedented stability over the last 20 months or so. There also appears to be a high degree of seriousness within the government to focus on economic development and to get to grips with problems faced by investors. During 2000-01 Cambodia is likely to remain politically stable, but this outlook becomes more dubious in the longer term. FUNCINPEC's leader, Prince Norodom Ranariddh, has said that his party will stand against the CPP in both the forthcoming local government elections, scheduled for 2001, and at the next general election, due in 2003. It is therefore likely that frictions will resurface in the run-up to these elections. There is already the potential for dispute in so far as there have been calls for reform of the National Election Council which many, including members of FUNCINPEC, believe is biased towards the CPP. Demonstrations by the opposition Sam Rainsy Party (SRP), on issues such as corruption and labour rights, also have a habit of turning violent. This darker side to Cambodian politics is never far beneath the surface.

International relations After lengthy negotiations between the government and the UN, agreement has been reached—encapsulated in a draft memorandum of understanding (MoU)—on the terms on which the UN will participate in the planned Khmer Rouge tribunal. However, there is still plenty of scope for problems which may scupper the prospects for UN involvement. Draft legislation on the holding of the tribunal still has to be approved by the National Assembly and Senate. The long delay has prompted suggestions of conscious foot-dragging. Moreover, there are also fears within the UN that the legislature may amend the legislation so that it fundamentally changes the basis on which the UN has agreed to participate. In July the UN under-secretary general for legal affairs, Hans Correll, who has led the recent negotiations with the Cambodian government, said that the UN would not participate in the tribunal if the law establishing the court ended up being different from the MoU after it has gone through parliament. Furthermore, the MoU leaves to be decided at a future date the question of exactly who is to be prosecuted, and this too is likely to be a source of future wrangling. In general, the prime minister, Hun Sen, and the CPP favour a limited trial while the UN wants it to be more all-encompassing. The UN has, however, accepted that any future trial will only deal with crimes committed during the period of Khmer Rouge rule (1975-79).

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Economic forecast

Economic growth The EIU’s forecast is for 5.5% GDP growth in 2000, rising to 6-6.5% in 2001. Both forecasts assume continued political stability. The upper limit of our forecast for 2001 represents a slight upward revision since our last report, reflecting our view that economic recovery will become more entrenched next year. This is premised on the following:

• continued strengthening of regional economies, leading to higher demand for Cambodian exports;

• continued strong inflows of foreign aid following pledges in May by the Consultative Group of multilateral and bilateral donors, totalling US$542m;

• a pick-up in private investment, the beginnings of which were evident in the first half of 2000 when combined domestic and foreign investment rose by 7.6%; and

• stronger services growth driven, particularly by the rapid development of tourism (tourist arrivals rose by an impressive 42% year on year in the first five months of 2000).

A poor harvest, as a result of flooding or drought, could retard growth. However, increased political stability—specifically an end of the fighting with the Khmer Rouge—has coincided with a marked increase in agricultural output, including production of a rice surplus in the last two consecutive seasons, which is encouraging for the future. Nevertheless, higher levels of investment in rural infrastructure, including the provision of rural credit schemes, are needed if the sector is to reach its potential.

Inflation There is currently very little inflationary pressure. In the first quarter of 2000 consumer prices rose less than 0.1% compared with the first quarter of 1999. Month-on-month inflation has been negative for three out of four months during the January-April period. In 2000-01 inflationary pressure is likely to mount as economic growth picks up. Increases in money supply growth during the first quarter of 2000 are possibly a harbinger of this. However, inflation is forecast to remain in single digits during 2000-01.

After falling sharply during the Asian financial crisis, the Cambodian currency, the riel, has become more stable. In 1999 the riel strengthened and it has remained broadly stable in the first seven months of 2000. This trend looks set to continue in 2000-01 as economic growth quickens and capital inflows increase.

Exchange rates In 1999 the riel strengthened slightly after two years of fluctuation following the Asian financial crisis. In the first half of 2000 the currency remained broadly stable against the US dollar, trading at around CR3,880:US$1 in early August. The currency is likely to remain generally stable in 2000-01, as economic growth quickens and capital inflows increase.

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External sector Based on volumes of freight passing through Sihanoukville and Phnom Penh, both exports and imports appear to have grown strongly during the first half of 2000. This was despite a fall in exports of garments, Cambodia’s largest earner, in the first quarter (first-half figures are not available) because of labour unrest in the sector and market access restrictions. During 2000-01 we forecast a recovery in garment exports. This follows the successful conclusion of a market access agreement with the EU as well as an increase in the size of the garment quota for the US market. In addition, the sector has recently received new investment, suggesting renewed confidence in its future. Although the threat of further labour unrest remains, unions have recently negotiated a small increase in the minimum wage, which should reduce the likelihood of strikes in the short term. Cambodia’s other main exports, logs and sawn timber, rubber and fishery products, should all benefit from an increase in regional demand during the forecast period. Commodity prices are also forecast to rise during 2000-01, which will lead to higher export earnings. Faster growth will, however, lead to higher levels of imports. This can already be seen in the share of imports in total freight volumes during the first half of this year and probably precipitates a rise in the trade and current-account deficits in 2000- 01. Higher tourism receipts should improve the services balance but the government will remain dependent on continued aid inflows and foreign investment to finance the current-account deficit.

The political scene

Khmer Rouge tribunal On July 4th-7th a UN legal team led by the under-secretary general for legal terms agreed affairs, Hans Correll, visited Cambodia for talks on “technical issues” pertaining to the proposed Khmer Rouge tribunal. Mr Correll and his team were invited by the chairman of the Council of Ministers, Sok An, who has been leading the negotiations with the UN on behalf of the Cambodian government. The visit followed the reaching of a compromise agreement in April based on a proposal put forward by a US senator, John Kerry (June 2000, page 11). The talks between Mr Correll and Sok An, which focused on issues

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such as how the prosecution is to be conducted, the location for the trial, the trial language, security and costs, were completed without major problems. The result was that a draft memorandum of understanding (MoU) was drawn up setting out the basis of the UN-government relationship on the tribunal.

Tribunal legislation still The MoU has not been yet been signed, however, as the draft law on the has to be approved holding of the tribunal has to be approved by the National Assembly. It was hoped that the debate on the draft law could begin when the National Assembly reconvened on May 23rd, but this did not happen. On May 22nd the chairman of the National Assembly’s legislative committee, Monh Sophan, said that the bill may finish the committee stage by mid-June, at which point it would be forwarded to the permanent committee so that the debate in parliament could be scheduled. On July 11th Monh Sophan said that the debate would take place “within two months”, but as of early August a date had still not been set.

Some are sceptical that the There is a concern—expressed most forcefully by the opposition Sam Rainsy tribunal will ever happen Party (SRP)—that the National Assembly may effectively scuttle the process by amending the draft legislation to such an extent that it will no longer be acceptable to the UN. The UN is clearly aware of this danger; at the end of his visit, Mr Correll said that the UN “would be unable to proceed if the law establishing the court, as passed by the Cambodian parliament, differs from the MoU”. The SRP leader, Sam Rainsy, has said that if this happens, the prime minister, Hun Sen, would be able to use the excuse of “an allegedly recalcitrant parliament as an alibi” for the process’s breakdown.

Potential problems with the National Assembly aside, the draft MoU drawn up at the end of the Correll-Sok An talks did not address the highly controversial issue of who will actually be prosecuted. At the international donor meeting in Paris in May (June 2000, page 14), Hun Sen warned the international community not to pressure him to bring former Khmer Rouge leaders to justice, saying that large-scale prosecutions could push Cambodia back to the “dark ages”. (Hun Sen is believed not to favour prosecuting Ieng Sary, who defected from the Khmer Rouge in 1996 and now lives in Pailin.) He also spoke of what he called “sustained and systematic efforts” to divert attention away from economic development “by calls for retribution and revenge for the past”. The issue of who goes before the tribunal could well be a future source of disagreement between the government and the UN. It has been agreed that the tribunal will only concentrate on the period when the Khmer Rouge actually held power (1975-79).

