Cambodia Laos 1996-97

COUNTRY PROFILE

Cambodia Laos

Our quarterly Country Report on Cambodia and Laos analyses current trends. This annual Country Profile provides background political and economic information.

1996-97

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 40 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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ISSN 1364-3525

Symbols for tables “n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Contents 1

October 31, 1996 Contents

Cambodia

3 Basic data

4 Political background 4 Historical background 7 Constitution and institutions 8 Political forces 10 International relations and defence

12 The economy 12 Economic structure 13 Economic policy 15 Economic performance 16 Regional trends

17 Resources 17 Population 18 Education 19 Health 20 Natural resources

20 Economic infrastructure 20 Transport and communications 22 Energy provision 23 Financial services 25 Other services

26 Production 26 Industry 26 Mining and semi-processing 27 Agriculture, fishing and forestry 29 Construction

30 The external sector 30 Merchandise trade 31 Invisibles and the current account 32 Capital flows and foreign debt 33 Foreign reserves and the exchange rate

35 Appendices 35 Sources of information 36 Reference tables

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 2 Contents

Laos

49 Basic data

50 Political background 50 Historical background 51 Constitution and institutions 52 Political forces 54 International relations and defence

55 The economy 55 Economic structure 55 Economic policy 59 Economic performance 61 Regional trends

61 Resources 61 Population 62 Education 63 Health 63 Natural resources

64 Economic infrastructure 64 Transport and communications 65 Energy provision 67 Financial services 68 Other services

69 Production 69 Industry 69 Mining and semi-processing 70 Agriculture and forestry 71 Construction

72 The external sector 72 Merchandise trade 74 Invisibles and the current account 74 Capital flows and foreign debt 75 Foreign reserves and the exchange rate

77 Appendices 77 Source of information 78 Reference tables

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Basic data 3

Cambodia

Basic data

Land area 181,035 sq km

Population 10.3 million (1995 World Bank estimate)

Main towns Phnom Penh, 691,000 (mid-1993 official estimate); Battambang, 573,900 (1993 estimate)

Climate Tropical; rainy season, May-October; dry season, November-April

Weather in Phnom Penh Hottest months, March-April, 27°C average annual temperature (daily maxi- mums of 32-40°C); coldest month, January, 25.6°C average annual temperature; wettest month, October, 256 mm average rainfall; driest month, January, 8 mm average rainfall

Language Khmer

Measures Metric system. Local measures include:

1 tao=15 kg 1 thang=40 litres (20-22 kg paddy) 1 hap=60 kg 1 king (or ray)=0.16 ha 1 chi=3.75 gm 1 damloeng=37.5 gm

Currency Riel introduced in March 1980. Average exchange rate in 1995 CR2,450.8:US$1; end-July 1996 CR2,570:US$1

Time 7 hours ahead of GMT

Public holidays January 9 (National Day), April (New Year), April 17 (Victory over American Imperialism Day), May 1 (Labour Day), May 20 (Day of Hatred), September 22 (Feast of the Ancestors)

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 4 Cambodia: Historical background

Political background

Historical background

The Khmer people trace the origin of their state to the emergence of a rich, coastal state known as Funan between the first and sixth centuries AD. By 802 AD, rival principalities in the Mekong Delta gave way to a highly centralised empire based at Angkor. The empire was supported by intensive agricultural production, made possible by a sophisticated irrigation system. At its peak during the reign of Jayavarman VII (1181-1218), the Angkorian empire incorporated parts of present-day Thailand, Malaysia and Vietnam. However, a period of political decline culminated in 1431, when Angkor was sacked by the emerging Thai kingdom of Sukothai (the capital was moved to its present-day site at Phnom Penh at this time). Vietnam and Siam competed for control over Cambodia; by the end of the 18th century the territory of the old Angkorian empire had been substantially reduced (to about two-thirds of present-day Cambodia) and the kingdom was paying tribute to both Siam and the Nguyen dynasty in Vietnam.

The French seize control The Khmer monarch, Ang Duong, asked the French government for protection in a bid to break out of this dependence. He was succeeded by his son, King Norodom, who signed a treaty of protection with France in 1863. The treaty granted France control over Cambodian foreign policy, and a permanent French resident-general was established at the Cambodian royal court. In 1884 a second treaty was forced on King Norodom, establishing French colonial rule. In 1887 Cambodia was fully incorporated into the Indochinese Union. The colonial administration of Indochina gave priority to the economic development of southern Vietnam. By 1945 Cambodia had no modern industry apart from one large rubber plantation and only a skeletal road network.

Sihanouk secures As the Second World War spread into the Pacific, Japanese troops were allowed independence into Indochina; the Japanese removed the French colonial government in 1945. In Cambodia, a Khmer government, under the young king Norodom Sihanouk, was put in its place. Initially King Sihanouk was sympathetic to the Khmer nationalist cause, but he became alarmed at the anti-royalist tendencies of the nationalist movement, and arranged for France’s return in 1946. One year later, a new constitution established a parliamentary system of government and reduced the power of the king to that of a constitutional monarch. However, seriously concerned by links between the nationalist movement and the communist Vietminh in Vietnam, King Sihanouk soon suspended the constitution and assumed emergency powers.

Faced with defeat in Vietnam, France met King Sihanouk’s appeal for independence for Cambodia in 1953. An agreement was ratified at the Geneva Conference on Indochina the next year. In 1955 in the run-up to elections arranged at the Geneva Conference as part of the French decolonisation process, King Sihanouk abdicated the throne in order to lead his own party in the polls. (He remained as Prince Sihanouk until 1993.) His political vehicle, the Sangkum Reastr Niyum (People’s Socialist Community), trounced all the other parties in the elections, including the Democrats (which had won the first parliamentary

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Historical background 5

elections in 1948) and the Pracheachon (People’s) party, which was an electoral front for the communists. For the next 15 years the then Prince Sihanouk dominated the country’s political life, his international and royal prestige allowing him to survive challenges for control from both the political right and the left.

The Khmer Rouge take However, in the final years of the Vietnam war, Prince Sihanouk was accused by power his own generals of collaborating with Vietnam and destroying the national economy. A parliamentary vote against him was quickly followed by a coup d’état in 1970 led by the prime minister, Lieutenant-General Lon Nol. The monarchy was abolished and a Khmer republic proclaimed; Lon Nol was elected president in 1972. The Lon Nol regime was opposed by a coalition led by Prince Sihanouk and including the underground Communist Party of Kampuchea (CPK), or Khmer Rouge, led by Pol Pot. The country rapidly descended into civil war. The Lon Nol regime soon began to crumble, despite massive US military and economic assistance against the Khmer Rouge, including saturation bombing of rural Cambodia for six months in 1973. On April 1, 1975, Lon Nol was flown to Hawaii; the capital fell to the Khmer Rouge on April 17.

Following the Khmer Rouge victory, Prince Sihanouk was quickly sidelined. Cambodia was renamed Democratic Kampuchea and proclaimed a worker- peasant revolutionary state under a new constitution promulgated in 1976. The National Assembly was merely a rubber-stamp legislature; ultimate power lay in the hands of Pol Pot’s secretive CPK. Advocating economic development based on self-sufficiency, the regime sought to isolate Cambodia from foreign influ- ences, abolished money and forced most of the urban population into large- scale rural cooperatives or industrial workcamps. The strategy was a catastrophic failure. Economic chaos resulted in widespread starvation, while the regime carried out brutal purges, killing suspected “counter-revolutionaries”. Estimates suggest that 1-2 million people were killed in the few years of CPK rule.

The Vietnamese invade The Khmer Rouge regime pursued a policy of confrontation with Vietnam. Diplomatic relations were severed in 1977, and border clashes became more frequent. Vietnam was alarmed at Pol Pot’s close ties with Beijing (Pol Pot was cast by the Vietnamese as China’s “cat’s paw”). Fearing that China was about to launch a war on two fronts, Vietnam invaded Cambodia in December 1978. Pol Pot’s forces were quickly pushed back to the remote mountainous areas in the west, and Vietnam installed a government headed by the newly created Kampuchean People’s Revolutionary Party (KPRP), led by Khmer Rouge defectors. The new government initially renamed the country the People’s Republic of Kampuchea (PRK). Despite the new KPRP government’s attempts to portray its rise to power as the result of an indigenously supported uprising against the abuses of the Khmer Rouge, it failed to secure international recognition. The Khmer Rouge continued to occupy Cambodia’s seat at the UN General Assembly.

These developments led to the formation of non-communist resistance movements, including the Khmer People’s National Liberation Front (KPNLF, later to become the Buddhist Liberal Democratic Party), and the National United Front for an Independent, Neutral, Peaceful and Cooperative Cambodia, or

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 6 Cambodia: Historical background

FUNCINPEC, led by Prince Sihanouk. In 1982 FUNCINPEC and the KPNLF joined forces to fight alongside the Khmer Rouge, with the united group calling itself the Coalition Government of Democratic Kampuchea (CGDK). The PRK government was backed by the Soviet Union, while China, the USA, France, the UK and the countries of the Association of South-east Asian Nations (ASEAN), backed the CGDK. Throughout most of the 1980s, neither side gained the upper hand.

Peace accord signed In 1987 the government of the USSR began to withdraw its assistance for the in 1991 PRK government, and to push for a negotiated settlement. However, negotiations were complicated by the existence of the two prospective governments: the Vietnamese-backed Kampuchean People’s Revolutionary Party (KPRP), which controlled the government in Phnom Penh under the leadership of the prime minister, Hun Sen; and the CGDK. Little progress was made until early 1990, when the five permanent members of the UN Security Council began to negotiate a settlement. The Soviet Union persuaded Hanoi and Phnom Penh to accept a “imited” UN role in supervising elections, designed to settle the matter democratically. This paved the way for the Paris peace agreement of October 1991. That year, the KPRP was renamed the Cambodian People’s Party or CPP, and the country was renamed the State of Cambodia (SOC), replacing the old People’s Republic of Kampuchea. In February 1992 the UN Security Council approved a massive peacekeeping operation, to be implemented by the UN Transitional Authority in Cambodia (UNTAC).

Uneasy coalition formed Implementation of the Paris accords did not go entirely to plan, as the Khmer after the 1993 elections Rouge refused to hand over its weapons to UNTAC and did not participate in the election. The campaign was marred by the intimidation and murder of the members of rival political parties, reflecting Cambodia’s lack of a democratic tradition. However, the election went ahead in May 1993. A total of 20 parties took part. Khmer Rouge disruption failed to materialise, and voter turnout was estimated at 87%.

Victory went to FUNCINPEC by a small margin. The party, now headed by Prince Sihanouk’s son, Prince Norodom Ranariddh, secured 45.5% of the vote. The Cambodian People’s Party (CPP), the successor party to the KPRP, came second with 38.2% of the vote. The only other parties to win seats were the Buddhist Liberal Democratic Party (BLDP) and the National Liberation Move- ment of Cambodia (known as MOLINAKA), which had broken away from FUNCINPEC. The CPP threatened that it might not recognise the result, while a member of the former SOC government, Prince Norodom Chakkrapong, lead a brief secessionist movement in several eastern provinces. These developments forced FUNCINPEC to share power with its former battlefield enemy, the CPP. In October 1993 a coalition government incorporating FUNCINPEC, the CPP and the BLDP was approved by the National Assembly, with two joint prime ministers appointed from FUNCINPEC and the CPP.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Constitution and institutions 7

Important recent events

October 1993: A coalition government incorporating FUNCINPEC, the CPP and the BLDP is approved by the National Assembly. June 1994: The Khmer Rouge is outlawed and its representatives expelled from Phnom Penh. July 1994: The government survives an attempted coup d’état led by radicals in the Cambodian People’s Party. October 1994: The internationally respected finance and economy minister, Sam Rainsy, is ousted from the government. July 1995: Cambodia attends the annual Association of South-east Asian Nations (ASEAN) foreign ministers’ meeting as an observer. It hopes to become a full member by 1997. November 1995: The former finance and economy minister, Sam Rainsy, forms the opposition Khmer National Party, which the government declares illegal. December 1995: The former foreign minister and FUNCINPEC secretary-general, Prince Norodom Sirivudh, goes into exile in France accused of plotting to kill the second prime minister, Hun Sen. March 1996: Prince Norodom Ranariddh threatens to take FUNCINPEC out of the coalition if it is not given its rightful share of power. Intra-coalition relations deteriorate. The Khmer Rouge suffers a serious defection, with its entire 18th Division going over to the government. Around 12,000 guerrillas have defected in the past two years. August 1996: Ieng Sary, former right-hand-man to Pol Pot, defects from the Khmer Rouge along with an estimated 2,000-3,000 troops. The hardline rump of the Khmer Rouge is further isolated.

Constitution and institutions

The 1993 constitution The constitution promulgated in September 1993 established in theory the enshrines democratic rule principle of multiparty, liberal democracy, reflecting UN influence. However, restraints on political activity remain.

The influence of the The 1993 constitution states that the country is a constitutional monarchy in monarchy has declined which the “king reigns but does not wield power”. The king is responsible for appointing the prime minister. He also approves the cabinet chosen by the prime minister. Initially influential in the new government, King Norodom Sihanouk’s influence began to wane as his health failed and he spent long periods out of the country receiving medical treatment. He is still revered by the population at large, but his ability to unify different government factions is now limited. It is unlikely that the next king, who will most likely be Prince Norodom Ranariddh, will have a greater unifying role. The constitution states that when the king dies, his successor will be chosen by the Throne Council within seven days. However, the council is split along the factional lines which characterise the wider political scene.

The co-premiership will Since the new constitution came into force, Cambodia has been ruled by two end after the next election co-prime ministers. According to Article 138 of the constitution, this is only a

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 8 Cambodia: Political forces

temporary measure, designed to encourage national reconciliation. The constitution states that after the next election, which is scheduled for 1998, there will be only one prime minister. Both prime ministers appear to accept this.

The security apparatus is The defence and interior ministries, which are dominated by the Cambodian powerful People’s Party, wield far more power than other ministries, with their influence extending to economic matters. Recently created bodies like the Council for the Development of Cambodia, which is responsible for approving foreign investment, and the Cambodian Rehabilitation and Development Board, which is responsible for the management of bilateral aid projects, are politically weak.

The role of the National The constitution invests exclusive legislative power in the National Assembly, Assembly which is forbidden to delegate power to any other organisation or individual (Article 90). Parliament cannot be dissolved before its five-year term has expired, unless the government has been dismissed twice in 12 months. Its five-year term can be extended by one year at a time on the recommendation of the king and subject to the approval of a two-thirds majority in parliament. For legislation to be passed an absolute majority of the votes of all members of parliament is necessary. In practice, however, the National Assembly is a rubber-stamp body with little scope to challenge the government. Outspoken members have been expelled from parliament. In June 1995 the former finance and economy minister, Sam Rainsy, was expelled from FUNCINPEC and then from the National Assembly; his expulsion from the National Assembly was justified on the grounds that the electorate had voted for FUNCINPEC, not for him as an individual.

The judiciary is not The judiciary lacks independence. This was evident in December 1995, when independent the former foreign minister, Prince Norodom Sirivudh, was sentenced in absen- tia to ten years’ imprisonment on charges of criminal conspiracy and illegal possession of weapons. Prince Sirivudh had been accused of plotting to kill the second prime minister, Hun Sen. The charges were regarded as highly dubious. No defence witnesses were called and there was no cross-examination of prose- cution witnesses. The then Australian foreign minister, Gareth Evans, described the verdict as demonstrating that the judiciary “is less than wholly independent”. The courts have also dealt harshly with journalists who have fallen foul of the authorities.

Political forces

The coalition is an uneasy Since the 1993 general election Cambodia has been ruled by a coalition govern- alliance ment comprising the Cambodian People’s Party (CPP), the royalist FUNCINPEC and the Buddhist Liberal Democratic Party (BLDP). The last plays a minor role. Relations between the two key parties, FUNCINPEC and the CPP, are very poor. There are ideological differences; the CPP is less committed to political pluralism and economic reform. However, personality differences and historic rivalries are a more critical problem. The CPP and FUNCINPEC are former battlefield enemies, and as a consequence mistrust between them runs deep. These tensions are reflected in an ongoing power struggle.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Political forces 9

FUNCINPEC has been FUNCINPEC was established in 1979 by Prince (later King) Sihanouk to oppose weakened by splits the Vietnamese-installed government. Since the 1993 election it has been riven by factionalism, weakening its position within the coalition. Some commentators have questioned whether FUNCINPEC will survive as a political force.