A Khmer Rouge In July a former Khmer Rouge commander, Chhouk Rin, was acquitted by a commander is acquitted Cambodian court of kidnapping and murdering three Western tourists who were seized from a hijacked train in 1994. Chhouk Rin, who is alleged to have led the attack, was apparently covered by an amnesty granted to Khmer Rouge defectors who surrendered to the government between June and December 1994 (Rin surrendered in October 1994). Relatives of the dead expressed outrage at the result, and on July 20th it was reported that the Cambodian government will appeal against it.

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Local elections legislation is The Cambodian People’s Party Congress also called on the government, the still not ready National Assembly and the Senate to push through the legislation needed for the much-delayed commune (local government) elections. The plan now appears to be for them to take place in 2001 although a date has not been set. In May a cross-party grouping, including ministers and National Assembly committee representatives, met to consider a 91-article draft law which has been drawn up for the purpose. As yet, however, representatives cannot agree on the extent of changes needed before the election can take place.

In June the Coalition for Free and Fair Elections (Coffel), which comprises various Cambodian non-governmental organisations (NGOs), urged the government to undertake serious electoral reform before the local government elections. In particular, it wants the National Election Council (NEC), which is responsible for organising and supervising elections in Cambodia, to be overhauled and made more neutral. (The NEC was criticised at the time of the general election in 1998 of being biased towards the CPP.) At the May meeting, the deputy prime minister and co-interior minister, Sar Kheng, said that the electoral system could be reformed if all the key institutions agreed, but that it would require at least another six months before any such changes could be finalised.

CPP pledges co-operation On July 3rd-4th the CPP held its 27th National Congress, an event that is held with FUNCINPEC annually. In the communiqué issued at the end of the meeting, the Congress praised Hun Sen’s leadership of the government and welcomed preparations for the forthcoming trial of Khmer Rouge leaders. The Congress also welcomed the “new and fruitful results” of co-operation between the CPP and the National United Front for an Independent, Neutral, Peaceful and Co-operative Cambodia (FUNCINPEC). Speaking in May to a business conference, Prince Norodom Ranariddh also pledged his commitment as leader of FUNCINPEC to “a strong and lasting co-operation with the CPP”. However, he also said that FUNCINPEC would compete against the CPP in both the forthcoming local elections and at the next general election due in 2003.

Manoeuvring ahead of the A draft bill initiated by the opposition SRP, concerning the procedures by royal succession continues which a successor to King Norodom Sihanouk will be chosen, has been forwarded to the National Assembly Standing Committee. At present the only major innovation seems to be that the king’s successor should be named in advance of his death. The constitution currently states that the Throne Council must choose a successor within seven days of the king’s death. How far the opposition bill will progress is unclear. The choice of King Sihanouk’s successor is a highly political issue and one that many believe Hun Sen will ultimately be able to manipulate.

Further allegations of Both local and foreign groups, including the UN, have long drawn attention to police use of torture human rights abuses in Cambodia, something that has often invoked the ire of the government. In June the Cambodian League for the Protection of Human Rights (CLPHR), a local NGO, published a 149-page report entitled Less than human: Torture in Cambodia. The report, which is based on three years' research, says that torture is routinely used to extract confessions. Of the inmates it

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interviewed, some 25% said that the police had tortured them following their arrest. Moreover, the report argues that authorities “condone it, if not encourage it". The government has yet to formally comment on the report’s findings.

In July Prince Ranariddh called for the creation of an independent national human rights commission to investigate allegations of abuse. This was welcomed by the CLPHR, which had in April lobbied the government to establish such a body. Prince Ranariddh specifically said that a human rights commission should be established before the UN High Commission on Human Rights (UNHCHR) closes its office in Phnom Penh. Its current mandate expires in 2002. In May a US-based human rights group, Human Rights Watch, urged donor countries meeting in Paris to attach human rights-related conditions to aid, but international donors have historically been reluctant to do this (see Economic policy).

Request for foreign aid to An adviser to Hun Sen, Om Yentieng, has called for foreign financial assistance improve the national press to “improve the independence and quality” of the Cambodian press. He was speaking at a meeting of the Forum on Freedom of the Press jointly sponsored by the Information Ministry and UNESCO. Yentieng, who is looking to establish a US$10m fund, said that the money was needed to wean journalists from their traditional dependence on political parties and business interests. Cambodia currently has 24 daily newspapers, all of which are clearly aligned with one or other of the three main political parties.

Clampdown on the In July police arrested and charged three Taiwan nationals for illegal possession “Taiwan mafia” and use of weapons. If convicted, they could be sentenced to up to 15 years in prison. One of the men, Chen Chi-li, is believed to be the former leader of a Taiwan criminal gang called the Bamboo Union. Commenting on the arrest, Hun Sen said that the government must destroy the so-called Taiwan mafia in Cambodia. There have been reports that the authorities are planning to arrest other Taiwanese gang members in Phnom Penh, but it is not clear why the government has decided to clamp down at this time. Cambodia does not have diplomatic relations with Taiwan, adhering instead to a “one China” policy.

Border issues are being On June 14th-16th the Thai prime minister, Chuan Leekpai, visited Cambodia, tackled accompanied by a high-level delegation. The visit, which was marred by anti- Thailand student protestors, saw the signing of a MoU on the two countries' shared border, and two other agreements on the return of stolen vehicles and the prevention of the smuggling of artefacts. The signing of the MoU followed three days of talks in Phnom Penh by the Cambodia-Thai Joint Commission on Demarcation of the Land Boundary. The MoU allows for a joint survey of the 803-km border, beginning possibly later this year. (The border has not been comprehensively surveyed since colonial times.) The shared border has been a bone of contention between the countries. Cambodia has accused Thailand of moving border markers over the course of decades of conflict and turmoil. In March Thailand accused Cambodia of encroaching on its territory in Popiet by building a casino, which has since been dismantled. During his visit, Chuan reiterated his wish to see the joint development of resources in the Gulf of

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Thailand, where the two countries have overlapping territorial claims (June 2000, page 13).

The government is continuing to work with its counterparts in both Vietnam and Laos to settle differences relating to their shared border. It had been agreed to resolve all outstanding problems by the end of 2000 (4th quarter 1999, pages 13-14), but it looks unlikely that this deadline will be met. In June an agreement was signed with Vietnam demarcating the border in north-east Cambodia, but other parts of the border are yet to be settled. In relation to the border with Laos, both sides have re-stated their commitment to settling their differences peacefully but there have been no reports of actual progress.

Some important foreign The foreign minister of North Korea, Paek Nam-sun, paid a low-key visit to visitors Cambodia at the end of July and met with Hun Sen, Prince Ranariddh and King Sihanouk on separate occasions. Prince Ranariddh congratulated North Korea for becoming more involved in regional affairs, and Cambodian officials hinted that the two countries may in the future develop a closer relationship. The foreign minister, Hor Namhong, said that "Cambodia and North Korea have aspects that complement each other". The two countries have a long-standing association in that King Sihanouk lived there while in exile in the 1970s.

Hun Sen reiterated his government’s commitment to Cambodia's "one China" policy during a visit of the vice-president of the China’s National People’s Congress, Wang Guangying, to Cambodia on June 27th-July 1st. Hun Sen has particularly cultivated close relations with China, which is an important source of investment and aid, including some military aid (1st quarter 2000, page 16). In June the two countries ratified an extradition treaty. According to Cambodian police estimates, there are in excess of 1,000 Chinese immigrants living illegally in the country although the real number is probably much higher.

Hun Sen visits Singapore On June 1st-3rd Hun Sen visited Singapore on a diplomatic mission as well as to promote bilateral trade and investment. Since Cambodia joined the Association of South-East Asian Nations (ASEAN) in April 1999, relations between Cambodia and Singapore have been straightforward. However, Singapore was one of the original ASEAN members that argued for a delay in Cambodia’s accession to the grouping until the political instability, which characterised 1997-98, subsided. According to Singapore government figures, bilateral trade between the two countries rose 32% year on year in 1999 to US$460m. Cumulative approved investment is valued at US$200m. In August Hun Sen is scheduled to visit the Philippines and Brunei.

Economic policy

Government sets out its The government is putting together its Second Socio-economic Development broad policy strategy Plan, which will run from 2001 to 2005. In May it held a workshop in Phnom Penh at which it presented the broad outline of the plan. According to Hun Sen, who delivered a speech at the workshop, the plan has three main objectives:

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• long-term, sustainable economic growth at an annual rate of 6-7%; • equitable distribution of the fruits of economic growth between the haves and the have-nots, the town and countryside, and between the sexes; and

• sustainable management of natural resources.