The BLDP (originally called the Khmer People’s National Liberation Front, KPNLF) also originated as part of the opposition to the Vietnamese puppet government. Never an influential force, it split in 1995. One faction now supports the CPP.

The opposition suffers Many of the 20 parties which contested the 1993 election have ceased to exist. harassment The main opposition force is now the Khmer Nation Party (KNP), founded in November 1995 by the former finance and economy minister and one-time member of FUNCINPEC, Sam Rainsy. The KNP claims to have over 100,000 members, predominantly former FUNCINPEC supporters and also overseas Cambodians. The KNP plans to contest the 1998 general election, but because it is currently not legally recognised as a legitimate political party it may not be able to do so. Legislation governing the 1998 election, which may clarify the situation, is still not in place. In March 1996 the KNP tried (unsuccessfully) to obtain legal status by merging with the tiny Liberal Reconciliation Party, one of the officially recognised parties which contested the 1993 elections.

The Khmer Rouge

The Khmer Rouge remains Cambodia’s most important security problem. However, the group has steadily lost resources and influence during the 1990s. The loss of Thai and Chinese aid was an important blow. Then in June 1994 the government banned the organisation altogether, and the political wing of the group retreated to the mountains in Preah Vihear province in the far west. Here they established the Provisional Government of National Union and Salvation (PGNUS), headed by the organisation’s president, Khieu Samphan. The government policy of enticing defectors from the Khmer Rouge has proved fairly successful. Best estimates suggest that the number of the guerrillas fell from around 10,000 in 1993 to below 6,000 by 1996. The group suffered a major blow in August 1996, when Pol Pot’s right-hand man, Ieng Sary, defected to the government with an estimated 2,000-3,000 troops. The breakaway faction joined forces with government troops. The Ieng Sary faction controls logging and gem-mining activities, sources of revenue for the Khmer Rouge in the past.

It seems clear that the hardline Khmer Rouge is now very isolated, although it remains capable of acts of terrorism such as damage to infrastructure. However, the ability of a fanatical core to exploit disaffection with the government among the rural poor is likely to prevent the group disappearing completely. The defection by Ieng Sary may open the possibility of the return of the Khmer Rouge as a political force. It seems that Ieng Sary wishes to contest the 1998 election through the newly formed Democratic National United Movement. This party has not been formally recognised, and there are those in Cambodia (including King Sihanouk) who feel that Ieng Sary should be tried for war crimes. If the negotiations break down, the government could be left facing two Khmer Rouge guerrilla groups, not one.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 10 Cambodia: International relations and defence

The government has not banned the KNP outright. However, the KNP’s position is not helped by the fact that Sam Rainsy has made enemies in the CPP and the security forces through his attempts at fiscal centralisation during his period in office, and his campaign against corruption. The party has also suffered splits. In March 1996 a founding member of the KNP led a breakaway faction from the party. There are thus two parties calling themselves the KNP. There have been reports that the breakaway group was in talks with the CPP.

Main political figures

Prince Norodom Ranariddh: head of FUNCINPEC and first prime minister since 1993. He has alienated many in his party by failing to stand up to the Cambodian People’s Party (CPP). He is the son of King Norodom Sihanouk, and favoured by his father to succeed him to the throne. Hun Sen: vice-chairman of the Cambodian People’s Party (CPP) and the second prime minister since 1993. At least on the surface he appears to have strengthened his grip over the coalition. In early 1996 he threatened to use military force against anyone who sought to end the coalition’s term prematurely (a reference to Prince Ranariddh’s threat to leave the coalition and precipitate an election). However, his position within the CPP is less assured; more powerful figures within the party may regard him as a convenient front man. Sam Rainsy: former FUNCINPEC finance and economy minister, who was ousted in a cabinet reshuffle in September 1994. Rainsy had made enemies through his efforts to centralise control over the budget and his anti-corruption campaign. He was later expelled from the National Assembly, prompting him to form the Khmer Nation Party. Well-respected in foreign business circles and popular at grassroots level. Sar Kheng: interior minister and deputy prime minister. Sar Kheng is influential in both the Cambodian People’s Party and the coalition. A possible successor to Hun Sen. King Norodom Sihanouk: first crowned king in 1941, he abdicated the throne in 1955 to lead his own political party, the Sangkum Reastr Niyum, to victory in the elections of that year. He ruled uninterrupted until 1970 when he was deposed in a coup d’état. He was returned to the throne in 1993. His powers are now limited by the constitution. Once a unifying figure, ill-health and frequent absences from Cambodia have led to a sharp decline in his influence.

International relations and defence

Troubled relations with Cambodia’s history has been dominated by conflict with its two large neigh- Vietnam bours to the east and west, Vietnam and Thailand. Relations with Vietnam were affected by the Vietnamese invasion in 1978 and subsequent decade-long occupation. More recently ties have been damaged by border disputes and problems over the status and treatment of ethnic Vietnamese living in Cambodia. Grass- roots hostility towards Vietnam and the Vietnamese remains strong, and has been exploited by Cambodian politicians. There have been some recent improvements, however. In December 1995 King Sihanouk visited Vietnam for the first time since 1975, a symbolically important event. Future developments may be affected by the Cambodian domestic political situation; the CPP (originally

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: International relations and defence 11

put in power by Hanoi) tends towards a more conciliatory stance towards Vietnam than FUNCINPEC.

Relations with China and Until recently Phnom Penh accused the Thai military of continuing to support Thailand are improving the Khmer Rouge. However, the official line in Phnom Penh is that Bangkok has now severed ties with the guerrillas. Attention has instead shifted to settling outstanding territorial disputes. The two sides agreed to establish a joint border commission in September 1995. Relations may improve further once Cambodia joins the Association of South-east Asian Nations (ASEAN). It received observer status in 1995. Like neighbouring Laos, the target date for joining is 1997 (see Economic policy).

Relations with China have changed dramatically since the signing of the Paris peace agreement in 1991. Beijing has distanced itself from the Khmer Rouge, which it supported politically and militarily during the 1970s and 1980s, and has declared its backing for the government. In 1996 the Chinese government decided to extend $1bn of non-lethal military assistance to the Cambodian government, reversing its earlier position. In addition, Chinese- Cambodian commercial ties are growing in importance.

Western support remains In 1994 relations with the USA, Australia and France entered a new stage with conditional their decision to extend non-lethal military assistance to Cambodia, mainly in the form of training and equipment for the Royal Cambodian Armed Forces (RCAF). The move reflected the desire among these countries’ governments to support the post UN Transitional Authority in Cambodia (UNTAC) political order. This support for Phnom Penh is not unconditional, however. The USA has stated openly that a deterioration in the human rights situation and a breakdown in the democratic process could jeopardise international support. Relations with Washington were strained in 1996 when the US administration placed Cambodia on its watchlist for drug-producing or drug-exporting countries which are judged to be making insufficient efforts to curb drug-trafficking. Performance is appraised annually. If Cambodia is “decertified”, it faces penal- ties which include the loss of US aid and even the imposition of limited trade sanctions. Relations with Japan, the country’s largest bilateral aid donor, are rather easier.

The army will be Since a number of embarrassing defeats in 1994, the Royal Cambodian Armed streamlined Forces’ battlefield performance against the Khmer Rouge has improved somewhat. The provision of external military training in recent years is thought to have played a key part in this. On paper the RCAF numbers some 130,000 troops, although only around 90,000 are believed to be on active service. It has been common practice for senior officers to draw the pay of so-called “ghost soldiers”, inflating the official figures. The government is aiming to trim the size of the armed forces to 60,000 by the year 2000. The officer corps will be streamlined; in 1994 the RCAF had as many as 1,900 generals and 10,000 colonels. Some steps have recently been taken to reduce their number.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 12 Cambodia: Economic structure

The economy

Economic structure

Main economic indicators, 1995

Real GDP growth (%) 7.6 Consumer price inflation (%; annual average) 9.1 Current-account balance ($ m) –295.6 Foreign debt ($ m)a 1,943 Exchange rate (CR:$; annual average) 2,451 Population (m) 10.3

a 1994.

Sources: World Bank, Cambodia: From Recovery to Sustained Development, 1996; World Bank, World Debt Tables 1996; IMF, International Financial Statistics; EIU.

Agriculture dominates Agriculture dominates the economy, contributing almost 45% of constant GDP— price GDP in 1995. However, its share has fallen modestly since the late 1980s, due to structural changes and to problems with rice production. Cambodia’s single most important commodity is rice. Rice accounted for one-third of total agricultural output and almost 15% of total GDP in 1995. Rubber and other crops (such as jute) together accounted for 23% of agricultural output in 1995, with livestock accounting for over 28%. Fishing and forestry each contributed under 10% of agricultural output and less than 4% of GDP. (Reference table 5 provides a breakdown of GDP by sector; Reference table 12 gives data on agricultural output.)

—but industry and The industry and service sectors account for a growing share of GDP. In 1995 services are leading industry (comprising mining and quarrying, manufacturing, electricity, water growth and construction) accounted for an estimated 18.6% of total GDP, up from 15% in 1991, while services accounted for 36.5%. The manufacturing sector’s contribution to GDP has remained fairly constant at around 7% of GDP over the period 1991 to 1995. Rather, the surge in industrial output has been led by the construction sector. According to the World Bank 1996 report Cambodia: From Recovery to Sustained Development, construction and services together account for almost three-quarters of the growth seen in Cambodian GDP since 1991. (See Reference table 3 for overall GDP; and Reference table 5 for contri- butions to GDP by sector.)

Domestic investment is According to the Cambodia authorities, gross domestic investment has grown growing strongly strongly during the 1990s, reaching 22.4% of GDP in 1995, from 9.4% of GDP in 1991. The private sector accounts for nearly 70% of domestic investment. The national savings rate stood at 7.5% of GDP in 1995; public dissaving slowed through the 1990s, while private savings have been reasonably buoyant. How- ever, a substantial gap remains between domestic saving and investment; hence Cambodia remains heavily dependent on foreign capital inflows. The World Bank has estimated that national savings stood at only 4.4% of GDP in 1995. (See Reference table 4 for historical expenditure-based GDP figures.)

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Economic policy 13

Reliable figures for the geographical distribution of economic activity are not available. However, Phnom Penh and the southern seaport of Sihanoukville are important economic centres.

Economic policy

Central planning met When the Vietnamese-backed government took power in 1979 it inherited a little success— devastated economy from the retreating Khmer Rouge. Private ownership of property was forbidden, and most of the educated elite had fled or been killed. Although the new administration reintroduced a currency in 1980, its control over the economy was initially very limited, and agriculture and trade went untaxed. However, the new government wanted to established a more effective centrally planned economy. To this end, annual production targets were set and efforts were made to collectivise agriculture, although this proved unpopular. Implementation of the central plan was further hampered by the uncertain political situation and by the government’s administrative weakness. Industry showed little sign of recovery; in 1985 it contributed no more than 5% of GDP compared with just under 20% in 1970.

—hence reforms began Recognising these problems, the first steps towards market-oriented reforms in 1985— began at the Kampuchean People’s Revolutionary Party’s Fifth Congress in 1985, when formal recognition was extended to the private sector. In 1986 the government abandoned the collectivisation of agriculture, and started to encourage private household production. The government more than doubled the state procurement price for rice in 1987, bringing it closer to the market price. The reform process was broadened in 1989. This was mainly a response to the loss of aid and preferential trade arrangements from the Soviet bloc. Private ownership of family plots and inheritance rights were restored. Farmers were permitted to sell surplus produce on the open market although minimum state procurement prices were maintained. Official procurement of food commodities was finally eliminated in 1992, and the practice is now forbidden under the constitution.

—including modest efforts State-owned enterprises were theoretically made financially autonomous in to reform state 1989, although the government continued to rely on revenues from state firms. enterprises— Privatisation was permitted; some state companies were sold to private investors, or recapitalised through joint ventures. However, in practice the government has preferred to try to improve state sector efficiency by leasing assets to the private sector on a temporary basis. Figures to the end of 1993, which record the status of 62 enterprises formerly under the Ministry of Industry, show that the ministry had leased 29, sold 17, and maintained control of 16. A number of other state enterprises have been either leased or sold to private investors since then.

—and trade and Reforms to the external sector were introduced from 1988 when the deep-water investment liberalisation port of Sihanoukville was opened to international shipping. Private trading companies were permitted in 1989, and quantitative restrictions on imports and import and export licences were abolished for most products. As part of this more outward-looking policy, efforts were made to attract foreign direct

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 14 Cambodia: Economic policy

investment. In theory foreign investors were permitted to take 100% stakes in Cambodian companies under the new Foreign Investment Law passed in July 1989. A new liberal foreign investment law was passed in August 1994, including tax incentives for investments in infrastructure, energy and labour-intensive projects. The authorities now want to promote investment in low-technology light industries, such as food processing and textiles and garments.

Key economic policy developments

1985: The government extends formal recognition to the private sector. 1986: Collectivisation of agriculture is abandoned. 1989: Farmers are permitted to sell surplus produce on the free market after meeting minimum requirements for state procurement. A foreign investment law is passed. 1990: Trade with the Council for Mutual Economic Assistance (CMEA, also known as COMECON) countries shifts to a hard-currency basis. 1992: With the support of the IMF, the government launches corrective measures to curb runaway inflation and rein in the budget deficit. 1993: The Organic Budget Law is passed, placing responsibility for all revenue collection and expenditure in the hands of the central Treasury. 1994: The IMF approves a three-year Enhanced Structural Adjustment Facility (ESAF). A new foreign investment law is approved. 1995: Privatisation regulations are approved, and a privatisation commission established. 1996: A central bank law is enacted, strengthening the autonomy of the National Bank of Cambodia.

Fiscal policy The fiscal situation has deteriorated during the 1990s. A large gap was left by the ending of Soviet aid in 1990. The government also had difficulty in developing new sources of revenue to replace its previous reliance on non-tax funds trans- ferred from state enterprises. The government resorted to printing money to fund the deficit, fuelling inflation. In 1993 the government took corrective measures with the support of the IMF and UN Transitional Authority in Cambodia (UNTAC), including a dramatic slowing of central bank credit to the government. Another important step was the adoption of the Organic Budget Law in December 1993, which gave the Treasury full control over all revenue and expenditure. However, implementation has proved difficult; spending by the defence and interior ministries in particular has proved hard to control, and the budget deficit has continued to expand, reaching 8% of GDP in 1995.

The 1996 budget (for the fiscal year beginning January 1, 1996) forecast a modest reduction in the deficit to 7.4% of GDP, and granted new revenue-raising powers to the provinces. However, for its domestic receipts the government remains heavily dependent on revenue from customs duties. Hence further fiscal reforms are likely. They are expected to include rationalisation of the tax structure, the introduction of a value-added tax and efforts to streamline budgetary administration. Until these reforms take effect, Cambodia will remain dependent on external financing of the budget. (See Reference table 1 for historical data on government finances.)

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Economic performance 15

Monetary policy In a bid to control the growth of money supply, efforts are being made to curb credit to the public sector. In the second half of 1993 the central bank stopped printing money to fund the budget deficit. However, the bank has a limited ability to fine-tune the economy. This will change gradually as more sophisticated monetary instruments, such as open market operations, are developed.

Total liquidity has continued to grow strongly, rising by 44% year-on-year in 1995. The World Bank suggests that this reflected the increase in domestic- currency holdings and foreign-currency deposits, at the expense of foreign- currency holdings—which are not measured in the figures (with more funds being held in bank deposits and fewer funds being held outside the system). This “deepening” of the monetary system is reflected in the increase in liquidity as a percentage of total GDP. Hence an apparent continued strong growth in the money supply does not necessarily mean an increase in inflationary pressures. However, the World Bank recommends that annual growth in liquidity of 13- 4% should be sufficient to cope with the growth of GDP and the deepening of the monetary sector. (See Reference table 2 for historical data on money supply.)