Priority areas for foreign Speaking to businessmen during a visit to Singapore in June, Hun Sen listed six investment are specified priority areas for investment: agriculture, physical infrastructure, power generation and supply, labour-intensive and export-oriented industries, tourism and human resource development. Hun Sen has also raised the possibility of the establishment of a special economic zone to attract foreign investment. Few details are available at present but the idea would be that investors operating within the zone would receive preferential tax and other incentives. (For details of investment trends see Economic trends.)

Plans to foster dialogue In July the Private Sector Forum (PSF), set up last year to facilitate dialogue with the private sector between the government and investors, held its second meeting. The main areas of concern raised by investors were security (political stability and crime) and corruption. Hun Sen, who addressed the meeting, sought to reassure investors that past enmity has been put to one side on the part of politicians from both the Cambodian People’s Party (CPP) and the National United Front for an Independent, Neutral, Peaceful and Co-operative Cambodia (FUNCINPEC). He also said that the investment environment in Cambodia was the most favourable it had been in decades. Hun Sen called for the establishment of working groups focused on areas such as the investment environment, banking, the garments sector and labour. This, he said, would allow a more ongoing dialogue between the government and business rather than it being limited to just two meetings a year of the PSF.

Pilot demobilisation plan is In July the secretariat for the National Council for Demobilisation announced nearly complete that the last pilot demobilisation, involving 421 soldiers in Battambang, would start on July 11th. Pilot demobilisations have now been carried out in Kampot, Kompong Thom and Banteay Meanchey provinces. Each demobilised soldier is paid US$250 and given 150 kg of rice plus other essential foodstuffs. A full

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assessment of the pilots has yet to be made public, but previously the government has said that if they are successful soldiers will be demobilised at a rate of 10,000 a year beginning in 2000. It is, however, unlikely that this target will be met. The aim is to have demobilised a total of 30,000-40,000 soldiers by 2005.

National Assembly building In May the National Assembly finance committee approved plans to construct plans dubbed extravagant a new National Assembly building just 1 km from its current location, at a site overlooking the Tonle Bassac river. According to the chairman of the committee, Chiem Yeap, a new building is needed simply because the 122- member assembly had outgrown the existing one. The project, which is expected to cost US$47m, has been criticised as extravagant by the opposition Sam Rainsy Party (SRP), which says the money is more urgently needed in other areas.

Relations with the EU At the Association of South-East Asian Nations (ASEAN) Post-Ministerial deepen Conference at the end of July, Cambodia signed an EU-ASEAN Co-operation Agreement, enabling it to benefit from EU co-operation projects provided on an EU-to-ASEAN basis. Relations between Cambodia and the EU have deepened in recent years in part driven by the emergence of the EU as an important market for Cambodian textiles and garments. In May Cambodia signed an agreement with the EU allowing for increased levels of Cambodian textiles and garment exports to the EU (see Foreign trade and payments).

Official figures exaggerate According to the Halo Trust’s Cambodian operations manager, Will Long, there the land mine problem are around 300,000 land mines in the country. This is considerably lower than the government’s estimate of 6m mines. Moreover, the Halo Trust believes that with current resources they will be cleared within 5-10 years, not 100 years as per the government's estimate. According to statistics kept by the Jesuit Relief Service, there were 1,112 casualties in 1999 through landmines, compared with 3,046 in 1996. In early May the Japanese government announced fresh aid of ¥1.7bn (US$15.54m), part of which will go towards mine clearance.

The domestic economy

Economic trends

Investment picked up in According to the Cambodian Investment Board (CIB), approved domestic and the first half of this year foreign investment in the first half of 2000 was worth US$155m, up 7.6% on the same period last year. This compares with a 79% year-on-year fall in the first quarter. Nevertheless, it is not clear how broad-based the recovery is. The CIB attributed the increase in the first half to a limited number of projects, namely UK investment in the garment industry, worth US$10m, and a US$3m investment in a Sofitel project in Siem Reap by a French company. Investment approved in the first half was divided between 57 projects in light industry, notably garments, hotels and power generation. In 1999 Cambodia approved foreign investment worth US$471.7m, compared with US$854m in 1998. The

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government has set a target for approved foreign investment of US$500m for 2000, although this looks unlikely to be met.

In June 51 licences issued to foreign investors between 1994 and 1995, worth US$219m, were revoked because they had failed to progress. The government has said that another 68 licences issued between 1995 and 1996, worth US$299m, would soon suffer a similar fate unless there were clear signs that they were being implemented.

In the same month an investment delegation from Shanghai, led by the chairman of the Bei Yong International Holding Company, Yang Rong, visited Cambodia. According to Mr Yang, the company is interested in car assembly and distribution projects, pharmaceutical manufacturing and port development along the Tonle Sap river. As well as burgeoning commercial links with China, political links are also expanding (see The political scene).

Inflation remains low In the first quarter of 2000, consumer prices rose less than 0.1% compared with the first quarter of 1999, according to IMF data. Month-on-month inflation has been negative for three out of the four months in the January-April period. In April prices fell by 1.2% month on month. Last year consumer prices rose just 4% year on year. Lower inflation is in part the result of a good rice harvest during the 1999/2000 season (see Agriculture), but also reflects the still tentative nature of Cambodia’s economic recovery following a period of political and economic instability during 1997/98.

Cambodia: consumer prices

1999 2000 Sep Oct Nov Dec Jan Feb Mar Apr Index (1995=100) 136.8 136.4 136.5 135.5 133.9 133.5 133.8 132.2 % change, month on month 0.3 –0.3 0.1 –0.7 –1.2 –0.3 0.2 –1.2 Source: IMF, International Financial Statistics.

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Money supply growth Notwithstanding the lack of inflationary pressure in the economy, money accelerates supply growth has rebounded. After falling steadily since the fourth quarter of 1998, M1 growth picked up in the first quarter of 2000, rising 4.2% year on year. M2 growth also accelerated in the first quarter, rising 31.8% year on year. The ratio of foreign-currency deposits as a percentage of M2 has risen compared with the previous quarter.

Cambodia: money supply

4 Qtr 1999 1 Qtr 2000 M1 531.95 549.67 % change, year on year -2.1 4.2 Quasi-money 910.55 1,183.5 % change, year on year 32.6 50.2 M2 1,442.5 1,733.1 % change, year on year 17.3 31.8 Foreign-currency deposits 878.84 1,146.0 % of M2 60.9 66.1 Source: IMF, International Financial Statistics.

The riel is stable against The riel was broadly stable against the US dollar in the first half of 2000, the US dollar trading at around CR3,880:US$1 in early August. This compares with CR3,770:US$1 in 1999. Greater stability in the riel reflects improved political stability and expectations of a strengthening domestic economy.

Agriculture

The rice harvest exceeds The combined total of both the wet and dry rice harvest in 1999/2000 was expectations 4.04m tonnes, up from 3.8m tonnes in 1998/99. Yields were also up, as was the exportable surplus (see table below). According to the Ministry of Agriculture, the better harvest in the 1999/2000 season was the result of adequate rainfall and less disease. The wet season rice harvest for 2000/01 should be harvested by around November 2000, although in some areas it has already begun. A series of good harvests has focused attention on developing Cambodia’s potential as a rice exporter (1st quarter 2000, page 20), although the surplus is still too small to make an impact on international markets.

Cambodia: rice production

1999/2000 1998/99 Cultivated area (m ha) 2.07 1.96 Destroyed area (ha) 78,150 141, 447 Total output (m tonnes) 4.04 3.80 Wet season 3.33 3.10 Dry season 0.71 0.70 Yield (tonnes per ha) 1.94 1.79 Surplus (tonnes milled rice) 260,710 30,070 Source: Ministry of Agriculture, Forestry and Fisheries.

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Good rubber harvest, but As with rice production, the favourable weather has also benefited rubber low prices producers. In June the leading investor in the sector, Mong Reththy, estimated that production was running at 150 tonnes per day and that this would increase by 10% monthly until December. Cambodia produces around 40,000- 50,000 tonnes of rubber annually. Nevertheless, the regional rubber market has been suffering from oversupply, which has forced Cambodian prices downwards. In late June top grade Cambodian CSK5 was selling at US$610/tonne while second grade CSK5 was selling at US$590/tonne. In 1998 earnings from rubber exports were US$25m. Mong Reththy has plans to develop production in other agro-processing areas (see Industry).