Ideology and reform Disputes over economic policy stem largely from clashes of interest between rival political factions. Marxist-Leninist ideology has a weaker influence in Cambodia than in Vietnam and Laos, reflecting the presence of two non- communist parties in the coalition, as well as recent international involvement in policy formulation. That said, some groups are nervous of surrendering too much state control over the economy. This is especially the case for the old- guard communists in the Cambodian People’s Party. However, while such differences may delay the implementation of reforms, there is no question of them being reversed.

Further trade The government will remain open to foreign direct investment as it seeks to liberalisation is expected develop export-led industrialisation. Further trade liberalisation will follow membership of the Association of South-east Asian Nations (ASEAN) currently scheduled for 1997, when Cambodia will be required to start working towards meeting its commitments under the ASEAN Free Trade Area (AFTA). The expe- rience of Vietnam suggests that Cambodia may be required to start reducing tariffs soon after joining ASEAN. Tariffs on designated products will be reduced to between 0% and 5%, possibly by 2006 (compared with 2003 for the first six ASEAN member states). In the longer term, membership of the World Trade Organization (WTO) is possible, and would entail further trade liberalising concessions.

Economic performance

Growth is more buoyant Although data are patchy, the economy has generally been more buoyant in in the 1990s the 1990s than it was in the second half of the 1980s, boosted by higher levels of bilateral and multilateral lending. Investment during the UN Transitional authority in Cambodia (UNTAC) operation of 1992-93 generated a surge in electricity, mining and services output as well as a boom in construction. Overall growth was constrained in the two years after the end of UNTAC by a

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 16 Cambodia: Regional trends

poor performance by the rubber and rice sectors; the rice harvest in 1994 was particularly bad. However, aid commitments have continued to flow into areas such as infrastructure projects, while an increase in foreign (largely Asian) investment in export-oriented light manufacturing industries has sustained industrial output. Nevertheless, agriculture remains the key to the outlook for growth in Cambodia. Agriculture is very vulnerable to poor weather and pests because of inadequate irrigation and lack of pesticides.

Gross domestic product (% real change) Average 1995 1991-95 GDP 7.6 6.1 Agriculture 6.9 2.9 Industry 9.5 10.9 Services 7.4 8.3 Regional comparisons Laos 7.0 6.4 Thailand 8.6 8.4 Vietnam 9.5 8.2 Sources: World Bank, Cambodia: From Recovery to Sustained Development; Asian Development Bank, Outlook 1996-97.

Inflation has come under Inflation averaged just 9.1% in 1995 compared with 73% during 1991-95, control reflecting efforts to curb money supply growth. The tendency to fund high budget deficits through printing money has in the past fuelled inflation, although this is now less of a problem. Lower inflation in 1995 followed efforts to curb the money supply (M2) in 1994. However, supply-side inflationary pressures remain a key problem. Cambodia suffers from infrastructure bottlenecks; in addition, a poor harvest can result in rice shortages. (See Reference table 6 for inflation trends and Reference table 2 for money supply trends.)

Inflation (% change) Average 1995 1991-95 Consumer prices 9.1 72.6 Source: Asian Development Bank, Key Indicators.

Regional trends

The CPP is politically Cambodia’s population is relatively homogenous. However, regional tensions strong in the provinces— do exist. The Vietnamese-installed government (led by the Kampuchean People’s Revolutionary Party (KPRP), later renamed Cambodian People’s Party (CPP)) which ruled from 1979 to 1993 established a strong grip over provincial administrations. The CPP (the successor political party to the KPRP) has shared power with the royalist FUNCINPEC since the 1993 election, but the CPP retains a strong influence at the provincial level. In 1996 all district-level posts remained in CPP hands, despite pledges to share these positions with FUNCINPEC. The CPP is particularly well-entrenched along the border with Vietnam. It was from here that CPP radicals launched a shortlived secessionist movement in mid-1994.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Population 17

—but central Although the CPP is relatively well-entrenched at the provincial level, central government’s fiscal government control over Cambodia’s peripheral regions is generally quite weak. control is weak The Khmer Rouge still controls areas along the border with Thailand. In financial terms, central government budgetary control is weakened by widespread smuggling. In addition, recent attempts to recentralise fiscal control are proving difficult. In December 1993 the new Organic Budget Law placed responsibility for all revenue collection and expenditure in the hands of the central Treasury. This was strongly opposed by the provinces; the 1996 budget appeared to bow to this pressure by granting the provinces new revenue-raising powers.

Resources

Population

The population is The first and only population census was carried out in 1962; this gave the predominantly rural— population at 5.7 million. Subsequent estimates of the size and structure of the population are projections based on assumptions of birth and mortality rates. In 1995 the World Bank estimated the population at 10.3 million. Around 85% of the population lives in rural areas, according to 1993 figures from a UN Population Fund (UNFP) study. The largest cities are Phnom Penh, with a population of 691,000 according to the Ministry of Planning (although it could be as high as 1 million according to the UNFP), followed by Battambang and Sihanoukville, both with substantially smaller populations. Rural population density is low, averaging 56.6 persons per sq km on the basis of the estimated 1995 population, although concentrations are higher in the lowland areas sur- rounding Tonle Sap and along the banks of the Mekong-Bassac river complex.

—and very young The most recent figures from the National Institute of Statistics estimated that, in 1993, 47% of the population was less than 15 years old. Those over 65 years old accounted for only 3% of the population. Years of warfare and the purges of the Khmer Rouge have also left Cambodia with a highly unbalanced population; National Institute of Statistics figures for 1993 record that 52.6% of the population was female and 47.4% male. This contrasts with neighbouring Vietnam and Laos, which have both largely overcome their war-induced imbalances between the sexes. The existence of a very young population has implications for future population growth rates, suggesting they will remain high as the current younger generation of women reaches childbearing age.

Age and gender structure of population, 1993

Age range Males per Age group (% of total) 100 females Under 5 years 19 103 5-14 years 28 100 15-64 years 50 88 65+ 3 79 Total 100 93 Source: National Institute of Statistics of Cambodia and UN Population Fund, Cambodia: Demographic Profile, 1995.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 18 Cambodia: Education

The population is Some 90% of the population are of Khmer ethnic origin. Although there are ethnically homogeneous many other ethnic groups, notably in the highlands, there are significant numbers only of Vietnamese, Chinese, and Cham and Malay Muslims. The UNFP report estimated the current Vietnamese population at around 500,000, and a Cham population of perhaps 130,000; racism directed at the Vietnamese is widespread. Official statistics suggest that the Chinese population is beginning to re-establish itself as a major economic force after suffering persecution at the hands of the Khmer Rouge. There are now an estimated 300,000 Chinese, mainly located in Phnom Penh, compared with 500,000 in the 1960s.

Population indicators

Crude birth rate (per ’000)a 38 Crude death rate (per ’000)a 15 Life expectancy (years)b 52 Population growth rate (%)b 2.7

a 1990. b 1994.

Source: World Bank, World Development Report 1996; Cambodia: From Recovery to Sustained Development, 1996.

Population growth is The population growth rate has fluctuated sharply since the 1960s. During the now high 1975-79 period of Khmer Rouge rule and the 1979-80 famine, mortality levels were abnormally high. In addition, as many as 650,000 people (10% of the pre-war population) left the country between 1970 and the early 1990s, although there has subsequently been some repatriation of displaced persons. The country underwent a baby boom in the early 1980s as a modicum of political stability was regained, and again during 1992-93 amid optimism following the international peace agreement. Given the youthfulness of the population in general (with a large proportion now reaching childbearing age) the population growth rate is likely to remain around its current estimated rate of 3%. It will not be easy to make the use of birth control more widespread among a poor, relatively uneducated and widely dispersed population. (Refer- ence table 7 provides population data for 1991-95.)

Education

Literacy rates are low— By the end of the Pol Pot era formal education had ceased, and many educated Cambodians had either been killed or had fled abroad. Cambodia’s educational levels remain poor. Primary school enrolment rates are low; primary enrolment was estimated by the World Bank at only 53% for the period 1989-94, compared with 77% 25-30 years ago, and drop-out rates are high. Parents are increasingly expected to contribute to their children’s education; according to the World Bank, this has led to a further deterioration in enrolment rates over the last few years. The result is seen in low literacy levels. The World Bank estimates that only 65% of the population is literate; and while 78% of men are literate, the rate drops to only 50% for women.

—but the government has In 1994 the government published its educational priorities in the Basic set ambitious education Education and Investment Plan (BEIP), compiled with the assistance of the targets Asian Development Bank. A key target is to provide six years of primary school

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Health 19

education for all children by 2000. Secondary school provision will be expanded, and teacher training will be improved. In 1994 the government introduced a 50% salary supplement for teachers; many teachers hold second jobs due to poor levels of pay. These priorities were reflected in the 1996 budget; government spending on education was slightly up on the previous year, and accounted for 6% of total public expenditure. However, because of the scale of the task, much of the funding for the BEIP is to come from bilateral and multilateral sources and from non-governmental organisations.

Educational opportunities at tertiary level are woefully inadequate. In 1996 the prime minister called for the establishment of an advisory council with representatives from the ministries of education, industry and commerce, the Cambodian Development Council and the private sector to discuss human resource training. A number of organisations, including Germany’s Deutsche Gesellschaft für Technische Zusammenarbeit (DGTZ) and the UN’s International Labour Organisation (ILO), are working with the government in this area. There has also been some private investment, and Japan is providing training for officials to assist Cambodia’s preparations for joining ASEAN. However, the lack of skilled workers is a problem for investors as well as for government efforts to improve public administration.

Health

The public healthcare Mortality figures reflect the very poor state of public health provision in system has broken down Cambodia. Infant mortality is estimated at 110 per 1,000 live births and maternal mortality is thought to exceed 900 per 100,000 births. These figures are poor by regional standards, and are similar to average standards in sub-Saharan Africa (according to World Bank figures). Death from preventable diseases is common, especially in rural areas. Many children fall victim to diarrhoeal diseases and respiratory infections, while the main adult killers are malaria and tuberculosis. Only 20% of the urban population and 12% of the rural population have access to safe drinking water. HIV/AIDS is also a growing problem, especially among sex workers in Phnom Penh. Life expectancy at birth is a mere 52 years (World Bank estimate for 1995).

The public healthcare system is extremely run down, and nearly 50% of the population has no access to public healthcare facilities. There has been a massive decline in the number of doctors and nurses per head of population since the mid-1960s. The private sector has sought to fill the gap, but a lack of appropriate medical training means that individuals offering medical treatment are often ill-qualified to do so. The government plans to improve the training of medical personnel and to extend immunisation programmes. These priorities were reflected in the 1996 budget; government spending on healthcare was targeted to increase by 65% to $24.2m, although this still represents only 4.2% of total budget spending. Cambodia is also receiving financial and technical assistance from bilateral and multilateral donors to improve healthcare provision.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 20 Cambodia: Natural resources

Natural resources

Cambodia is the smallest of the three former Indochinese countries. It is bordered by Laos to the north, by Vietnam to the east and by Thailand to the west. Aside from the Cardamom Mountains in the south, which divide Cambodia’s interior from its short southern coastline, the greater part of the country consists of a shallow basin centred on Tonle Sap (the Great Lake). The Mekong River crosses Cambodia from north to south; the river averages about 2 km in width depending on the season. During the rainy season, a large amount of the Mekong’s flood-waters are diverted into the Tonle Sap River and so into the Tonle Sap proper, doubling its size.

The cultivated area has Up-to-date figures for the amount of land cultivated are not available, although shrunk since the 1960s it is believed that there has been a large fall in the area cultivated since the 1960s. A factor in this decline is the widespread presence of landmines, which are estimated to have been distributed over 30% of the country’s agricultural land. The decline reflects a reversion to subsistence farming in some areas.

Cambodia’s most valuable resource is its forests, which despite deforestation cover anywhere between 35% and 62% of total land area, depending which estimates are accepted. In addition, the country’s lakes and rivers are abun- dantly stocked with fish. Tonle Sap’s fish yields are reportedly more than double those of Thailand’s intensively managed reservoirs. Cambodia is believed to have not particularly large but commercially viable deposits of phosphate, granite, limestone, sand, gravel, clay and bauxite, while there are also gold, gem, and oil and gas reserves. The precise amounts have not been assessed, although some oil exploration has been undertaken.

Economic infrastructure

Transport and communications

Cambodia’s transport and communications infrastructure is in a serious state of disrepair. Severe damage and destruction was caused in the 1970s, and there has been little subsequent investment. Continuing acts of sabotage by the Khmer Rouge cause additional damage to the country’s road and railway network. The situation is especially bad in rural areas, large parts of which are effectively isolated from both domestic and foreign markets.

Priorities for The World Bank’s report to the International Conference on Reconstruction infrastructure were set to Cambodia (ICORC) in 1994 identified four priorities for infrastructure out in 1994 development:

• repair of the most dilapidated sections of the primary road network;

• rehabilitation of rural roads;

• strengthening the capacity of the Ministry of Public Works and Transport to maintain the road network; and

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Transport and communications 21

• the provision of technical assistance to the Cambodian authorities to enable them to implement donor-funded infrastructure projects.

International assistance for infrastructure development is being carried out under the auspices of the Emergency Rehabilitation Project (ERP), which is due to run at least to 1998 and probably to 2000. Project implementation has proceeded very slowly since the 1994 ICORC meeting, due to the poor security situation, shortages of qualified local staff and inadequate public resource mobilisation. Looking beyond the ERP, a draft Transport Rehabilitation Study was produced in 1995, although there has yet to be agreement on a longer-term strategy. (See Reference table 8 for data on transport.)

Roads The road network consists of about 3,200 km of national roads, 3,100 km of provincial roads, and 28,000 km of rural roads. Some 2,400 km of these roads used to be paved, but because of neglect and war-related damage only 600 km still are. Many of the country’s 2,400 bridges and numerous ferries are in a poor state of repair. Much of the repair work so far carried out has been temporary in nature. Work is already under way or planned on the National Roads (NRs) 3, 4, 5, 6A and 26. A number of international organisations are channelling resources to link rural roads to the national road network. Motorcycle traffic is increasing in urban areas, but road traffic remains light.

Inland waterways Inland waterways provide an important means of transport, particularly in the rainy season when many roads are impassable. In the rainy season there are some 1,800 km of navigable waterways, falling to 600 km in the dry season. The major routes are along the Mekong River and the Tonle Sap River. Inland ports include those at Neak Luong and Kompong Cham. However, siltation of the Mekong has rendered some stretches impassable for large boats; existing dredging equipment needs to be upgraded.

Ports The two main ports are at Phnom Penh on the Mekong River and at Sihanoukville, which is the country’s only deepwater seaport (although Phnom Penh can receive small ocean-going vessels). Both suffer from siltation and have antiquated cargo-handling equipment. During 1995 and 1996 Japanese-funded renovation work was carried out at Phnom Penh port. In conjunction with the government, the Asian Development Bank (ADB) is funding the upgrading of Sihanoukville port. In 1996 Sihanoukville was expected to handle some 900,000 tons of cargo, compared with 707,705 tons in 1995.

Air transport The country’s main airports are at Phnom Penh (the Pochentong airport), Sihanoukville and Siem Reap. There are regular international flights between Phnom Penh and Bangkok, Vientiane, Hanoi, Ho Chi Minh City, Kuala Lumpur, Singapore, Hong Kong and, most recently, Paris. A French company was awarded the contract to renovate Pochentong airport, including building a new runway, in 1995. Domestic connections are also moderately well developed since a number of small airports were refurbished by the UN Transitional Authority in Cambodia (UNTAC). The national airline is Royal Air Cambodge, which is 60% owned by the government and 40% by a sister company of Malaysia Airlines. Until 1994 there were two Thai-run carriers in Cambodia but the government closed them down.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 22 Cambodia: Energy provision

Railways The railway system comprises two single-line metre-gauge tracks: a 385-km line from Phnom Penh to Poipet; and a 263-km route from Phnom Penh to Sihanoukville. In 1994 the railway system carried about 500,000 passengers and 100,000 tons of freight. Security along the lines is poor, and trains have been ambushed by bandits and the Khmer Rouge. France and the multilateral agencies are financing the track repairs and the provision of new rolling stock.

Telecommunications Telephone density is extremely low at 0.05 telephones per 100 people, compared with 0.7 in Laos and 1.4 in Vietnam. The $50m telecommunications network installed for UNTAC by an Australian company, OTC/Telstra, is still largely functioning, linking all 21 provinces, despite theft, vandalism and lack of maintenance immediately after the UN’s departure. Telecommunications links also exist via the Intelsat system and mobile phones. A subsidiary of Singapore Telecom operates a nationwide paging service under the name Phonelink. Proposals for development of the telecommunications system are set out in a government plan published in 1995.

Energy provision

Generating capacity is low Officially generated capacity in Cambodia stands at 35 mw; of this, 25 mw comes from diesel power generators and the remainder from hydroelectric sources. In addition, many companies and hotels have installed their own generating units. According to some estimates, this has increased nationwide generated capacity by over 100 mw. However, capacity remains very low by regional standards. Laos has a capacity of 256 mw, while capacities in Myanmar and Vietnam are 1,000 mw and 6,000 mw respectively. The majority of the population has no access to electricity, relying instead on wood and charcoal for their energy requirements. Phnom Penh accounts for over 85% of electricity consumed nationally. With electricity demand in the capital running at around 75 mw and the distribution system old and badly in need of repair, power cuts are frequent. All diesel used to generate electricity has to be imported. (Reference table 9 provides national statistics on energy production.)

Investment in capacity is In 1994 the Asian Development Bank (ADB) estimated that demand for power needed to meet growing would be reaching 95 mw in 1997 and 125 mw by 2000. A large-scale expansion demand of energy capacity is clearly needed to meet this increase in demand. The government and international donors identified upgrading energy provision in Phnom Penh as the key priority, including a complete overhaul of the city’s distribution system. The ADB is also focusing on upgrading capacity in Siem Reap and Sihanoukville, while a number of other provincial towns have been targeted for investment. The state power utility, Electricité du Cambodge, is contributing to the investment effort, although there are serious doubts about its ability to meet commitments. Longer-term plans for the expansion of electricity capacity have yet to be published. However, there has been discussion of exploiting hydroelectric sources in the north-east if the security situation improves.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Financial services 23

Private-sector investment Although energy distribution is expected to remain in public hands at least in remains limited the medium term, the government wishes to attract private-sector investment in power generation. The government has signed a handful of agreements with private companies, including Itochu of Japan. A consortium including a US company, Intercore, signed a deal to construct a 35-mw power station in Phnom Penh under a build-operate-transfer (BOT) agreement. Originally scheduled to come on stream in 1996, the project has suffered a number of delays. The lack of a fully developed regulatory framework for private-sector participation hampers efforts to attract investment, and most funding to date has come from bilateral and multilateral sources.

There is some investment in oil and gas (see Production).

Energy balance, 1995 (m tons oil equivalent) Elec- Oil Gas Coal tricity Other Total Production 0.00 0.00 0.00 0.02a 1.43 1.45 Imports 0.17 0.00 0.00 0.00 0.00 0.17 Exports 0.00 0.00 0.00 0.00 0.00 0.00 Primary supply 0.17 0.00 0.00 0.02a 1.43 1.62 Net transformation 0.05 0.00 0.00 0.01 0.00 0.06 Final consumption 0.12 0.00 0.00 0.01b 1.43 1.56

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

Financial services

Private and foreign banks The National Bank of Cambodia (NBC) once discharged both central and are in operation commercial banking functions. The move towards a modern two-tier banking system began in 1993, with the Law on the State Bank. This established the NBC solely as the central bank, with responsibility for regulating commercial banks, printing money and controlling foreign exchange. Commercial banks are being established; there were 29 registered commercial banks in Cambodia as of 1995. These included two state-owned banks (the Foreign Trade Bank of Cambodia and the Phnom Penh Municipal Bank), as well as joint ventures between the state and private sector (including private foreign investors). Initially the NBC invested in many of these joint ventures; for example, the Cambodian Commercial Bank was established in 1992 by the NBC and the Thai Military Bank. However, since 1994 the central bank has been withdrawing from its joint ventures with commercial banks, in order better to regulate the commercial banking sector.

Since the early 1990s 100% foreign-owned banks have been permitted to trade, enabling them to establish both representative offices and full branches. Thai banks predominate, although Malayan Banking and France’s Banque Indosuez are also represented.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 24 Cambodia: Financial services

The banking sector is Reliable statistics are not available, but many of Cambodia’s commercial banks poorly regulated are believed to be plagued by problems. In 1994 the then deputy governor of the NBC, Tioulong Samura, described the banking system as operating like a “big casino”. There have also been unsubstantiated accusations that Cambodian banks are involved in money-laundering. During the final days of the KPRP government in 1993 there was a surge in the issuing of commercial bank licences, including to some banks whose capitalisation was very low. In 1995 the NBC took steps to tackle such weaknesses. This included withdrawing the licence of Credit Bank of Cambodia (CBC) for failing to maintain the minimum level of capital of CR10bn (US$4.1bn), to provide details about its shareholders or to appoint an auditor for its 1994 report.

However, the shake-up of the commercial banking sector by the central bank appears to have lost momentum in the face of domestic opposition. Hence many unhealthy banks continue to operate. One impediment to the establishment of a stronger banking sector is the NBC’s vulnerability to political factionalism. In 1995 Tioulong Samura resigned after falling out with the bank governor, Thor Peng Ceath, who accused her of hatching a political plot. The deputy governor, who was the wife of the controversial former finance and economy minister, Sam Rainsy, had accused the governor of illegally seeking to prop up the Credit Bank of Cambodia before its closure.

Capital shortage affects In 1995 the Asian Development Bank (ADB) noted that few provincial bank private sector branches had been able to mobilise sufficient savings to meet the demand for loans, despite the central bank’s efforts to maintain positive interest rates in recent years. Consequently banks continued to depend on borrowing from the central bank. In terms of lending the state sector receives a disproportionate share of funds, although lending to the private sector has increased in recent years. Another constraint on the private sector is the lack of a well-developed rural banking network. However, in addition to the formal financial sector, there is also a thriving informal capital market, which is an important source of funding for small-scale businessmen and farmers.

A stock market is planned The government hopes to open a stock market in 1998 (according to reports in for 1998 mid-1996). It has been receiving advice and training from the World Bank’s International Finance Corporation (IFC) and from the Hong Kong-based Inter- national Securities Corporation. The Ministry of Finance has drafted a capital markets law, which is awaiting approval by the co-prime ministers and the National Assembly. Potential listings include the state-owned Royal Air Cambodge, and a number of banks, utilities and construction companies. In contrast to neighbouring Vietnam the authorities say the bourse will be open to foreign stockbrokers from the start. There will be no limits on the number of transactions foreign brokers can make, and no stipulation that foreign brokers must form joint ventures with Cambodian brokers. The government has also said that it plans to liberalise the insurance sector, although no timetable has been published. The sector is currently dominated by one state company.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Other services 25

Other services

Plans to expand the Since the UN-supervised elections in 1993 there has been a rapid increase in tourism sector tourist arrivals. In 1995 there were an estimated 220,000 arrivals, compared with just 3,000 in 1991. Just under 75% of the 1995 total were tourists, with the remainder either businessmen or officials. Asians comprised around 70% of visitors. To tap increased Japanese interest in Cambodia, discussions are under way for direct flights to be established between Phnom Penh and Osaka.

Tourism has the potential to generate employment and foreign exchange earnings for Cambodia, and developing the sector is a high priority for the government. It has declared 1997 Visit Cambodia Year. By 2000 it hopes to raise the number of visitors to 1 million. (See Reference table 10 for historical data on arrivals.)

The authorities intend to promote tourism in three key areas focused on Cambodia’s principle cultural sites:

• the Angkor Wat temple complex, near Siem Reap;

• the capital Phnom Penh and its environs; and

• the coastline near Sihanoukville.

There are also plans to develop the tourism potential of the country’s natural habitat. This will include providing river cruises and trekking opportunities.

Private investment in Cambodia’s uncertain political and security situation is the main constraint on tourism is sought the development of the tourism industry. Incidents involving foreign visitors are rare, although recent kidnappings have received considerable attention from the international media. In addition, Cambodia lacks international standard hotel accommodation and trained personnel, while the infrastructure linking the main tourism sites is poorly developed. The authorities are seeking private-sector investment to address these problems. The tourism sector has received some foreign investment. Since the 1994 foreign investment law was passed, foreign investment in the tourism sector has reached $400m (figures correct as of April 1996). The development of a beach resort and casino in and around Sihanoukville by a Malaysian company, Ariston, is the largest to date, with eventual investment of $1.3bn planned. However, the project is proceed- ing slowly. The state tourism company remains the most prominent domestic tourism company.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 26 Cambodia: Industry

Production

Industry

The industrial sector, 1995

Output (CR bn)a 60.9 Employment (’000) 225 Real output growth (%) 9.5

a Constant 1989 prices, estimate.

Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

Manufacturing has The industrial sector comprises mining and quarrying, manufacturing, electric- benefited from foreign ity and water, and construction. The sector has grown faster than overall GDP investment over the last few years, although it remains small as a percentage of GDP (less than 19% in 1995). Apart from a limited amount of cement production, the country has no heavy industrial capacity. (See Reference table 11 for a breakdown of the main industrial goods.) In 1995 around 50% of industrial production was generated by the state sector. However, activity by small-scale private companies is increasing.

The manufacturing sector remains relatively small as a percentage of GDP (some 7% in constant 1989 prices), although the sector has grown quite strongly through the 1990s, averaging 7% growth in real terms in 1991-95, above the rate of overall GDP growth. Manufacturing output has been boosted by a steady trickle of foreign direct investment (FDI), particularly from Asia. Much of the foreign investment in the manufacturing sector is small in scale, although official figures may underestimate the extent of such investment.

The most important manufacturing sectors are rice milling, and cigarette, beer and soft drinks production. The leading growth areas in recent years include textiles and garment manufacturing and food processing. In early 1996 there were estimated to be around 30 garment factories in the country. There has also been a proliferation of companies producing construction materials. In 1996 the head of the Cambodia Development Council (CDC) stressed that Cambodia intends to focus on developing these low-tech sectors. Cambodia’s ability to attract larger manufacturing ventures is constrained by the unstable political climate, the poorly developed legal framework and infrastructure bottlenecks (including power shortages—see Resources).

Mining and semi-processing

Oil and gas Cambodia is endowed with a variety of minerals (see Resources) but exploitation is currently small-scale. The mining sector contributed only 1.2% of GDP in 1995 (World Bank figures). The government is seeking to attract foreign investment in the mineral and oil and gas industries. Since 1994 a number of companies have been exploring offshore, although discoveries of commercially viable oil and gas have so far been limited. In 1994 the government announced

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Agriculture, fishing and forestry 27

new, flexible contract terms for investors in oil, including the offer of tax rates more attractive than those offered by other countries in the region. In 1996 the government published plans to allow exploration for oil and gas in a number of onshore blocks, and the Japan National Oil Company was given permission to conduct a geophysical survey of the Tonle Sap and Mekong.

Gold and gems A number of companies from Australia, Canada and Malaysia have signed agreements to prospect for gold in the provinces of Kompong Thom, Preah Vihear and Mondulkiri. However, the sector lacks adequate regulation, as a draft mining law has yet to receive National Assembly approval. In addition poor security and the presence of landmines have added to the difficulty of both exploration and extraction. There is, however, an established gem-mining industry around Pailin. For many years this was exploited by the Khmer Rouge in cooperation with Thai companies. At its peak in 1991, revenue from this source was estimated at $2m-5m per month. The lands around Pailin have now returned to the control of forces friendly to the government (see Political forces).

Agriculture, fishing and forestry

Agriculture, including livestock, fisheries and forestry, accounts for around half of GDP, and employs over 80% of the workforce. Timber and rubber have historically been the most important export commodities, although other agricultural products such as maize, soybeans, live cattle, fruit and fish are also exported. (See Reference table 12 for historical data on agricultural output volumes.)

Agricultural output growth has been sluggish in recent years. Despite some liberalisation of the sector (starting with the abandonment of collectivisation in 1986—see Economic policy), government controls have remained a constraint. For example, the 1993-95 ban on rice exports, ostensibly designed to keep down domestic rice prices, curbed rice production. Poor rural infrastructure is another problem. The lack of roads makes it hard to get goods to market, and hence some farmers have retreated into subsistence farming. Irrigation systems, reservoirs and dykes have fallen into disrepair, limiting the periods during which cultivation is possible. The presence of landmines and continued fighting means that large tracts of land cannot be cultivated. In the absence of a well- developed rural credit network, it can be hard for farmers to obtain capital.

The government’s A turnaround in the agricultural sector is crucial to Cambodia’s long-term agricultural development economic development. Agriculture and rural development was a key priority strategy in the government’s development strategy presented to international donors in Tokyo in 1994. The following broad goals were identified:

• to improve food security and reduce reliance on external food aid;

• to reintegrate refugees into the rural economy;

• to provide more secure conditions for the occupation of agricultural land, and for the marketing of agricultural products;

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 28 Cambodia: Agriculture, fishing and forestry

• to improve infrastructure and social facilities in the countryside in order to lift production levels and rural incomes;

• to rehabilitate rubber plantations; and

• to create an institutional base capable of preparing and implementing a long-term agricultural strategy.

International organisations, governments and NGOs began implementing agricultural projects such as mine-clearance, rural road rehabilitation and irrigation. However, progress has been slow. Security problems remain, while donor funding has been disbursed more slowly than anticipated. Many projects have focused on short-term problems, such as providing emergency food aid, rather than tackling longer-term structural difficulties. According to the World Bank, lack of coordination between projects has also been a problem, as have shortages of trained personnel. Hence much remains to be done.

Rice By the 1990s the area of land given over to rice cultivation was smaller than in the 1960s. The country’s best rice-growing land is in Siem Reap, Banteay Meanchay and Battambang provinces. The rice crop is very important in terms of overall output; in 1995 rice contributed nearly 15% to GDP as output recovered from the poor 1994 harvest. However, rice output is very volatile. Less than 8% of rice land is irrigated, leaving farmers reliant on the annual rains; generally only one rice crop is produced per year. Yields are low by regional standards, averaging 1.3 tons per ha between 1992 and 1994 (compared with 3.5 tons per ha in Vietnam). The government wants to boost rice output in order to improve domestic food security and also to produce an exportable surplus. Following the lifting of the rice export ban in 1995, the trade ministry announced plans to export 120,000 tons of rice in 1996, which would be the first rice exports in 25 years. The authorities have also encouraged foreign investment in rice production. In 1996 a Singapore government-private sector consortium signed a joint-venture agreement with the Cambodian government to grow rice in Takeo province.

Rubber In 1994 rubber output was 27,000 tons (according to the World Bank), well below the levels achieved in the late 1960s. The area under cultivation has also fallen, from around 60,000 ha to around 43,000 ha in 1994. The bulk of production comes from six state-owned plantations. The sector is receiving financial and technical assistance from France. In July 1996 the government announced a plan to overhaul the rubber industry, dramatically increasing the area under cultivation, and to privatise some aspects of it, possibly management and processing. However, efforts to boost export earnings from rubber are constrained by smuggling. Officially, the export of rubber is handled exclusively by the state-owned KAMPEXIM, but as much as one-third of the rubber produced is smuggled out of the country.

Other crops In the early 1990s only a modest proportion of cultivated land was given over to the cultivation of non-rice crops (excluding rubber). Since then the government has encouraged farmers to diversify. Non-rice crops produced include sugar cane, cassava, sweet potatoes, soybeans and tobacco. Yields and output levels are generally below those achieved in the late 1960s.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Construction 29

Animal husbandry Livestock production contributes around 13% of GDP and has been keeping up with the pace of overall GDP growth. Animal stocks—cattle, buffalo, pigs and poultry—were severely depleted during the 1970s but have since recovered. Production is generally small-scale, carried out by private households. Animals are generally not vaccinated and are therefore vulnerable to disease, although the government is seeking to improve animal health and breeding service, with donor and NGO assistance.