The government clamps In June the government filed charges against a Malaysian company, GAT down on illegal logging International, accusing it of illegally cutting logs worth nearly US$105,000. The illegal logging is alleged to have taken place in the Cardomom Mountains in Koh Kong province. The filing of charges against GAT International follows the destruction of a number of illegal sawmills in May in Kampot province and in the southern port of Sihanoukville. The government is under pressure from multilateral institutions and aid donor countries to enforce a sustainable approach to logging. Compared with the situation in 1997 and 1998, the government appears to be taking a tougher line on illegal loggers. However, there are concerns that it is adopting a selective approach in which the politically powerful are able to continue logging. In May the IMF’s representative in Phnom Penh, Mario De Zamaroczy, urged the government to adopt a forestry law as a further move to prevent illegal logging.

Industry

Striking workers win a rise On June 21st the Free Union of Trade Workers of the Kingdom of Cambodia in the minimum wage (FUTWKC), along with a coalition of garment factory unions, began a series of strikes to press for improvements in working conditions and a rise in the minimum wage. In particular, they wanted to see a cut in the working week from 48 to 44 hours and a rise in the minimum wage from US$40 to US$80 per month. (The US government has recently noted what it regards as improvements in labour standards in Cambodia; see Foreign trade and payments.) The call for industrial action resulted in stoppages at many of Phnom Penh’s garment factories. Some strikes turned violent. During one strike on June 22nd, police fired on protestors as they attempted to storm the factory building, and one woman was shot in the head. The opposition Sam Rainsy Party (SRP) leader, Sam Rainsy, described the use of violence against the protesters as “unacceptable”. A spokesman for the Ministry of Social Affairs, Labour, Vocational Training and Youth Rehabilitation appealed for an end to the demonstrations.

On June 27th the president of the FUTWKC, Chea Vichea, duly announced an end to the strike action. He attributed the decision to intense pressure from government and factory management, which had led to a sharp fall in the numbers of striking workers. Vichea also said that his members would settle for a hike in the minimum wage to US$70. In the end the FUTWKC was beaten

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down considerably further with garment factory unions accepting in July an increase in the minimum wage of just US$5. The secretary general of the Garment Manufacturers Association of Cambodia, Roger Tan, said that the strikes had cost the industry at least US$500,000.

A leading investor plans to The leading domestic investor in agro-processing in Cambodia is Mong expand in agro-processing Reththy, who is a member of the Cambodian People’s Party (CPP) with close links to Hun Sen. Already well-established in the rubber sector (see Agriculture), he is planning investments in a number of other areas over the next few years. Mr Reththy has been growing tapioca since late 1998, and this is expected to start being processed in a newly completed, US$2m factory, from August 2000. The factory will initially be capable of producing 50 tonnes of tapioca flour daily, rising to 100 tonnes by 2002. According to Mr Reththy there is no shortage of buyers for tapioca. Reththy is also planning to start processing palm oil from 2002 in a still-to-be-constructed US$3m processing plant. The project suffered a setback during the Asian financial crisis when the Malaysian investors in the plant pulled out citing financial difficulties.

The agro-processing sector’s development is, however, hindered by lack of capital. According to a report in July in the newspaper, Reaksmei Kampuchea, domestic commercial banks are generally reluctant to lend to agro-processing projects because they are regarded as being too risky, a situation not helped by fluctuation in commodity prices. The director-general of the state-owned Rural Development Bank, Son Kunthor, has said that to overcome the problem the government will need to raise funds from overseas which could then be lent with a contribution from local banks. This is an area that the government is already working on, notably with the Asian Development Bank.

Services

Stockmarket plans are Hun Sen has approved the setting up of a working group, chaired by Bit reactivated Seanglim, to prepare for opening a stockmarket, possibly as early as 2003. The working group’s tasks include carrying out research on the likely structure of any future bourse as well as drafting legislation and other regulations. Establishment of the working group represents the resumption of a process that was first launched in 1995 but failed to progress.

Tourism records strong Tourist arrivals rose by 42% year on year in the first five months of 2000, to growth 143,064. Of these, the largest number of tourists came from the US, followed by China and France. In June the director-general of China’s National Tourism Authority, Hi Gan Ri, visited Cambodia, and this led to the signing of a memorandum of understanding (MoU) on encouraging the industry. The tourism sector has been growing strongly since late 1998 against a backdrop of greater political stability. Hun Sen said in May that tourists were still dissatisfied with procedures at Phnom Penh’s Pochentong airport and with visa fees. He said that some officials were demanding bribes at the airport and that there were also incidents of overcharging for visas. The government target for tourist arrivals in 2000 is an ambitious 400,000.

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New air links open up Another reason why tourism has been increasing is that there are now more international flights to Cambodia following the government’s launch of an “open skies” policy in December 1999 (1st quarter 2000, page 22). This includes direct flights to Siem Reap, the airport that services the famous Angkor Wat temple complex. At the moment, only Bangkok Airways and Vietnam Airlines fly direct to Siem Reap. However, Singapore’s Silk Air is planning to fly direct to Siem Reap from October. In May Shanghai Airlines began flying to Phnom Penh. To begin with, the airline will operate just one flight a week but this may be increased depending on demand. The opening of airlines between Phnom Penh and Shanghai reflects the growing importance of business links between the two cities (see Economic trends).

South Korea moves into the The government is expected to award a contract for the development of the telecoms market country’s Internet server business to a South Korean company, Korea Computer Communications. The announcement was made following a meeting in Phnom Penh between Hun Sen and the visiting South Korean deputy information and communication minister, Kim Dong-sun, in July. The meeting also saw the signing of an MoU between the two governments in the field of information technology and telecommunications.

Foreign trade and payments

Port statistics suggest Port statistics for the first half of 2000 suggest greater buoyancy in external strong trade growth trade. The volume of trade passing through Cambodia’s main seaport at Sihanoukville in the first six months of the year was up by 72.3% year on year, to 855,300 tonnes. No breakdown for imports and exports is given but the trade balance is usually in deficit. Over the same period, trade passing through Phnom Penh port rose by 19% to 250,444 tonnes, of which 216,446 tonnes were accounted for by imports. Phnom Penh, which is a river port, has recently been inaccessible to large ships owing to problems of siltation. However, in the first half of 2000 this was less of a problem because of higher water levels. The

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main exports were rubber, plywood and sawn timber. The main imports were oil and diesel fuel, construction materials and consumer goods.

US increases quota levels In May the US Trade Representative, Charlene Barshefsky, said that Cambodia’s for Cambodian garments apparel quota had been increased by 5%, effective from May 12th. This was made possible, she said, because of the government’s progress on enforcing “recognised core labour standards” for workers. The US imposed quota restrictions on Cambodian textiles and garments in November 1998 following the award of normal trade relations (NTR) status in 1996. Garment exports fell last year after four successive years of rapid growth, in part because of the quotas, which led to investor uncertainty in the sector. Strikes among garment workers (see Industry) have also led to lower production.

The government makes a In May the government signed a market access agreement with the EU, which deal with the EU on textiles will give textile and garment exporters almost unlimited access to the EU market until 2002. Although not formally signed, the agreement has been provisionally effective since December 1998. In the period until 2002, the government has undertaken neither to impose quantitative restrictions on EU textile imports nor increase the level of customs duty on them. Cambodian imports to the EU are subject to tariffs but at preferential rates.

Import inspections resume A Swiss company, Société Générale de Surveillance (SGS), has been selected by the government to inspect Cambodian imports. SGS began a five-year inspection contract in August 1995 but suspended its activity in November 1999 following payment disagreements with the government. According to government officials in May, almost all outstanding fees have now been paid.

Reserves continue to According to the IMF, total reserves (excluding gold) were US$488.72m at the strengthen end of May 2000, up by US$13.4m on April. Reserves are currently at record levels having been increasing steadily since July 1999. The reserves are now equivalent to just over 23 weeks of imports.

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Laos

Political structure

Official name Lao People’s Democratic Republic

Form of state One-party rule

The executive The Council of Ministers is the highest executive body; the vice-chairmen of the council (deputy prime ministers) oversee the work of the ministers; all members of the council are appointed by the chairman of the Council of Ministers (the prime minister)

Head of state The president, General Khamtay Siphandone; the post of vice-president, created in April 1996, is currently vacant following the death of Oudom Khatthigna

National legislature A unicameral National Assembly; membership was expanded from 85 to 99 for the 1997 national election

National elections December 1997; next election due in December 2002

National government The Lao People’s Revolutionary Party (LPRP) dominates the government and bureaucracy

Main political organisations Lao Front for National Reconstruction (LFNR), an umbrella organisation whose main component is the LPRP

Main members of Council Prime minister General Sisavat Keobounphanh of Ministers Deputy prime ministers Bounyang Vorachit Choummali Sayasone Somsavat Lengsavad

Key ministers Agriculture & forestry Siene Sapangthong Commerce Phoumy Thipphavone Communications, transport, posts & construction Phao Bounnaphol Defence Choummali Sayasone Education Phimmasone Leuangkhamma Finance Bounyang Vorachit Foreign affairs Somsavat Lengsavad Public health Ponemek Daraloy Industry & handicrafts Soulivong Daravong Information & culture Sileua Bounkham Interior Asang Laoly Justice Kham Ouane Boupha Labour & social welfare Somphanh Phengkhammy State planning Bouathong Vonglokham

Central bank governor Soukhanh Maharath

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Economic structure

Annual indicatorsa

1995 1996 1997 1998 1999 GDP at current prices (K bn) 1,419 1,710 2,200 4,260 10,837b Real GDP growth (%) 7.1 6.9 6.9 3.9 4.0c Consumer price inflation (av; %) 19.6 13.0 27.5 91.0 128.5 Population (m) 4.9 5.0 5.2 5.3b 5.5b Exports fob (US$ m) 310.9 322.8 318.3 342.1 310.8d Imports fob (US$ m) 626.8 643.7 601.3 506.8 n/a Current-account balance (US$ m) –346.2 –346.8 –305.5 –150.1 n/a Reserves excl gold (US$ m) 92.11 165.00 112.18 116.82 101.19 Total external debt (US$ m) 2,165 2,263 2,320 n/a n/a Debt-service ratio, paid (%) 6.3 6.7 6.5 n/a n/a Exchange rate (av; K:US$) 804.69 921.02 1,259.98 3,298.33 7,102.03

August 4th 2000 K7,600:US$1

Origins of gross domestic product 1997 % of total Agriculture & forestry 51.5 Industry (incl construction) 21.1 Services 25.5 GDP incl adjustments 100.0

Principal exports 1997 US$ m Principal imports 1997 US$ m Garments 90.5 Construction & electrical equipment 82.8 Timber & wood products 89.7 Materials for garment industry 73.7 Gold re-exports 41.5 Gold & silver 50.4 Hydroelectric power 20.8 Motorcycle parts 24.9 Coffee 19.2 Total incl others 647.9 Total incl others 316.9

Main destinations of exports 1997 % of total Main origins of imports 1997 % of total Vietnam 42.7 Thailand 51.9 Thailand 22.1 Vietnam 3.9 France 6.3 Japan 1.6 Belgium 5.6 Hong Kong 1.5 Germany 5.1 China 0.8 a IMF, International Financial Statistics unless otherwise stated. b EIU estimate. c Official estimate. d Customs basis data.

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Quarterly indicators

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Consumer prices (1995=100) 180.6 244.0 314.3 362.0 463.1 597.1 730.9 723.7 % change, year on year 42.2 77.1 103.6 130.2 156.4 144.7 132.5 99.9 Financial indicators Exchange rate K:US$ (av) 2,428 2,846 3,709 4,211 4,487 7,271 8,909 7,742 K:US$ (end-period) 3,230 4,538 3,941 4,274 5,365 9,430 6,550 7,600 Interest rates (%) Bank (end-period) 35.00 35.00 35.00 35.00 35.00 34.57 35.00 35.00 Deposit (av) 16.15 17.00 19.00 19.00 17.67 12.00 12.00 12.00 Lending (av) 26.11 29.00 30.00 32.00 32.00 32.00 32.00 32.00 Treasury bill (av) 19.30 23.33 24.00 28.00 30.00 30.00 30.00 30.00 M1 (end-period; K m) 87,883 96,812 113,192 168,982 205,522 183,252 191,703 216,895 % change, year on year 24.9 25.9 54.0 111.4 133.9 89.3 69.4 28.4 Sectoral trends Rice production (annual totals; ’000 tonnes) ( 1,675 ) ( 2,103a ) Foreign trade (US$ m) Exports fob 81.7 87.9 130.7 69.2 57.3 88.3 98.4 66.8 Imports cif 138.7 150.0 156.9 107.2 111.9 146.0 163.2 103.7 Trade balance –57.0 –62.1 –26.2 –38.0 –54.6 –57.7 –64.8 –36.9 Foreign payments (US$ m) Merchandise trade balance –45.3 –49.8 –39.9 –29.7 n/a n/a n/a n/a Services balance 14.6 13.7 11.7 9.5 n/a n/a n/a n/a Income balance –8.5 –8.5 –8.3 –9.6 n/a n/a n/a n/a Current-account balance –39.2 –44.6 –36.5 –29.8 n/a n/a n/a n/a Foreign exchange (end-period) 100.85 92.72 115.89 116.82 112.29 109.99 112.28 101.19 Sources: FAO; IMF, International Financial Statistics.

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Outlook for 2000-01

Political forecast

Domestic politics The recent bomb explosions in the capital, Vientiane, and a raid by anti- government rebels on a border post in southern Laos in early July (see The political scene), have shattered the country’s customary reputation for political stability. Last October an attempt was also made to organise an anti- government protest in Vientiane although this was quickly stopped and those involved arrested 1999 (4th quarter 1999, page 31). The arrest in June of two men in Vientiane suspected of being behind the bombings did not stop further attacks, and there is a good chance that there is more to come.

What seems less likely is that such activity will precipitate more widespread mass protest. Decades of tight party control means that such tendencies are fairly undeveloped. The ruling Lao People’s Revolutionary Party (LPRP), although not as strong as its counterparts in China or Vietnam, is still well- entrenched. It is also unlikely to move towards faster political reform in the face of discontent. Instead, what seems more likely is that it will move to further cement ties with fellow Communist countries, such as Vietnam and China. Nevertheless, there has been some speculation that the attacks are actually a result of pro-China members of the ruling elite attempting to discredit the pro-Vietnam camp (see The political scene) and thus promote anti-government sentiment in Laos as a way of instigating change. Evidence to corroborate or otherwise this theory could emerge over the coming months.

Next year the ruling party is scheduled to hold its Seventh Party Congress. This is a five-yearly event during which personnel changes on the Politburo and Central Committee are announced and the broad parameters of policy for the next five years are set out in a document known as the Political Report. Although the party has yet to announce a date for the Congress, preparations were clearly under way in May, including the usual consultation process on the Political Report. Predicting changes in personnel is notoriously difficult. However, a number of older Politburo members are expected to retire at the Congress. Most notably, the president, General Khamtay Siphandone, could step down from party or government posts (he also holds the post of party general secretary). The most likely successor is General Sisavat Keobounphanh, who is close to General Khamtay.

International relations The raid by anti-government rebels on a border post in southern Laos in June has strained relations with Thailand. The attack was launched from inside Thailand and some of those who took part held Thai identity cards (see The political scene). Over the last decade, the Thai government has sought to reassure its Lao counterpart that it has no wish to foment trouble along their shared border, nor allow Thai territory to be used as a base from which anti- Communist forces can operate. The recent raid thus risks reawakening traditional Lao fears and undermining the basis on which co-operation has been built up. Nevertheless, the recent events are unlikely to see a complete

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realignment of Laos’s foreign policy. In times of domestic political difficulty it is natural that the government will turn more to its Communist neighbours, notably Vietnam. Relations with Vietnam have long been close and will continue to be so. (Press reports that Vietnam has sent troops to Laos to help suppress Hmong insurgents are almost certainly exaggerated.) At the same time, Laos is a member of the Association of South-East Asian Nations (ASEAN) and remains committed to the organisation. Both the Lao and the Thai governments have sought to distance themselves from the more inflammatory language in the media.