Fisheries In 1995 fishing accounted for an estimated 3.7% of GDP. Catches are currently thought to be at around 60% of their average levels in the 1960s. Environmental changes and overfishing are believed to have decreased fish stocks in some areas. Efforts to strengthen the fishery department’s monitoring capabilities and to establish government hatcheries and research stations are being supported by foreign donors and non-governmental organisations. Around 60% of Cambodia’s catch comes from lake and river fishing. Sea-fishing and aqua- culture are undeveloped, and consequently have significant growth potential.

Forestry Because of widespread illegal logging, estimating forestry’s contribution to GDP is difficult. Estimates for the extent of forest cover also vary widely from 35% to over 60%, compared with 73% in 1969. However, it is generally agreed that the current rate of exploitation is unsustainable. The government has made repeated attempts to improve regulation; the latest attempt to ban exports of unprocessed timber was announced in May 1995. In January 1996 the first prime minister, Prince Ranariddh, said that no further logging concessions should be granted until the government had a clearer idea of how much forest remains. However, such bans have proved difficult to enforce because of opposition from powerful vested interests (including in the military). In early 1996 new environmental legislation, which addressed the issue of logging, was approved by the cabinet.

Construction

The UN’s presence Since 1992 the construction sector has been more important in terms of GDP unleashed a construction than manufacturing. The UN Transitional Authority in Cambodia (UNTAC) boom operation in 1992-93 stimulated an increase in the construction of basic infrastructure, such as roads and bridges, and an expansion of hotel and other accommodation. This construction boom led to a proliferation of small companies producing bricks, roof and floor tiles, and cement. However, anecdotal reports suggest that the supply of building materials regularly fails to meet demand, leaving construction companies reliant on expensive imports. Many companies operating in the sector are run by people of Vietnamese origin.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 30 Cambodia: Merchandise trade

The external sector

Merchandise trade

Foreign trade, 1995a ($ m) Merchandise exports (fob) 855.4 Merchandise imports (fob) –1,188.0 Trade balance –332.6

a Includes re-exports.

Source: IMF, International Financial Statistics.

Primary products In 1995 re-exports accounted for nearly 69% of total exports. Primary products, dominate exports especially timber, dominate Cambodia’s domestically produced exports (see Reference table 13). In 1995 timber exports still accounted for 70% of domestic exports despite a ban on log exports since May that year, according to the World Bank. However, exports of textiles and garments have begun to take off. In 1995 textiles and garments exports to the 26 countries with which Cambodia has Generalised System of Preferences (GSP) privileges increased to $27.5m from $4m the previous year; garments accounted for 96% of the 1995 total. In September 1996 Cambodia secured most favoured nation (MFN) status from the USA, which should further boost this sector.

Re-exports boom A sizeable re-export trade has developed in recent years, taking advantage of the country’s relatively low custom duties and poor enforcement. (Re-exports are goods imported into Cambodia, and then re-exported with little further processing.) Re-exports have consisted mainly of consumer goods such as radio cassettes, television sets, VCRs, beverages, cigarettes and cars, although gold was an important re-export in 1995. Many of these goods are destined for China, which they reach through Vietnam. (See Reference table 15 for key imports and exports; and Reference table 17 for breakdown of re-exports and exports.)

Imports Imports have expanded at a faster average rate than exports during the 1990s, in dollar terms, rising by an average annual rate of 49% in 1992-95 (based on World Bank figures in reference table 17). This has brought a rapid worsening of the merchandise trade deficit. Because its domestic industry is limited, Cambodia remains dependent on imports for a wide range of products. A large percentage of imports are accounted for by petroleum products, capital goods, and other productive inputs. However, imports of consumer goods are estimated to have increased in importance in recent years. This may in part reflect the development of the re-export trade, although the statistics do not allow such differentiation. (Reference table 14 provides historical data on imported goods.)

Main trading partners The 1990s have seen a dramatic shift in established trading patterns. Between 1979 and 1990 foreign trade was almost exclusively conducted with the former Soviet Union and other members of the now defunct Council for Mutual Economic Assistance (CMEA also known as COMECON). Trade was conducted by state trading companies on a barter basis, with Cambodia supplying rubber,

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Invisibles and the current account 31

timber, and grains in exchange for fuel, fertiliser and manufactured goods. Cambodia’s large trade deficits during this period were largely financed by long- term interest-free loans from Moscow. This began to change in the late 1980s. The shift of all CMEA trade to a hard-currency basis from the beginning of 1991 sparked a dramatic reorientation of trade away from the old eastern bloc to Asian markets, spurring market-oriented reforms to Cambodia’s trade regime.

Since 1991 Cambodia’s main trading partners have been Asian, with Singapore well in the lead. The dominance of Singapore is in part related to the re-export trade in which several Singapore-sourced items such as cigarettes and beer are important. There are problems with the data, however. Extensive smuggling means that official data probably underestimate the significance of trade with Vietnam and Thailand. Trade with Malaysia is also growing strongly.

Main trading partners, 1993 (% of total) Exports to:a Imports from:b Singapore 66.0 Singapore 32.7 Japan 10.6 Indonesia 19.7 Thailand 5.1 Former USSR 4.6 Hong Kong 5.1 Thailand 3.5 Taiwan 5.1 China 3.4

a Not including re-exports. b Includes non-retained imports.

Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

(See also Reference table 16 for details of trade destinations including re- exports, which give a very different picture.)

Trade liberalisation Private trading companies were first permitted in 1989. Since then, the government has made progress towards liberalising the trade regime. Tariffs have been lowered on a number of products, with the result that most are now in the 7-50% range, compared with 3-100% before 1993. Import licences have been abolished, except for firearms and pharmaceutical products. Export licences are required only for logs, sawn timber, precious metals and gems, antiquities and rice. Licences for rice exports were expected to be abolished in 1995, but when the government announced the lifting of the rice export ban in 1996, it specified that exporters would require licences. Trade in rubber, timber, rice and fuel is still dominated by state companies. Further progress in trade liberalisation will be driven by membership of the Association of South-east Asian Nations (ASEAN) in 1997 (see Economic policy).

Invisibles and the current account

The current-account The current account has been in deficit in recent years, due to the rapid growth deficit is widening of the merchandise-trade and -services deficits. Private transfers, including both remittances by Cambodians living abroad and deposits made by UN Transitional Authority in Cambodia (UNTAC) personnel in local banks, rose sharply in the early 1990s. The disbursement of official transfers (grant aid) has kept the size of the overall current-account deficit within manageable propor- tions. Excluding official transfers the current-account deficit rose to an

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 32 Cambodia: Capital flows and foreign debt

estimated 14.9% of GDP in 1995; once official transfers are included, the 1995 deficit falls to an estimated 5.6% of GDP (World Bank figures). (Reference tables 17 and 18 provide historical data on the balance of payments.)

Current account, 1995 ($ m) Trade balance –332.6 Services balance –91.9 Income balance –22.6 Transfers balance 151.5 Current-account balance –295.6 Source: IMF, International Financial Statistics.

Capital flows and foreign debt

Aid pledges The UN secretary-general, Javier Perez de Cuellar, appealed to the international donor community in 1991 to assist in Cambodia’s reconstruction. In 1992 some $880m was pledged by multilateral and bilateral donors at the ministerial conference on Cambodia held in Tokyo. Further pledges were made at the subsequent annual meetings of the International Committee on the Reconstruction of Cambodia (ICORC), which first convened in Paris in 1993. A further $500m was pledged in 1996, at the inaugural meeting of the Consultative Group on Cambodia (CGC), which then replaced the ICORC. The largest bilateral donor is Japan, which pledged $93m in 1996. The Japanese government also said that it was looking at a plan to resume low-interest yen loans, which have been uspended since 1975; this would open an additional source of funding for Cambodia.

The Cambodian administration has a limited capacity to process such large amounts of money; hence disbursement has been slow. Nonetheless the amount of aid disbursed has increased strongly since 1992 when the total value of official loans and grants was just $5m. By 1995 the total had risen to an estimated $345m ($270.3m in grants, $74.7m in medium- and long-term loans). (See reference table 19 for historical data on development assistance.)

Most external debt is According to the World Bank’s World Debt Tables, Cambodia’s total stock of owed to the former external debt had increased from $1.72bn in 1989 to $1.94bn at the end of Eastern bloc 1994. Nearly all of the debt stock is medium- and long-term, most of which (97%) is owed to bilateral creditors and only 3% to multilateral agencies. All of the medium- and long-term debt is on concessional terms. In 1994 the debt stock was equivalent to 83.5% of GNP and 375.9% of the value of exports of goods and services. These are above the generally accepted comfort ratios of 75% for debt:GNP and 200% for debt:exports.

However, these ratios are arrived at by converting Cambodia’s rouble debt of Rb815m at the unrealistic 1991 official exchange rate of $1:Rb0.554, which gives a dollar value for the rouble debt of $1.47bn or about three-quarters of the total. Excluding the non-convertible currency debt altogether or applying a more realistic exchange rate to it, the debt ratios become far more manageable. (In the absence of an agreement on the rouble-dollar exchange rate, Cambodia has not been servicing its rouble debt.) Cambodia’s end-1994 hard currency

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Foreign reserves and the exchange rate 33

debt of $472m represented just 20.3% of GNP and 91.3% of exports of goods and services. (See reference table 20 for data on external debt).

Paris Club debt-write-off Cambodia rescheduled its Paris Club debt in January 1995. Up to two-thirds of the hard-currency debt stock will be written off with the rest being paid off over a 30-year period. Hence the main debt indicators will have improved further in 1995. Further bilateral deals are expected to be concluded with France, Germany, Japan and the USA during 1996. At the time of the Paris Club agreement the Cambodian government committed itself to seeking relief on similar terms on its transferable rouble debt. In 1996 the Hungarian government said it was open to the possibility of a debt-equity swap, whereby its small debt (Rb4.9m) would be exchanged for shares in Cambodian companies. The scope for such deals is limited, however, in view of the paucity of attractive assets which the country can offer.

Foreign investment Foreign direct investment inflows have played a relatively small role in external finance, although this is changing slowly. Political instability has detracted from the government’s efforts to encourage foreign investment. The latest Cambodian Development Council figures show that projects worth $2.5bn had been approved by the end of 1995. The leading investors are Asian, notably Malaysia, Singapore, Thailand and Hong Kong. Actual investment remains low (although a proportion of foreign investment, notably ethnic Chinese capital, is not being captured by official statistics). Implementation problems mean that realised investment remains relatively low; the World Bank estimates that realised foreign investment reached only $100m in 1995.

Foreign reserves and the exchange rate

The riel has stabilised The local currency is not freely convertible. As yet there is no timetable for relaxing restrictions on current and capital account, although the central bank organises regular foreign exchange auctions. Reflecting high inflation and political uncertainty, the value of the Cambodian riel declined against the dollar in the late 1980s; after the system of multiple exchange rates was abandoned in 1988 the exchange rate was CR142:$1. In 1991 when it looked like gold and other currencies might replace the riel altogether in urban markets, the government banned their use (with little effect) and devalued the currency to CR750:$1. The slide continued and at the time of the UN’s departure the currency plummeted to a record low of CR3,513:$1, although it did not collapse completely as some commentators had predicted. More recently the currency has stabilised, periodically strengthening against the dollar. At the end of 1993 the central bank said it was aiming for an exchange rate of CR2,400-2,600:$1, and this was largely attained during 1994 and 1995. The recent strengthening of the riel is partly due to the support for Cambodia from the international donor community, as well as the fall in consumer price inflation.

Since the currency reforms of the late 1980s, the official exchange rate has adjusted to movements in the market rate with a lag, although since 1992 the spread between the two rates has rarely been more than 5%. Despite the improved stability of the riel in recent years, dollars and gold are widely used in

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 34 Cambodia: Foreign reserves and the exchange rate

the free market. In early 1996 the central bank was reportedly preparing regulations designed to curb the use of the US dollar in transactions in order to preserve the value of the riel. (See Reference table 22 for average exchange rates against the dollar.)

Foreign reserves Cambodia’s foreign exchange reserves almost dried up completely during the 1970s and 1980s, but have risen steadily in recent years, thanks to the increase in inflows of aid and to a lesser extent of foreign direct investment. From virtually zero in 1991 gross reserves were estimated to have risen to $192m by the end of 1995 (see Reference table 21). This was sufficient to cover 2.8 months of retained imports of goods and services (based on the World Bank estimate for retained imports).

Total reserves (excl gold) (US$ m) Sep 1996 Cambodia 231.8 Laos 136.3 Burma 193.5 Source: IMF, International Financial Statistics.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Sources of information 35

Appendices

Sources of information

National statistical sources Although individual ministries and institutions publish statistical data, there are few regular statistical publications. What does exist is often of questionable reliability. The multilateral agencies are assisting the Cambodian government in reorganising the statistical system, including trying to centralise activities within the Department of Statistics (Ministry of Planning).

Ministry of Economy and Finance, Economic Outlook for Cambodia 1995-2000, Phnom Penh, 1995

National Institute of Statistics, Socio-Economic Survey 1993-94, Phnom Penh, 1994

International statistical Asian Development Bank, Asian Development Outlook 1996 and 1997 sources Asian Development Bank, Asian Economic Indicators (annual)

IMF, Economic Review, Cambodia, 1994

IMF, International Financial Statistics (monthly)

World Bank, Cambodia: From Recovery to Sustained Development, 1996

World Bank, Cambodia: From Rehabilitation to Reconstruction, 1994

World Bank, Cambodia: Rehabilitation Programme: Implementation and Outlook, 1995

World Bank, World Development Report (annual)

World Bank, World Debt Tables (annual)

Select bibliography A Acharya, P Lizee, S Peou (eds), Cambodia: The 1989 Paris Peace Conference, New York, 1991

Asian Development Bank, Cambodia: Economic Review and Bank Operations, 1994

David Chandler, Brother Number One: A Political Biography of Pol Pot, Boulder, CO, 1992

David Chandler, The Tragedy of Cambodian History: Politics, War and Revolution since 1945, New Haven, CT, 1992

Pao-min Chang, Kampuchea between China and Vietnam, Singapore, 1985

Justin Corfield, The Royal Family of Cambodia, Melbourne, 1993

Michael Doyle, UN Peacekeeping in Cambodia: UNTAC’s Civil Mandate, London, 1995

Economist Intelligence Unit, Cambodia, Laos Country Report (quarterly)

Grant Evans and Kelvin Rowley, Red Brotherhood at War, London, 1990

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 36 Cambodia: Reference tables

Ben Kiernan, How Pol Pot Came To Power, London, 1985

M E Osborne, The French Presence in Cochinchina and Cambodia: Rule and Response, 1859-1905, Ithaca, NY, 1969

Khieu Samphan, Cambodia’s Economy and Industrial Development, translated and with an introduction by Laura Summers, Ithaca, NY, 1979

William Shawcross, Sideshow, London, 1979

UN, The United Nations and Cambodia, 1991-95, New York, 1995

Reference tables

Reference table 1 Government finances (CR bn unless otherwise stated) 1991 1992 1993 1994 1995a Total revenue 58.9 156.0 290.1 590.4 642.9 Tax revenue 31.1 109.7 234.1 364.6 445.4 of which: customs duty 22.0 79.3 172.4 280.9 320.8 Non-tax revenue 27.8 46.3 56.0 225.8 197.5 Total expenditure 104.2 245.6 608.4 1,019.2 1,221.5 Current expenditure 99.0 238.5 373.2 683.7 732.9 Defence 46.8 118.6 219.4 431.8 425.7 Other 52.2 119.9 153.8 251.9 307.2 Capital expenditure 5.2 7.1 235.2 335.5 488.6 Deficit –45.3 –89.6 –318.3 –428.8 –578.6 Financing 45.3 89.6 318.3 428.8 578.6 Domestic 39.2 88.1 79.2 –3.2 –1.6 Foreign loans 6.1 1.5 239.1 432.1 536.8 Ratios as % of GDP Revenue 4.4 6.2 5.2 9.6 8.9 Expenditure 7.8 9.8 11.0 16.1 17.0 current 7.4 9.5 6.7 11.1 10.2 defence & security 3.5 4.7 4.0 5.3 5.9 Overall deficit –3.4 –3.6 –5.7 –7.0 –8.0

a Estimate.

Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

Reference table 2 Money supply and credit (CR bn unless otherwise stated; end-period) 1992 1993 1994 1995 Money n/a 203.8 201.7 278.5 Quasi money n/a 129.6 250.4 370.6 Total liquidity (M2) n/a 333.4 452.1 649.1 Net foreign assets n/a 118.5 390.7 550.2 Domestic credit n/a 343.1 386.3 446.4 Source: IMF, International Financial Statistics.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Reference tables 37

Reference table 3 Gross domestic product

1991 1992 1993 1994 1995a Total (CR bn) At current prices 1,336.0 2,509.0 5,414.0 6,131.0 7,200.0 At constant (1989) prices 262.2 280.7 292.1 303.7 326.8 Real change (%) 7.6 7.1 4.1 4.0 7.6 Per head (CR) At current prices 146,652 267,484 560,455 616,181 702,439 At constant (1989) prices 28,781 29,925 30,238 30,523 31,883 Real change (%) 4.5 4.0 1.0 0.9 4.5

a Estimate.

Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

Reference table 4 Gross domestic product by expenditure (CR bn, constant 1989 prices; % change year on year in brackets) 1989 1990 1991 1992 1993 Private consumption 213.7 218.8 222.6 232.7 245.0 (–1.9) (2.4) (1.7) (4.5) (5.3) Government consumption 18.5 17.6 19.4 26.7 25.5 (47.9) (–4.9) (10.2) (37.6) (–4.5) Gross fixed capital formation 26.4 20.2 24.7 27.5 28.6 (26.8) (–23.5) (22.3) (11.3) (4.0) Exports of goods & services 13.5 5.5 9.9 16.5 19.4 (67.6) (–59.3) (80.0) (66.7) (17.6) Imports of goods & services 31.2 18.5 14.4 22.8 26.4 (10.1) (–40.7) (–22.2) (58.3) (15.8) Gross domestic product by expenditure 240.9 243.7 262.6 280.6 292.1 (3.5) (1.2) (7.6) (6.9) (4.1) Source: Asian Development Bank, Economic Review and Bank Operations: Cambodia, 1994.

Reference table 5 Gross domestic product by sector (CR bn at constant 1989 prices; % change year on year in brackets) 1991 1992 1993 1994 1995a Crops & rubber 79.3 79.0 77.2 71.0 82.9 (7.2) (–0.4) (–2.3) (–8.0) (16.8) Rice 47.6 46.7 48.2 38.6 48.6 (–4.0) (–1.9) (3.2) (–19.9) (25.9) Other crops & rubber 31.7 32.3 29.0 32.4 34.3 (29.9) (1.9) (–10.2) (11.7) (5.9) Livestock 34.5 36.9 38.0 39.5 41.1 (1.2) (7.0) (3.0) (3.9) (4.1) Fishing 13.5 12.7 12.0 11.8 12.2 (8.9) (–5.9) (–5.5) (–1.7) (3.4) Forestry 8.6 9.9 9.9 14.9 10.4 (24.6) (15.1) (0.0) (50.5) (–30.2) continued

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 38 Cambodia: Reference tables

1991 1992 1993 1994 1995a Agriculture 135.9 138.5 137.1 137.1 146.6 (6.7) (1.9) (–1.0) (0.0) (6.9) Mining & quarrying 3.0 3.2 3.4 3.7 4.0 (7.1) (6.7) (6.3) (8.8) (8.1) Manufacturing 18.4 19.0 20.5 22.1 24.1 (7.0) (3.3) (7.9) (7.8) (9.0) Electricity & water 0.5 0.6 0.7 0.7 0.8 (0.0) (20.0) (16.7) (0.0) (14.3) Construction 17.6 22.9 27.1 29.1 32.0 (11.4) (30.1) (18.3) (7.4) (10.0) Industry 39.5 45.7 51.7 55.6 60.9 (8.8) (15.7) (13.1) (7.5) (9.5) Transport & communications 7.0 8.1 8.9 9.7 10.7 (9.4) (15.7) (9.9) (9.0) (10.3) Wholesale & retail trade 34.4 39.9 42.3 44.8 48.3 (12.8) (16.0) (6.0) (5.9) (7.8) Hotels & restaurants 1.0 1.3 1.4 1.7 1.8 (42.9) (30.0) (7.7) (21.4) (5.9) Government, administration, education & health 11.0 11.0 11.5 12.4 12.9 (0.0) (0.0) (4.5) (7.8) (4.0) Home ownership 16.3 17.4 18.8 20.3 21.8 (2.5) (6.7) (8.0) (8.0) (7.4) Other services 17.1 18.8 20.4 22.1 23.7 (10.3) (9.9) (8.5) (8.3) (7.2) Services 86.8 96.5 103.3 111.0 119.2 (8.5) (11.2) (7.0) (7.5) (7.4) GDP 262.2 280.7 292.1 303.7 326.8 (7.6) (7.1) (4.1) (4.0) (7.6) a Estimate from World Bank.

Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

Reference table 6 Prices (% change; period average, 1988=100) 1991 1992 1993 1994 1995 General consumer prices 197.0 75.0 114.3 26.1 9.1 Sources: Asian Development Bank, Key Indicators 1995; World Bank.

Reference table 7 Population estimates (m) 1991 1992 1993 1994 1995 Total 9.11 9.38 9.66 9.95 10.25 Growth rate (%) 3.1 3.0 3.0 3.0 3.0 Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Reference tables 39

Reference table 8 Transport statistics (motor vehicles in use at Dec 31) Road traffic 1991 1992 1993 Passenger cars 9,025 20,834 28,919 Commercial vehicles 2,963 8,637 9,247 Road tractors 225 966 1,018 Motorcycles & mopeds 169,422 262,069 292,830 Shipping—merchant fleet 1987 1988 1989 No of vessels 3 3 3 Displacement (grt) 3,558 3,558 3,558 International sea-borne freight traffic (estimates, ’000 tons) 1988 1989 1990 Goods loaded 10 10 11 Goods unloaded 100 100 95 Sources: International Road Federation, World Road Statistics; UN, Statistical Yearbook for Asia and the Pacific; Monthly Bulletin of Statistics.

Reference table 9 National energy statistics (’000 kwh) 1990 1991 1992 1993 1994 Electricity output 193,016 120,177 161,245 160,399 170,457 Phnom Penh 182,685 113,754 141,546 132,948 132,989 Provinces 10,331 6,432 19,699 27,451 37,468 Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

Reference table 10 Tourism statistics

1991 1992 1993 1994 1995 Visitor arrivals (’000) 3 72 103 167 220 Source: Cambodian authorities.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 40 Cambodia: Reference tables

Reference table 11 Main industrial production (’000 units unless otherwise indicated) 1990 1991 1992 1993 1994 Agricultural engines 300 350 n/a 368 46 Tank trucks (unit) 400 292 164 164 148 Spare parts (tons) 143 139 n/a 10 8 Cooking utensils 74 85 n/a 94 103 Aluminium dishes 669 1,700 n/a 1,870 2,057 Nails (tons) 1,342 230 n/a 1,787 1,926 Car tyres 31 19 19 3 30 Car tyre inner tubes 26 9 12 1 30 Bike/motorcycle tyres 560 367 185 341 497 Bike/motorcycle inner tubes 722 847 268 383 497 Sandals 443 500 n/a 80 32 Oxygen/acetylene (cu metres) 207 72 n/a 148 210 Carbon dioxide (tons) 112 3 n/a 3 3 Pipes (m) 32 6 10 11 12 Soap (tons) 935 279 n/a 311 336 Tyre repairs 4 2 n/a n/a n/a Bricks 3,636 30,000 5,826 60,396 66,436 Sawn wood (cu metres) 1,620 1,254 192 42 45 Dishes for rubber industry 1,527 1,909 2,043 2,192 2,361 Glasses 796 1,114 1,151 1,243 1,342 Rice flour oil (tons) 307 353 327 311 327 Cigarettes (packs) 152,036 150,407 180,000 84,316 130,000 Alcohol (’000 litre) 36 44 45 46 47 White wine (’000 litre) 3,030 3,210 3,274 3,340 3,406 Red wine (’000 bottles) 1,280 1,663 1,696 1,730 1,765 Soft drinks (’000 cases) 275 135 214 292 345 Milk (’000 cans) 270 297 17,530 9,562 611 Fabrics (’000 metres) 1,392 287 190 181 177 Mosquito nets (’000 metres) 1,665 1,103 120 1,260 1,260 Blankets 141 68 75 82 91 Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Reference tables 41

Reference table 12 Agriculture, livestock, fishery & forestry production

1990 1991 1992 1993 1994 Crops (’000 tons unless otherwise indicated) Rice 2,500 2,400 2,221 2,117 2,223 Corn 88 60 60 54 45 Cassava 60 56 150 66 65 Sweet potato 31 39 60 55 36 Vegetables 170 249 210 200 197 Mungbean 12 13 14 12 17 Groundnut 44445 Soybean 22 35 40 39 23 Sesame 58654 Sugar cane 258 145 142 140 219 Tobacco 8 9 9 10 12 Jute 21222 Rubber 35 35 30 22 27 Livestock (’000 heads) Cows 2,181 2,257 2,468 2,542 2,621 Buffalo 736 755 804 824 810 Pigs 1,515 1,550 2,043 2,123 2,024 Poultry 8,163 8,816 9,901 10,692 10,027 Draught oxen 1,018 1,042 1,050 1,184 1,161 Draught buffalo 478 502 482 520 473 Fish (’000 tons unless otherwise indicated) Fresh fish 111 118 103 94 65 Dried fish 322230 Salted preserved fish 66458 Forestry Round logs (cu metres) 257 309 105 83 14,260 Sawn wood (cu metres) 16 16 29 29 45 Fire wood (steres) 105 62 103 58 9 Charcoal (tons) 7 0 n/a n/a n/a Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 42 Cambodia: Reference tables

Reference table 13 Exports ($ m; fob) 1989 1990 1991 1992 1993 Rubber 6.8 4.7 18.6 12.6 9.1 Timber 4.8 4.8 20.9 25.0 9.4 Garments n/a n/a n/a 5.2 0.2 Soybean 2.1 2.0 9.9 2.0 n/a Maize 0.8 0.3 2.3 0.6 n/a Green beans 0.7 0.5 0.8 n/a n/a Tobacco leaves 0.7 0.3 2.2 0.2 n/a Sesame 0.7 n/a 1.2 0.2 n/a Fish products 0.1 1.5 1.6 1.5 0.7 Scrap metal n/a n/a 5.1 2.4 0.7 Kapok fibre 0.2 0.2 0.1 0.2 0.1 Total incl others 41.8 32.9 67.3 51.3 21.0 Sources: IMF, Economic Reviews 1994: Cambodia; Asian Development Bank, Economic Review and Bank Operations: Cambodia, 1994.

Reference table 14 Imports ($ m; cif) 1989 1990 1991 1992 1993a Petroleum products 41.2 45.3 43.6 91.1 52.8 Cigarettes n/a n/a 17.5 34.5 62.6 Consumer goods n/a n/a 13.8 27.2 13.7 Cloth n/a n/a 12.6 13.5 12.3 Beer n/a n/a 14.8 15.3 3.8 Motorcycles n/a n/a 32.9 33.3 7.3 Cars n/a n/a 5.0 22.3 4.7 Alcohol n/a n/a 2.6 6.2 1.5 Cement 1.2 0.9 8.0 14 3.3 Iron & steel 3.5 5.2 1.8 12.5 3.0 Construction materials n/a n/a 1.1 3.5 5.8 Spare parts for machines n/a n/a 7.9 6.9 3.3 Appliances n/a n/a 14.1 7.3 3.1 Medicines n/a n/a 7.0 5.1 4.1 Primary inputs for industry n/a n/a 1.9 11.9 15.4 Total incl others 134.8 115.4 219.1 354.7 222.1

a January-August 1993.

Source: Asian Development Bank, Economic Review and Bank Operations: Cambodia, 1994.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Cambodia: Reference tables 43

Reference table 15 Key imports and exports (000’s tons; unless otherwise specified) 1990 1991 1992 1993 1994 Exports Kapok (tons) 156 123 206 100 n/a Rubber 24 31 27 21 31 Car tyres (000’s) 4 5 n/a n/a n/a Sandals (000’s) 170 n/a n/a n/a n/a Timber (000’s cu metres) 97 260 110 129 1,020 Tobacco 0 2 0 n/a n/a Pepper (tons) 0 49 30 n/a n/a Soybeans 14 49 10 2 3 Maize 6 26 6 5 2 Imports Rice 0 15 17 n/a n/a Beer (000’s bottles) n/a 2,032 2,333 27,298 53,472 Fabric (000’s metres) 13,259 21,010 22,738 27,315 27,299 Cement 17 115 233 76 85 Oil & petroleum 206 156 n/a 275 452 Cars (units) n/a 1,847 5,462 3,059 1,777 Motorbikes (units) n/a 122,611 146,556 65,476 129,724 Televisions (units) n/a 25,791 13,989 80,102 98,244 Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

Reference table 16 Main trading partners ($ m, incl re-exports) 1989 1990 1991 1992 1993 Exports to: Thailand 2.2 8.6 10.5 84.7 94.7 Japan 2.0 3.2 5.0 8.5 78.5 Germany 0.4 0.8 15.2 24.3 26.6 Malaysia 6.8 14.9 9.4 13.2 12.1 Canada 0.0 0.0 1.1 5.7 0.8 Italy 0.1 0.0 0.0 1.2 3.8 Netherlands 0.0 0.0 0.1 1.2 2.9 France 0.1 0.9 2.6 3.1 0.7 Indonesia 0.0 0.7 0.9 0.2 1.1 Egypt 0.0 0.0 0.8 0.1 0.1 Imports from: Japan 3.9 5.0 7.4 251.7 54.8 Thailand 0.1 0.9 5.1 72.3 197.3 Australia 0.4 1.2 3.4 65.9 7.1 Indonesia 14.9 11.5 6.0 26.0 43.6 Hong Kong 1.6 1.8 5.9 24.8 33.9 USA 0.0 0.0 0.0 17.7 20.0 France 2.1 2.9 4.7 14.8 22.2 China 1.4 3.3 2.4 14.1 22.4 Malaysia 0.6 0.1 2.0 9.4 13.6 Germany 1.0 8.7 3.1 5.3 2.6 Source: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries 1995.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 44

The Far East in 1995

Gross domestic product Gross domestic product per head $ bn $

Indonesia Singapore

Thailand Malaysia

Malaysia Thailand

Singapore Indonesia

Vietnam Laos

Myanmar (Burma) (a) Cambodia

Cambodia Vietnam

Myanmar (Burma) (a) Laos (b)

0 5,000 10,000 15,000 20,000 25,000 30,000 0 40 80 120 160 200 240

(a) 1994, market exchange rate, fiscal year beginning April 1. (a) 1994. (b) Less than $2bn. Sources: EIU estimates; national sources. Sources: EIU estimates; national sources.