Economic policy outlook

Policy trends We do not anticipate radical policy departures at next year’s Seventh Congress. This reflects the government’s traditionally cautious approach to economic reform. There is also a danger that recent instability will lead to greater conservatism in the short term. In practice, this means that progress towards creating a more favourable investment climate or overhauling the banking system will continue to be slow. The government is currently planning changes to its foreign investment regime after the Asian Development Bank described it as “opaque” and “highly restrictive”. However, few details have yet been forthcoming. At the same time, Laos’s commitments to lower tariff barriers as a member of ASEAN promises some movement in a liberalising direction. Ratification of the bilateral trade accord signed with the US would also require the phased introduction of a package of liberalising measures. However, this is unlikely to happen in the short term owing to political differences between the two countries.

Economic forecast

Economic growth We forecast GDP growth of 4.5-5% in 2000-01, compared with 4% in 1999. This represents no change since our last report. Improved macroeconomic stability is likely to facilitate greater economic activity during the forecast period. The economy will also benefit from a pick-up in regional demand, notably in Thailand, China and Vietnam. Preliminary reports on the progress of the wet season rice crop are encouraging, but it is not due to be harvested before November and the danger of flooding is ever-present.

That we are not forecasting higher economic growth in 2000-01 reflects the continued lack of financial assistance from the IMF and the delay in Laos’s receiving normal trade relations (NTR) from the US. A dialogue with the IMF on a possible Poverty Reduction and Growth Facility arrangement is ongoing but progress is not particularly fast and there are still issues outstanding relating to the government’s commitment to structural reforms. With the approach of the US presidential election, NTR is unlikely to be awarded before 2001 and if the two sides fail to resolve their differences over the disappearance of two naturalised US citizens on the Thai-Lao border it could be later still.

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Both public and private investment are likely to remain subdued in 2000-01. Foreign investment, notably from Thailand, has yet to recover following the Asian financial crisis, although investment from Vietnam is rising more strongly. Moreover, although the impact of recent political instability on business has so far been limited, the fact that Laos now looks less stable politically is likely to deter some investors. Government measures designed to create a more attractive environment for foreign investment, which are in the pipeline, are unlikely to make much difference to investment inflows in the short term.

There is no new tourism data from which to gauge the impact of the recent instability on the sector. There is anecdotal evidence that tourists are staying away while the recent cross-border raid, which received a lot of press coverage, will not have done anything to ease concerns. As a result, we are now anticipating a less buoyant tourism sector in 2000-01, and this will exert a consequent drag on growth.

Inflation According to the government, inflation was 35% year on year in June. Lower inflation reflects reduced food prices and the stabilisation of the currency, the kip. Assuming a reasonable harvest, we expect inflation to ease further in 2000- 01, although slippage in government fiscal and monetary policy, or sharp downward pressure on the kip, could send prices climbing again.

External sector Laos’s main exports are textiles and garments, timber and wood products, electricity and coffee. During 2000-01 textile and garment exports are likely to pick up on the back of quota-free market access to the EU, guaranteed until 2001. Demand from other Asian markets is also likely to recover. Nevertheless, the sector’s expansion will be constrained by the continued lack of NTR from the US, which makes Lao textiles and garments uncompetitive in the US market. Electricity exports will increase as demand recovers in Thailand: the recent agreement between the government and the Electricity Generating Authority of Thailand (EGAT) on the electricity price for Nam Theun 2 is encouraging, although this concerns the sale of electricity from 2006. Export earnings from coffee and timber products will pick up during the forecast period as commodity prices rise. However, as the economy recovers, imports

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will also rise. There are signs that this is happening already, prompting the government to impose administrative restrictions on certain imports from Thailand. Nevertheless, the trade deficit is likely to widen during 2001, putting pressure on the current-account deficit and ensuring that the international reserves remain weak. The government will continue to remain heavily dependent on foreign aid to finance the current-account deficit.

The political scene

More bombs in Vientiane in Laos has been experiencing an unprecedented period of political unrest in June and July recent months. On June 6th a bomb exploded in a bus parked at Vientiane’s main bus terminal. No one was killed but three people were injured in the blast. On June 28th ten building workers were injured after an explosion on a building site camp belonging to a Vietnamese construction company. Then, on July 31st, another bomb went off in the central post office, injuring seven people. The day before an explosive device was discovered in the Vietnamese embassy building, and a time bomb found at Vientiane's Wattay airport. Both were defused. Another device was reported to have been thrown into the departure lounge of the airport earlier that day but failed to explode. These incidents come after two previous explosions in the capital, one in the main market and one in a tourist restaurant (June 2000, page 24), and an anti- government protest in Vientiane in October 1999 (4th quarter 1999, page 31). There was also an explosion at Wat Tham Krabok, a temple in Thailand where many Lao Hmong refugees live, on June 27th. Two people were killed and five more wounded. However, there is no obvious link between this and the bombings in Vientiane.

Government blames The authorities have played down the situation, denying that there has been a Hmong for bombings sustained bombing campaign. Shortly after the bus station explosion, two men were arrested in Vientiane’s Morning Market, reportedly in the act of planting additional bombs. On June 15th a Ministry of Interior spokesman said that the culprits had been "caught red-handed" and that the situation was now “under control”. The official Lao government consensus has been that the bombings are the work of ethnic Hmong rebels who have a history of opposition to the government going back to the Vietnam war. In June the prime minister, General Sisavat Keobounphanh, said that Hmong rebels had come back from exile to mount a campaign “to disturb the government and people”.

On June 14th an anonymous Hmong representative in Bangkok seemed to back up the government's claims. He was quoted in a news agency report as saying that the Hmong, with the financial support of “overseas pro-democracy Laotians”, were responsible for the recent attacks. In subsequent reports, however, other Hmong groups denied responsibility for the bombings (anti- government Hmong are quite factionalised).

Some analysts have linked the recent attacks to royalist overseas Lao groups, with followers in the US and Thailand. These may or may not have links to Hmong. Whoever is responsible, the upsurge in anti-government activity has

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resulted in greater prominence for a number of different groups opposed to the government (see box on page 31).

Some blame the As the debate reaches full circle, analysts are now postulating that the government itself bombings are a result of a power struggle between different factions of the ruling elite. While the Politburo leaders, including the president, Khamtay Siphandone, and the prime minister, Sisavat Keobounphanh, sustain their historic loyalty to Vietnam, the younger generation is looking to embrace economic reform and see China as a more relevant role model. An article in the Far Eastern Economic Review on July 27th supposes that the pro-China faction may be trying to discredit the pro-Vietnam camp by showing Laos’s security forces as inept.

Rebels launch a raid in On July 3rd a group of some 60 heavily armed men entered southern Laos Champassak province from Thailand, seizing the Lao immigration and customs buildings in Wang Tao village in the southern province of Champassak. Lao troops soon repulsed the raiders. Six people were killed but 28 rebels fled back into Thailand’s Ubon Ratchathani province where they were arrested by the Thai authorities. The remaining rebels are believed to have escaped into Thailand, avoiding arrest.

Known Lao opposition groups

• Lao Student Movement for Democracy

• Lao Neutral Justice and Development Party

• United Lao National Resistance for Democracy (or the United Lao Freedom Fighters)

• Council of the Lao Overseas Representatives

• Laotian Executive Council for Independence and Democracy

• Lao Human Rights Council

Source: Press reports.

The raid is believed to have been carried out by a group called the Lao Neutral Justice and Democratic Party (NJDP), led by Suang Sangsula, who was wounded in the raid and later received treatment in a Thai hospital. The NJDP was founded to oppose Communist rule soon after 1975 and supports the return of the Lao monarchy. It operates from jungle bases on the Thai-Lao border. Another group has been linked to the raid called the United Lao National Resistance for Democracy, or the United Lao Freedom Fighters. This is led by a Laotian man called Srisouk Saiyasaeng, who has a Thai wife and reportedly owns houses in California in the US, and Ubon Ratchathani and Nong Khiaw in Laos. While Suang led the raid, Srisouk is suspected by Thai intelligence of having masterminded it. Neither he nor his wife have been seen since the incident but the Thai authorities have issued a warrant for their arrest.