Consumer prices Gross domestic product % change, year on year % change, year on year

Myanmar (Burma) Myanmar (Burma) (a)

Laos Malaysia

Vietnam Vietnam

Indonesia Singapore

Cambodia Thailand

Thailand Indonesia

Malaysia Cambodia

Singapore Laos

0 4 8 1216202428 0246810 (a) Fiscal year beginning April 1. Sources: EIU estimates; national sources. Sources: EIU estimates; national sources.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996

46 Cambodia: Reference tables

Reference table 17 Balance of payments ($ m) 1991 1992 1993 1994 1995a Exports 212.5 264.5 219.0 461.7 847.1 of which: re-exports 145.2 213.2 117.0 228.0 582.0 Imports 245.0 350.7 422.0 737.1 1,212.9 of which: retained importsb 99.8 137.5 305.0 499.0 630.9 Trade balance –32.5 –86.2 –203.0 –275.4 –365.8 Net services & transfers 7.3 41.6 162.5 180.5 201.8 of which: receipts 14.0 49.7 66.0 59.7 110.3 payments –12.7 –22.1 –56.0 –134.2 –198.8 private transfers 3.5 9.0 3.5 20.0 20.0 official transfers 2.5 5.0 149.0 235.0 270.3 Current-account balance –25.2 –44.6 –40.5 –95.4 –164.0 Capital-account balance 25.2 38.0 75.2 135.8 178.3 Official medium- & long-term loans (net) 5.2 –2.1 4.8 54.3 63.0 of which: disbursements 5.2 n/a 4.8 61.0 74.7 amortisationc n/a 2.1 0.0 –6.6 –11.8 Private (net) 20.0 40.1 70.0 81.5 115.3 Errors and omissions –10.0 n/a n/a n/a n/a Overall balance –10.0 –6.6 34.7 40.4 14.3 Net foreign assets of the banking system 8.4 3.2 –34.6 –51.2 –31.5 a Estimated. b Retained imports are total imports less re-exports and include project aid imports and an estimate of unrecorded imports. c Accrued interest on external debt and scheduled amortisation on the existing stock of debt.

Source: World Bank, Cambodia: From Recovery to Sustained Development, 1996.

Reference table 18 Balance of payments, IMF data ($ m) 1992 1993 1994 1995 Exports of goods, fob 264.5 283.7 489.7 855.4 Imports of goods, fob –443.4 –471.1 –725.9 –1,188.0 Trade balance –178.9 –187.4 –236.2 –332.6 Exports of services 49.7 63.9 54.6 100.8 Imports of services –63.6 –120.5 –156.7 –192.7 Income credit – 0.5 2.1 9.7 Income debit –20.6 –16.6 –25.9 –32.3 Transfers credit 120.4 156.4 121.8 152.4 Transfers debit – –0.2 –0.2 –0.9 Current-account balance –93 –103.9 –240.6 –295.6 Direct investment abroad – – – – Direct investment in Laos 33 54.1 68.9 101.8 Portfolio investment assets – – – – Portfolio investment liabilities – – – – continued

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Laos: Basic data 47

1992 1993 1994 1995 Other investment assets –24.1 –51.1 –18 –50.5 Other investment liabilities 5 –0.6 16.7 57 Financial account 13.9 2.4 67.6 108.3 Other capital-account credit 126.3 123.4 105.2 121.2 Other capital-account debit – – – – Other capital-account balance 126.3 123.4 105.2 121.2 Net errors and omissions –34 –7.3 60.6 59.3 Overall balance 13.2 14.7 –7.2 –6.9 Memorandum item Total changes in reserves assets (– indicates inflow) –13.2 –14.7 7.2 6.9 Source: IMF, International Financial Statistics.

Reference table 19 Net official development assistancea ($ m) 1990 1991 1992 1993 1994 Bilateral 28.5 53.4 102.9 199.6 193.5 of which: Japan 0.2 0.5 11.8 64.9 77.5 France 3.0 5.5 8.9 16.9 29.9 USA 5.0 6.0 13.0 29.0 16 Australia 4.3 4.8 7.7 10.4 12.3 Germany 3.6 10.0 10.3 5.8 12.3 Netherlands 4.1 7.7 13.6 12.6 11 Multilateral 13.1 41.1 111.4 120.2 155.6 of which: IDA ––––38.2 UNDP 0.4 0.4 8.5 28.8 30 IMF ––––20 ADB – – 6.0 6.0 16.4 Total 41.6 94.4 214.3 319.8 351.3

a Official development is defined as grants and loans with at least a 25% grant element, provided by OECD and OPEC member countries and multilateral agencies, and administered with the aim of promoting development and welfare in the recipient country.

Source: OECD, Geographical Distribution of Financial flows to Aid Recipients.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 48 Cambodia: Reference tables

Reference table 20 External debt ($ m unless otherwise indicated) 1990 1991 1992 1993 1994 Total external debt 1,887 1,895 1,873 1,862 1,943 Long-term debt 1,721 1,721 1,713 1,718 1,774 Short-term debt 140 146 145 135 140 of which: interest arrears on long-term debt 107 114 113 104 110 Use of IMF credit 27 27 15 9 30 Memorandum item Principal arrears on long-term debt 393 697 976 1,269 1,575 Public & publicly guaranteed long-term debt 1,721 1,721 1,713 1,718 1,774 Official creditors 1,720 1,721 1,712 1,718 1,773 Multilaterals 1 1 0 5 58 Bilaterals 1,719 1,720 1,712 1,713 1,715 Private creditors 1 1 0 0 0 of which: bonds 0 0 0 0 0 banks 1 1 0 0 0 Total debt service 30 16 13 34 2 Principal 0 0 11 15 0 Interest 30 16 2 19 2 of which: short-term debt 1 1 1 1 1 Memorandum item Total debt service due 348 326 302 327 313 Ratios (%) External debt/GNP 131.8 99.7 93.6 84.5 83.5 Debt service paid/exports of goods & services 34.1 7.1 4.1 12.1 0.4 Short-term debt/total debt 7.4 7.7 7.8 7.3 7.2 Concessional loans/total debt 91.2 90.8 91.4 92.3 91.2

Note. Long-term debt is defined as having an original maturity of more than one year.

Source: World Bank, World Debt Tables 1996.

Reference table 21 Foreign reserves ($ m; year-end) 1991 1992 1993 1994 1995 Total reserves (minus gold) n/a n/a 24.2 118.5 191.9 Source: IMF, International Financial Statistics.

Reference table 22 Exchange rates (Cambodian riel per unit of currency; annual average) 1991 1992 1993 1994 1995 CR:US$ n/a 1,266.6 2,689.0 2,545.3 2,450.8 Source: IMF, International Financial Statistics.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Laos: Reference tables 49

Laos

Basic data

Land area 236,800 sq km

Population 4.58 million (March 1995 official census)

Main towns Vientiane (population in 1995: 528,109), Luang Prabang, Pakse, Savannakhet

Climate Tropical; rainy season, May-October; dry season, November-April

Weather in Vientiane Hottest month, April, 23-38°C; coldest month, January, 14-28°C; wettest month, June, 302 mm average rainfall; driest month, December, 3 mm average rainfall

Language Lao

Measures Metric system; local measures include:

1 va=5 sok=10 khup=2 metres 1 rai=4 ngane=1,600 sq metres 1 kang=10 hoi=1.2 kg

Currency Kip. Average exchange rate in 1995 K804.7:$1; end-September 1996: K920:$1

Time 7 hours ahead of GMT

Public holidays January 24 (Army Day), April 13-15 (Lao New Year), May 1 (Labour Day), December 2 (National Day)

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 50 Laos: Historical background

Political background

Historical background

Early history Present-day Laos traces its origins to the emergence by the mid-14th century of the kingdom of Lan Xang Hom Khao, initially based at Luang Prabang. Riven by factionalism, the once wealthy kingdom became increasingly fragmented. By the 19th century three separate kingdoms had emerged, centred on Luang Prabang in the north, Vientiane in the centre and Champassak in the south. By the late 18th century all three kingdoms had been reduced to tributaries of Siam (modern Thailand).

French colonialism Following French colonisation of central and northern Vietnam in 1884, France started to take control of the three Lao kingdoms from 1893, centralis- ing the kingdoms under the rule of the royal house of Luang Prabang. For the next half century Laos was ruled as part of French Indochina, with Vientiane as the administrative capital and a minimal presence in the rest of the country. Little was done by way of developing the Lao economy. After the outbreak of the Second World War, the French government was briefly replaced by the Japanese. During this period there was a growth in nationalist sentiment among the Lao elite, and Laos was declared independent in April 1945. How- ever, the surrender of the Japanese in August 1945 left a political vacuum in the country. The nationalist Lao Itsara (Free Laos) movement seized power, but by early 1946 French forces had regained control.

The evolution of the In 1946 war broke out between France and the communist united front organ- communist movement isation in Vietnam, the Vietminh. The radicalism of the Vietminh influenced the more radical elements in the Lao Itsara, led by Prince Souphanouvong (the “red prince”). In 1950 Prince Souphanouvong formed the break-away Pathet Lao (Land of Laos) association, committed to continuing the communist struggle against colonialism in tandem with the Vietminh. The Lao People’s Party (later the Lao People’s Revolutionary Party, the LPRP) was established in 1955 under the leadership of Kaysone Phomvihan, to organise support for the Pathet Lao.

Laos finally became independent from France in 1954, following the French defeat by the Vietnamese at Dien Bien Phu. The next year elections were held in Laos, resulting in the formation of a neutralist government. The new government included two Pathet Lao members, a move strongly opposed by the USA, which cut off aid to Laos. The elected government proved shortlived, collapsing in 1959. It was replaced first by a more right-wing administration, which was in turn overthrown in a military coup d’état less than a year later. With the military in power, the Pathet Lao went underground, beginning its armed struggle against the government in 1963. At the same time, Laos was increasingly drawn into the war in Vietnam, with both the USA and the North Vietnamese active in the country. For the next decade Laos was subjected to the heaviest bombing in the history of warfare as the USA sought to hinder the passage of North Vietnamese soldiers and supplies down the Ho Chi Minh Trail, which passed through Laos.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Laos: Constitution and institutions 51

The LPRP takes control A ceasefire agreement was reached in 1973, when the communists formed a coalition with the royal government. This time, half the cabinet posts went to the Pathet Lao, reflecting communist battlefield gains. However, the respite did not last long, and the military struggle quickly resumed. In August 1975, four months after the communist victories in Phnom Penh and Saigon, the Pathet Lao entered Vientiane. In December King Savang Vathana abdicated, and the Lao People’s Democratic Republic was proclaimed. Prince Souphanouvong was named president, but real power lay with the relatively unknown Kaysone Phomvihan, secretary-general of the now renamed Lao People’s Revolutionary Party (LPRP).

Economic reform starts The LPRP’s ambitious plans for building a socialist state quickly ran into diffi- in 1986 culties. The situation was worsened by the loss of US aid and closure of the border with Thailand. Agricultural collectivisation began to founder in the late 1970s. The internal debate over economic policy sparked by these problems surfaced at the Fourth Party Congress in 1986. Under the slogan pean pang mai (new thinking), a shift towards a market-oriented economy began. However, the LPRP remains opposed to political reform along multiparty lines, a message made clear at the Fifth Party Congress in 1991.

Important recent events

November 1992: The president of the LPRP and of the Lao People’s Democratic Republic, Kaysone Phomvihan, dies. The leadership transition, prepared in advance, is remarkably smooth; Nouhak Phoumsavan is elected president. July 1993: Following accession to the Association of South-east Asian Nations’ (ASEAN) Treaty of Amity and Cooperation, Laos attends the annual ASEAN foreign ministers’ meeting as an observer for the first time. The target date for full membership is now 1997. April 1994: The Mitraphab (Friendship) bridge across the Mekong River, linking Laos with Thailand, is opened. There is concern among party conservatives that it will lead to an influx of unwelcome “social evils”. January 1995: Prince Souphanouvong, founder member of the Pathet Lao, dies. March 1996: The Sixth Party Congress is held. General Khamtai Siphandon succeeds Nouhak Phomsavan as head of the LPRP (and as prime minister). A leading reformist, Khamphoui Keoboualapha, is dismissed from both his Politburo and Central Commit- tee posts. Despite this, the party confirms that reforms will continue, although state control over the commanding heights of the economy is to be maintained. The military dominates the new Politburo line-up.

Constitution and institutions

The 1991 constitution The present constitution was passed in 1991. It is very much a document of the reform era, emphasising that the economy is market-oriented and that all forms of economic ownership are permitted. A key thrust of the constitution is that, while the Lao People’s Revolutionary Party (LPRP) should be responsible for setting broad policy guidelines, the government should be left to manage

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 52 Laos: Political forces

day-to-day administration. The constitution mentions the LPRP only once, and then only to describe it as the “leading nucleus” of the political system.

The president can appoint or dismiss the prime minister and government (with the approval of the National Assembly). However, in practice more power has rested with the prime minister than with the president. The current vice- president, General Sisavat Keobounphan, is seen as being close to the prime minister, General Khamtai Siphandon. (The post of vice-president was created in 1991, but left unfilled until the Sixth Party Congress in 1996.)

The National Assembly’s The National Assembly meets twice a year and is elected for a period of five role has been years (with the next election due in 1997). The powers of the National strengthened— Assembly were increased in the 1991 constitution, which describes it as overseeing the activities of the government and the judiciary. Legislation passed by the National Assembly will replace the previous system of rule by party fiat. It is not uncommon for the National Assembly, once a mere rubber stamp, to force legislation to be redrafted several times.

—but no real devolution However, it is doubtful whether there has been real devolution of power. It is of power rare for a member of the government not to be a member of the LPRP, and all those who stand for election to the National Assembly must be approved by the party-controlled Lao Front for National Reconstruction (LFNR). (The LFNR groups together organisations such as trade unions, peasant associations, and religious and business groups.) There is no sense in which the judiciary is independent of the LPRP.

Political forces

Laos remains a one-party The Lao People’s Revolutionary Party (LPRP), established in 1955 as the Lao state People’s Party, has held exclusive power since the Pathet Lao ousted the royalist government in 1975. The LPRP remains firmly opposed to multiparty politics. However, this has not precluded a limited process of political liberalisation, including subjecting the party to the rule of law and moving towards what has been described as the “effective destalinisation of everyday life”.

The LPRP has shown itself to be remarkably resilient. A smooth transition followed the death in 1992 of the LPRP’s party president and leading revolutionary, Kaysone Phomvihan. The second generation of leaders, centred around the prime minister, Khamtai Siphandon, has proved more open to reform. Differences over the pace and direction of the reform process do exist, but such divisions have never threatened the survival of the party itself. In- deed, the LPRP has successfully increased party membership over the last few years from 60,000 in 1991 to 78,000 in 1995. The party has also tackled its greatest weakness, the perception that it represents the interests of the dominant ethnic group, the lowland Lao, over those of ethnic minorities. Of the four new Politburo members elected at the Sixth Party Congress in 1996, three were from ethnic minorities.

Organised opposition to the LPRP is extremely weak. Three critics of the LPRP, accused of attempting to mount a rebellion against the state, were sentenced to

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Laos: Political forces 53

lengthy prison terms in 1990. However, there has been little subsequent opposition activity. A number of small guerrilla groups exist, but they have a limited influence.

Main political figures

General Khamtai Siphandon: the current prime minister, succeeded Nouhak Phomsavan as head of the ruling party at its Sixth Congress in 1996. Widely regarded as the head of the second-generation leaders who are the driving force behind the economic reforms. Arguably the most powerful political figure in Laos today. Nouhak Phomsavan: a founding member of the Lao People’s Revolutionary Party, Nouhak Phamsavan has close links with Vietnam and is regarded as a conservative. He retired as head of the party in 1996, but has been retained as state president (a post he has held since the death of Kaysone Phomvihan in 1992) and as a party adviser. His influence has declined, but suggestions that his authority is little more than symbolic are probably an exaggeration. President Nouhak is reportedly close to Boun-gnang Volachit, who was elected to the Politburo when Nouhak retired. Sisavat Keobounphan: formerly minister of agriculture, forestry, irrigation and cooperatives, General Sisavat Keobounphan was dismissed from the Politburo in 1991 (apparently for corruption). He was reappointed at the Sixth Congress in 1996. He now ranks eighth in the Politburo line-up. Shortly after the congress, he was also appointed to the post of vice-president. General Sisavat, another of the new generation of leaders, is linked to General Khamtai by the marriage of their children, creating a powerful Khamtai-Sisavat alliance. Saman Vi-gnaket: Lieutenant-General Saman Vi-gnaket ranks second on the Polit- buro and is president of the National Assembly. Another of the second generation leaders. Choumali Sai-gnason: Lieutenant-General Choumali Sai-gnason was promoted to number three in the Politburo at the Sixth Congress in 1996. He also holds the influential post of defence minister. Although regarded as politically conservative, his involvement in the rapid expansion of the military’s economic activities has given him a stake in the reform process.

The military Since a conflict with Thailand in 1987 over their common border, Laos has been at peace with its neighbours. However, the Lao People’s Army still main- tains a regular armed force of 37,000 (mainly army) and a local militia of around 100,000.