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Raid may prejudice Thai After the raid the government called for the Lao rebels to be extradited to Laos. relations The Thai government has responded that it plans to prosecute the men on weapons and immigration violations before considering the extradition request. On July 26th the Thai prime minister, Chuan Leekpai, told the press that the government wants to send the rebels back to Laos but that the final decision will be made by a Thai court. There is no extradition treaty between the two countries, which could complicate the process.

The raid risks damaging Lao-Thai relations which, although much improved, have never been easy, not least because of problems on their shared border. Not only was the raid launched from Thailand but also eleven of those who participated in the raid were Thai citizens, or at least held Thai identity cards (some of these have turned out to be forged). The Lao newspaper, Vientiane Mai, has accused Chuan, who visited Laos in May, of harbouring “ill-will” towards Laos, while a report by Reuters quoted an unnamed Lao official as saying that “some Thai officials were backing anti-government Hmong activists”. The Lao government has disassociated itself from these comments: the Lao foreign minister, Somsavat Lengsavat, said on July 13th that it had “never accused any countries of being involved in the incidents”. Chuan has also sought to downplay talk of a deterioration in relations. He said that there had been no change in relations at the policy level, adding that the border incident would be dealt with in part under the auspices of the Thai-Lao joint- border sub-committee, which met on July 14th-15th. On July 13th the Thai government said that it would not grant political asylum to the 17 Lao rebels in custody in Thailand.

Thai border negotiations On May 24th the Conference on Boundary Co-operation and Security, a joint progress Lao-Thai government body, met in Bangkok for its annual meeting. Progress was reported on the surveying and erecting of marker posts on a large section of the border. Moreover, the joint-border sub-committee proposed that the Conference meet twice a year rather than once as at present. On May 26th- 28th Chuan visited Laos, signing a memorandum of understanding on the electricity tariff for Nam Theun 2 hydroelectric power station (see Infrastructure). Chuan’s visit was preceded by the signing of a co-operation agreement by the Lao foreign minister, Somsavat Lengsavat, and his Thai counterpart, Surin Pitsuwan, in early May. The agreement covered a wide range of areas, including security, business and culture.

Presence of Vietnamese In early June reports circulated in the media that Vietnam had sent troops to troops is denied Laos to help suppress anti-government Hmong. This included the quoting of unnamed diplomats as saying they had seen Vietnamese troop vehicles in Vientiane. The reports have been strongly denied by both Laos and Vietnam. On June 7th the Lao Ministry of Foreign Affairs issued a statement that said the reports were “totally groundless and pure fabrication”. Carl Thayer, an expert on Vietnam at the Asia-Pacific Centre for Security Studies in Hawaii, believes the reports are “grossly exaggerated”. Nevertheless, relations between Laos and Vietnam remain close and the two countries have been consulting on the recent political problems in Laos. On June 15th a delegation from the General Political Department of the Lao People’s Army, led by Lieutenant-General

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Khamphon Chanthaphon, who is also a member of the party Central Committee, visited Vietnam. The visit prompted a statement by the Vietnamese side that it wanted to “co-operate [with Laos] against hostile forces”. However, there is nothing out of the ordinary in the use of such rhetoric.

In early July a ceremony was held in Laos’s Xieng Khouang province for the construction of a K5bn (US$658,000 at K7,600:US$1) military hospital, funded by the Vietnamese Ministry of Defence. This again prompted media speculation of increased Vietnamese involvement in Laos. Xieng Khouang province has reportedly seen an increase in clashes between government troops and Hmong rebels in recent months. However the deputy director of the Ideology and Culture Department of the party Central Committee in Vietnam, Dao Duy Quat, said on July 4th that donation of the hospital had nothing to do with “recent terrorism” in Laos which he blamed on the “Vang Pao forces in Laos”. (Vang Pao was a CIA-backed Hmong guerrilla leader who fought against the Pathet Lao during the 1960s and 1970s.)

On May 15th-17th the Vietnamese prime minister, Phan Van Khai, visited Laos. The visit saw the signing of a memorandum of understanding on construction of Route 18b running from Laos to the Vietnamese coast. In July a Vietnamese military delegation led by the army chief of staff and deputy defence minister, Lieutenant-General Le Van Dung, visited Laos. Although there has been increased media interest in exchanges between Laos and Vietnam, visits such as these happen frequently and there is nothing to suggest a shift in relations.

An appeal for information In May Amnesty International issued a report calling on the government to on dissidents provide details of at least five people it believes were arrested in the wake of an opposition protest in Vientiane in October 1999 (4th quarter 1999, page 31). Amnesty believes that those arrested include the founder of the Lao Students Movement for Democracy (LSMD), Thongpaseuth Keuakoun, and four of his colleagues (Kamphouvieng Sisaath, Seng-Aloun Phengphanh, Bouavanh Chanmanivong and Keochay). Since last October, the LSMD has emerged as having been behind the protest.

The ruling party prepares On May 6th-10th the ruling Lao People’s Revolutionary Party (LPRP) Central for its Seventh Congress Committee held its 11th plenum. The meeting was called to prepare for the Seventh Party Congress, scheduled for 2001. Party Congresses are held every five years and are the high point of the Lao political calendar. They are an occasion for the setting out of broad policy parameters for the next five years, and also result in personnel changes to both the Politburo and Central Committee. According to KPL newsagency, the meeting discussed the draft political report that will be presented to the Congress, and also a draft amendment of the LPRP’s statute. In addition, a number of sub-committees were established to prepare for the Congress. This includes collecting opinions from grass-roots party committees on the political report.

The Lao president visits On July 13th-15th the Lao president, General Khamtay Siphandone, visited China China, holding talks with the president of China, Jiang Zemin, the prime minister, Zhu Rongji, and the chairman of the Standing Committee of the

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National People’s Congress, Li Peng. Jiang Zemin said that China was “satisfied with the smooth development of bilateral relations”. After Khamtay had briefed him on the domestic situation in Laos, Jiang expressed the view that the ruling LPRP was “powerful and cohesive” and that it would “surely be able to lead the Lao people in overcoming the difficulties facing them”. The two sides also expressed their determination to sign as soon as possible a framework accord setting out scope for future co-operation. Khamtay’s visit was preceded by a visit to China in May of the chief of the general staff of the Laotian People’s Army, Doungchai Pichit. Following talks with his Chinese opposite number, Fu Quanyou, Doungchai said that military co-operation between the two counties had been fruitful and that he expected the relationship would continue to grow.

Present Politburo line-up

General secretary:

• Khamtay Siphandone (president)

Members:

• Sisavat Keobounphanh (prime minister)

• Saman Vignaket (president National Assembly)

• Choummali Sayasone (defence minister)

• Thongsing Thammavong (head of central party mass mobilisation committee)

• Osakan Thammatheva (head of central party propaganda and ideology committee)

• Asang Laoly (interior minister)

• Bounyang Vorachit (deputy prime minister/finance minister)

Source: EIU.

The government will host On July 10th the Lao foreign minister, Somsavat Lengsavat, visited the the next ASEM summit European Commission in Brussels, where he held talks with the EU’s Commissioner for External Affairs, Chris Patten. In August Laos will take over co-ordination of relations between the Association of South-East Asian Nations (ASEAN) and the EU, prior to hosting an ASEAN-EU (ASEM) summit in Vientiane in October. At the ASEAN Post-Ministerial Conference at the end of July, Laos is expected to sign the EC-ASEAN Co-operation Agreement, which will enable it to benefit from EU co-operation projects provided on a EU-to- ASEAN basis. In his talks with Somsavat, Mr Patten emphasised the EU’s readiness to provide support to Laos in the areas of public administration and legal reform, and other areas relating to issues of good governance and the development of civil society. In recent years, the EU has become an important

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market for Lao textiles and garments, which has led to increased co-operation at both the political and business levels. In May Laos signed an agreement with the EU allowing for increased levels of Lao textile and garment exports to the EU (see Foreign trade and payments).

Foreign aid sought to In May the Lao National Committee for Drug Supervision and Control, headed tackle drug problem by Soubanh Sritthirat, who holds ministerial rank, hosted a meeting for diplomats of donor countries on the government’s drug policy. This follows a national meeting, the first of its kind, on drug supervision and control in March. Soubanh highlighted co-operation with foreign countries, including Laos’s neighbours, to try and prevent drug trafficking. He also briefed those in attendance about the government’s plans to reduce opium output over the next six years from the current 123 tonnes annually to 41 tonnes. Soubanh highlighted the fact that additional financial support was needed to implement its plans. Recently the government has been extending its network of provincial Drug Control and Suppression Units. These currently exist in eight provinces but the network is due to be increased to ten provinces and Vientiane municipality by the end of 2000. Later in May, police seized a large quantity of amphetamine tablets in Luang Namtha province being transported by road to Vientiane. According to the police, the drugs were purchased from Thai traffickers in the Golden Triangle. On June 26th the Lao authorities burnt seized narcotics in Vientiane to mark international day against drug abuse and trafficking.

Economic policy

Dialogue with the IMF is On May 2nd-11th the IMF carried out an assessment of the Lao economy and continuing held talks with the government. The mission, which was conducted by the IMF’s Indochina division, was aimed at laying the foundations for future negotiations on financial assistance under a poverty reduction and growth facility arrangement. Details have yet to be released regarding the Fund’s analysis but further missions are anticipated over the next few months. In November 1999 the IMF completed an Article 4 Consultation with the government in which it urged it to maintain tight fiscal and monetary policies and implement structural reforms. This followed a period of dramatically high inflation and a plummeting kip:US dollar rate, a situation kick-started by the Asian financial crisis. At the time, it said that progress in these areas would be necessary before financial assistance could be extended. Laos has not received financial assistance from the IMF under an enhanced structural adjustment facility since the last such programme expired in July 1997.

The government rejects In response to recent calls for rich countries to apply debt relief to their heavily debt relief indebted poor counterparts, the government has said it does not want debt relief at the moment but would like to reserve the right to apply for it in future. Laos is not alone in adopting such an approach which is motivated by a concern that if it receives debt relief it will not be able to borrow from commercial sources. Japan, for instance, has a policy of not lending to

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countries that apply for debt forgiveness although it will consider grants. In 1999 the IMF estimated Laos’s external convertible currency as equivalent to 90% of GDP.

Laos and Vietnam plan On May 7th-9th a Vietnamese trade delegation led by Vietnam’s trade minister, trade promotion centres Vu Khoan, visited Laos, where he held talks with his Lao counterpart, Phoumy Thipphavone. Phoumy noted that trade between the two countries has been expanding despite the Asian economic crisis. According to the most recently published data, bilateral trade rose nearly 60% in 1999 to US$345m. To further facilitate trade, plans were announced to establish trade promotion centres in each other’s country. In June a Vietnamese trade ministry company, the General Import-Export Company No 3, was taking steps to establish a trade promotion centre in Vientiane.

The domestic economy

Economic trends

Inflation continues its fall After peaking at 156.4% year on year in the first quarter of 1999, consumer price inflation has been falling. Since the last quarter of 1999 it has been back in double digits. According to the government, inflation was 35% year on year in June. Lower inflation follows the government’s tightening of fiscal and monetary policy, reduced pressure on food prices following a better harvest, and greater stability in the kip since October 1999. No new money supply data has been released since the last report.

The kip is stable After falling 44% in 1999, ending the year at K7,600:US$1, the kip has stabilised. In early August it was still trading at K7,600:US$1. Against the Thai baht, the kip was trading at K186:Bt1. Recent political instability has had little impact on the exchange rate.

Agriculture

A small increase in the wet Based on a report presented to the government in May, the wet season rice season rice crop is forecast harvest is targeted at 1.64m tonnes compared with 1.5m tonnes last year. At the end of June wet season sowing was estimated to be nearly complete. There have been reports of early heavy rains causing disease but no reports of crop damage. Animal husbandry and fish production are expected to increase by 4% and 20% respectively. The dry season harvest came in at 390,405 tonnes of paddy, up 10% on last year. The area cultivated was 5% higher than last year at 91,860 ha, but 16.5% lower than planned. Lower than planned dry season cultivation was attributed to continued irrigation weaknesses, although these are much improved compared with a few years ago, and also a spell of cold

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weather which reportedly deterred cultivation. The main wet season harvest usually occurs in November.

Industry

Vietnamese investment is Although foreign investment in Laos is falling, investment from Vietnam is rising comparatively buoyant. According to Vietnamese data published in July, Vietnam has 11 investment projects in Laos with total registered capital of US$6.8m or 27% of total Vietnamese investment overseas. Of the 11 projects, eight have been licensed since 1998. Vietnamese investors are active in agro- processing, forestry, construction, pharmaceuticals, transport and operating supermarkets.

Foreign investment is still According to government statistics released in late June, approved cumulative falling overall foreign investment is worth US$7bn spread between some 800 projects. No figures for foreign investment this year have been released although at a monthly government meeting on June 27th-28th it was acknowledged that investment is declining. In its annual report, Asian Development Outlook, published in April, the Asian Development Bank called for an overhaul of the government’s policy towards foreign investment, citing a lack of transparency and too many restrictions. The government is currently drafting changes to its foreign investment regulations although it is as yet unclear what form they will take and when they will be completed.

Infrastructure

Memorandum on Thai On May 26th a memorandum of understanding (MoU) was signed between the electricity price is signed Lao government and the Electricity Generating Authority of Thailand (EGAT), settling the price for electricity generated by the Nam Theun 2 hydroelectric power plant at US$4.21 cents per kwh. Signing of the MoU followed a breakthrough some weeks earlier after a protracted period of negotiations. EGAT is not scheduled to begin purchasing the electricity before 2006, at which point it will do so for a period of 25 years. Work has yet to begin on Nam Theun 2 owing to environmental objections to the project but the latest indications are that it will eventually go ahead (June 2000, page 28). EGAT is due to purchase electricity from a total of eight power stations. In late May the Lao government said that if it Nam Theun 2 and two other hydroelectric power plants (Nam Ngum 2 and 3) were not ready on schedule it will permit the Hong Sa Lignite plant to take their place. However, it is not due to come on stream before 2008.

Shinawatra’s satellite lease The Lao government has authorised the renewal of the Thaicom satellite lease is renewed for the next two years. The satellite, which is owned by the Thai company, Shinawatra, is used to relay radio and television signals inside Laos. The contract was signed between the Ministry of Information and Culture and Shinawatra in Vientiane in late June.

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Services

Japanese tourists put off by Prior to the recent instability (see The political scene), the tourism sector was instability fears doing relatively well (1st quarter 2000, page 39). There is no new tourism data since bombs started exploding in March, but there are concerns that this will deter foreign tourists. The Lao prime minister, Sisavath Keobounphanh, was quoted in June as saying that the bomb attacks were designed to disrupt the government’s “Visit Laos Year 1999/2000” promotion. As yet there is limited evidence that this has happened although there were reports of Japanese tourists cancelling package tours in June amid concerns about security.

Ho Chi Minh City plans In July the Department of Tourism in Ho Chi Minh City announced plans to tourism presence open a representative office and restaurant in Vientiane. However, it is currently awaiting approval from the Ho Chi Minh City People’s Committee.

Foreign trade and payments

New restrictions on Thai The government has imposed administrative restrictions on imports from imports Thailand. The list of restricted goods includes some 60 products, mainly consumer durables. The move is designed to limit the size of the trade deficit and preserve foreign exchange. Thailand has yet to formally take issue with the imposition of the restrictions, although the Thai ambassador to Laos, Suvidhya Simaskul, said in July that Bangkok was “keeping a close eye on the situation”. The Lao move follows the Thai government’s lowering of tariffs in March on a number of Lao exports to Thailand.

EU market access In May Laos and the EU signed an agreement that will give Lao textile and agreement is signed garment exporters almost unlimited access to the EU market until 2001. Although not formally signed, the agreement has been provisionally effective since December 1998. During the period until 2001, the Lao government has undertaken neither to impose quantitative restrictions on EU textile imports nor increase the level of customs’ duty on them. Lao exports to the EU are subject to tariffs but at preferential rates. Since 1993 Laos’s textiles and garment exports have increased by an average of 20% annually. In 1999 textile and garment exports expanded by 30% compared with a 16% fall in exports overall. Apart from the EU, major markets are other Association of South-East Asian Nation (ASEAN) countries, India and Pakistan. The lack of normal trading relations (NTR) status from the US (June 2000, page 25) means that Lao garment exports are subject to punitive tariffs which makes them uncompetitive in relation to similar products from countries that have NTR.

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EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000