The military has long been well-represented in political life. This was maintained at the Sixth Congress in 1996; six of the nine-member Politburo are generals and one a colonel, while only two have no military background. From time to time there have been reports of discontent in the military but on the whole relations between the armed forces and the party are good.

Although the military is regarded as politically conservative, it has been quick to exploit the economic opportunities provided by the economic reforms. At the heart of the military’s commercial empire is the Bolisat Phatthana Khet Phoudoi (BPKP) Import-Export Company, established in 1984. Its activities are diverse, including agriculture and forestry, construction, light industry, trade

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 54 Laos: International relations and defence

and tourism. The BPKP is most active in the central region of Laos, but has two sister companies which operate in the north and the south of the country respectively.

International relations and defence

Foreign relations The greatest change that has taken place in Laos’s foreign relations since the late 1980s has been the shift away from a foreign policy largely dictated by Vietnam and centred almost exclusively on the Communist bloc.

Laos and Vietnam The LPRP government was heavily influenced by its links with the Soviet Union and Vietnam from the mid-1970s to the late 1980s. Relations with Vietnam were especially close. In 1977 Vientiane signed a 25-year Treaty of Friendship and Cooperation with Hanoi, which resulted in the stationing of around 40,000 Vietnamese troops in Laos for much of the following decade. In the 1990s relations with Vietnam remain close, although the military and security links have been downgraded. Vientiane is reportedly considering the implications of allowing the Treaty of Friendship and Cooperation it signed with Vietnam in 1977 to lapse when it expires in 2002.

International relations The special relationship with Vietnam led to a worsening in Laos’s relations are improving with China. After 1984 there were also repeated border clashes with Thailand. However, the more recent decline of Vietnamese influence has allowed relations with China to improve. A border agreement was signed between Vientiane and Beijing in 1993, there are regular exchanges at party and military levels, and crossborder trade is thriving (though much of it is illegal).

Relations with Thailand are improving. Their common border continues to be a source of friction. However, commercial ties are growing, while Laos is playing an active part in sub-regional cooperation initiatives. Laos is scheduled to join the Association of South-east Asian Nations (ASEAN) in 1997, which should further cement ties. The search for new export markets and sources of aid has also brought improved relations with other capitalist states such as Japan, Australia and Sweden (Laos’s main aid donors). Laos has diplomatic relations with the USA, and the two countries are cooperating in the areas of drug control and the search for US servicemen missing in action (MIAs).

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Laos: Economic structure 55

The economy

Economic structure

Main economic indicators, 1995

Real GDP growth (%) 7.0 Consumer price inflation (%) 20.4 Current-account balance ($ m) –223.6 Foreign debt ($ m)a 2,080 Exchange rate (K:$; annual average) 805 Population (m) 4.58

a 1994.

Sources: IMF, International Financial Statistics; World Bank, World Debt Tables, 1996.

Agriculture still Agriculture (including forestry and fishing) is the most important economic dominates GDP sector, accounting for 56.3% of GDP in 1993 (see Reference table 4). Although there is little consistency between figures, this would appear to represent a slight fall since the mid-1980s. Subsistence farming remains important. Rice is the most important crop; only one rain-fed rice crop is produced each year, due to limited irrigation. Other crops include coffee, peanuts, maize and sweet potatoes.

Industry and services Industry and services account for a growing share of GDP, although again existing data are not entirely consistent. Industry contributed 18.9% of GDP in 1995 (Asian Development Bank figures). Key growth sectors are textiles and garments manufacturing, food-processing and low technology assembling. In 1992 textiles and garments overtook electricity as the largest single component of industrial output. The construction sector (which is included in the industrial sector figures by most statistical sources) has grown strongly in recent years. Services contributed 24.6% of GDP in 1995. Wholesale and retail trade, the largest component of the services sector, have both been particularly buoyant recently, as have hotel and restaurant services. (See Reference table 4 for historical data on the structure of GDP.)

The centre leads output The central provinces are economically more dynamic than either the south or the growth north. The central provinces have benefited from their proximity to Vientiane, which has attracted the lion’s share of investment. Communications infrastructure is also better developed in the centre.

Economic policy

The Lao People’s Revolutionary Party (LPRP) came to power determined to engineer a “socialist transformation”. It faced considerable problems, including war-damaged infrastructure, large numbers of refugees and the exodus of many professional people. These problems were compounded by the abrupt loss of US aid (which at its peak had been equivalent to three times the size of

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the government’s budget), and the disruption of trade with Thailand, leading to shortages of basic goods. Attempts to collectivise agriculture encountered strong opposition and production stagnated.

Introduction of reforms The LPRP initiated the first tentative steps towards market-oriented reform in December 1979. With the emphasis on efficiency and raising production, restrictions on private trade were eased and joint ventures between the state and private sector were encouraged. In the agricultural sector, tax rates were reduced and government procurement prices for most crops raised. However, there was no move to dismantle the central planning mechanism. A decision was taken not to establish new agricultural cooperatives, but existing ones were to be consolidated.

More far-reaching reforms really began at the Fourth Party Congress in November 1986, with the introduction of what has since become known as the “new economic mechanism” (NEM). Collectivisation of agriculture was completely abandoned, and many restrictions on private-sector activity were eased. State enterprises were given more freedom to determine prices, salaries and production plans.

Trade liberalisation The reforms also embodied a more outward-looking economic strategy as Laos sought to imitate the export-oriented development of its more successful Asian neighbours. In 1987 the state’s monopoly of foreign trade in a large number of commodities was abandoned. Quotas have gradually been removed and the tariff structure rationalised. The passage of a liberal foreign investment law in 1988 marked the start of efforts to attract foreign investment into export- oriented sectors such as light manufacturing and hydroelectric power generation. Export prospects were also boosted by the devaluation of the kip in 1987, bringing the official rate more closely into line with the market rate.

Privatisation has been The NEM aimed to create a more dynamic state sector. At first, the emphasis was limited on giving greater autonomy to state-owned enterprises, with some privatisation of small organisations. In 1991 larger enterprises were included in the plan, and a more radical pledge was made to privatise all state companies except seven “strategic” companies, within three years. (The seven were Electricité de Laos, the national water company, Nam Papa Lao, the Post Office, the State Printing House, and three enterprises under the defence ministry.) In practice progress has been slow, reflecting opposition from more conservative elements in the leadership and from within the state sector itself. Some progress has been made, however; according to an IMF 1996 report, 65 state owned enterprises had been sold by the end of 1994 (out of some 640 in existence in 1989). However, the tendency has been to limit divestiture of state firms to fixed-term lease contracts for production only. Moreover, the Sixth Party Congress in 1996 stressed the key role of state enterprises as the “mainstay of certain branches of production”.

Fiscal reform Since the adoption of the NEM, the government has introduced numerous fiscal reforms designed to reduce the budget deficit and inflation. A key focus has been the drive to shift the revenue base away from dependence on transfers from state enterprise to a mix of income, property, excise and trade taxes. A number of changes stand out.

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• In 1988 measures were introduced to replace transfers by state enterprises with a system of profit and turnover taxes.

• In 1989 the corporation and export tax systems were streamlined, personal income tax was broadened, and taxes were introduced on the use of certain resources.

• In 1991 the government sought to centralise control over the budget; central and provisional budgets were consolidated into a general government budget, and a National Treasury was established. These changes took effect in the budget of 1992 (when the fiscal year was changed to October 1-September 30 from a calendar year).

• In 1994 export taxes were eliminated.

• In January 1995 the system of import tariffs was restructured.

Before the reforms of the late 1980s, the size of the budget deficit was severely underestimated. More realistic accounting methods saw the budget deficit shoot up to a peak of almost 20% of GDP in 1988. Although raising revenue levels and improving control over expenditure have not proved easy, some progress has been made during the 1990s; revenue sources have been diversi- fied and efforts made towards creating a more streamlined and effective civil service. As a result, revenue has risen consistently as a percentage of GDP, although the government remains very reliant on foreign financial assistance.

The fiscal deficit has been on a declining trend as a percentage of GDP since the late 1980s (although it has not fallen consistently, ballooning to 11% of GDP in 1993/94 before falling to 9.5% in 1994/95). However, this reduction has been achieved at the expense of public investment. Between 1989 and 1992/1993, capital outlays fell from 15.6% of GDP to 6.9% (picking up again in the following two financial years). Although the data do not reveal how public investment flows have been allocated, it appears that the industrial and energy sectors—which are both areas where private investment has been robust in recent years—have borne the brunt of the cuts. Agriculture and forestry, by contrast, have enjoyed the largest increases in public investment. (See Refer- ence table 1 for historical data on government finances.)

Fiscal reform includes The reform programme has included efforts at centralisation, particularly in centralisation fiscal policy. Before 1992 provincial administrations had independent budgets, with near complete autonomy over local expenditure. In addition provincial authorities had jurisdiction over the collection of most tax and non-tax revenue in their areas. In 1991, as part of a comprehensive plan to restructure public finances, the government passed a decree stating that all revenue must be col- lected by the centre, while provincial expenditure would be set by the national budget. In practice, however, implementation has proceeded slowly and the provinces continue to hold considerable fiscal power.

Monetary policy Since 1989, when money supply expanded by nearly 90%, the authorities have sought to tighten monetary policy. The growth in money supply was reduced principally through the use of two instruments. First, interest rates were raised in 1988, and again in 1989 and 1990, in order to make them positive and curb

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demand for credit (interest rates have been freed gradually since 1989). Second, there has been a tightening-up of credit extended to the state enterprise sector. This led to a contraction in broad money (M2) supply to an average annual increase of 34% during the 1990-94 period.

However, the central bank’s ability to control monetary growth remains limited. This is evident from the fact that M2 grew by 59% in 1992 and 65% in 1993. A key problem is the inability of the authorities to control the growth of credit to the private sector or to sterilise foreign capital inflows through open market operations. More recently the rise in inflation during 1995 resulted in a decline in real interest rates, which led to a decline in bank deposits. Given these deficiencies, the authorities will seek to develop open market operations over the next few years. Some progress has already been made in developing indirect monetary policy instruments; a minimum reserve requirement was introduced in October 1990 (and doubled in November 1994), Treasury bill auctions began in March 1994, while the central bank has operated a discount facility since May 1994. (See Reference table 2 for historical data on money supply.)

Key economic policy developments, 1979-96

1979: The government makes its first tentative steps towards market-oriented reform. The establishment of new agricultural cooperatives is halted. 1986: More radical reforms are launched with the endorsement of the New Economic Mechanism at the ruling party’s Fourth Congress. 1988: A liberal foreign investment law is approved. 1989: With the support of the multilateral financial institutions, the government launches a macroeconomic stabilisation programme to rein in inflation and the budget deficit. 1991: Plans to privatise a number of larger state enterprises are announced. Trade with the USSR and Eastern Europe declines rapidly. 1993: The IMF approves a three-year Enhanced Structural Adjustment Facility (ESAF). 1994: A revised law on foreign investment is passed, permitting 100% foreign-owned ventures. 1995: The Domestic Investment Promotion Law is promulgated, offering Lao investors low-interest bank loans for projects in sectors such as textiles and agriculture, as well as in remote areas.

The Sixth Party Congress The government’s economic strategy was developed further at the Sixth Party highlights key priorities— Congress in March 1996. In the political report to the congress, the promotion of foreign direct investment was described as being a major party policy, and the importance of both the state and private sectors was emphasised. In industry, a number of sectors were singled out as priorities, including processing, energy and mining. With regard to processing, the importance of developing backward linkages to agriculture was stressed. In the services sector, tourism was highlighted as having great potential, particularly because of its capacity to generate foreign exchange. The report also reiterated the longstanding aim to exploit Laos’ potential as a transport hub, particularly between Thailand and south-west China.

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—state control remains The Sixth Congress clearly marked a restatement of the leadership’s commit- important— ment to reform, but a cautious approach towards relinquishing state control over the commanding heights of the economy was confirmed. Although the report stressed that a variety of forms of economic ownership was permitted, it also called for state enterprises to become more efficient, in order for them to maintain their role as the “mainstay of certain branches of production and services as well as the source of vital products”. It is likely to be some years before the private sector truly operates on a level playing field, whatever the legislation says.

The authorities are also likely to continue to favour temporary leasing arrangements rather than full privatisation. On foreign participation in the economy the report to the March 1996 congress stressed the importance of accepting only “principled international support”. It also emphasised that foreign investment should be accepted only in areas which the government regards as priority, namely larger projects where local capital and technological expertise is lacking.

—but reforms will The fact that the reformist deputy prime minister, Khamphoui Keoboualapha, continue lost his party posts at the Sixth Congress in March 1996 sparked some concern that commitment to the reform process was wavering. However, although debates over the relative roles of the state and private sectors will continue, even the most conservative among the Lao leadership acknowledge that the market has a role to play in economic development. In the longer term the government will remain open to foreign investment, notably in basic infrastructure projects, such as power generation.

In 1996, the agencies overseeing foreign investment approvals were reorganised as part of the government’s bid to speed the application process and to attract higher levels of foreign investment. The Committee for Planning and Cooperation (CPC), which previously oversaw the foreign investment approval process, was abolished in August 1996, and its subsidiary, the Foreign Invest- ment Management Committee (FIMC), was replaced by the Committee for Management of Investments and International Economic Relations (CMIIER). The latter is to be headed by the second deputy prime minister, Bountiem Phissamay. On the trade front, membership of the Association of South-east Asian Nations (ASEAN) in 1997 will force a faster pace of trade liberalisation, as Laos will be expected to reduce tariffs in line with its commitments to the ASEAN Free Trade Area (AFTA). Vientiane may also eventually join other international trade organisations, such as the Asia Pacific Economic Cooperation (APEC) forum and the World Trade Organization (WTO).

Economic performance

Growth has been more Between 1991 and 1995 the Lao economy averaged GDP growth of 6.4%. buoyant in the 1990s Although not dramatic by regional standards, this marked an improvement on the pre-1990 period. The agricultural sector still accounts for some 56% of total output, and employed 87% of the workforce in 1992; hence development of this sector is critical to Laos’s future economic performance (see Reference table 7 for historical data on the labour force).

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However, the performance of the agricultural sector during the 1990s has been something of a constraint on growth. The sector remains vulnerable to bad weather (floods or drought) and pests. In addition deficient rural infrastructure has meant that some farmers, who were previously organised into cooperatives, have retreated into subsistence farming rather than responding to the market incentives embodied in the recent reforms. A study by the World Bank in 1995 argued that there has been a steady decline in the terms of trade for agricultural producers since the late 1980s, and that living standards in rural areas have been only slightly improved by economic growth in recent years. A further problem facing the sector is that—despite the formation of the Bank for Agricultural Promotion—rural credit is still inadequate to meet farmers’ needs.

The industrial sector has led overall growth during the 1990s, boosted by the impact of the reform programme. In addition inflows of foreign direct investment have resulted in the emergence of an export-oriented manufacturing sector. The development of new, more dynamic Asian and European export destinations following the collapse of Soviet and Eastern European markets have further stimulated export-oriented manufacturing. Increased tourism, trade and financial activity have contributed to the buoyant growth in services through the 1990s.

Gross domestic product (% real change) Average 1995 1991-95 GDP 7.0 6.4 Agriculture 4.9 4.4 Industry 11.4 11.9 Services 8.5 6.4 Regional comparisons Cambodia 7.6 6.1 Thailand 8.6 8.4 Vietnam 9.5 8.2 Sources: Asian Development Bank, Asian Development Outlook 1996 and 1997; EIU.

Data on the expenditure breakdown of GDP are not available. However, increases in gross domestic investment since 1990 are thought to be the result mainly of higher private rather than public investment; the later has been constrained by efforts to curb the fiscal deficit. Nationwide, private consumption is increasing only slowly, although stronger increases are seen in urban areas. (See Reference table 3 for historical data on constant and current price GDP and GDP per head).

Inflation remains high Consumer prices increased at an annual average rate of 11.2% during 1991-95. Inflation surged to 20.4% in 1995, after three consecutive years of single-digit inflation, fuelled by strong money supply growth and by shortages of rice and construction goods. The government has stated that inflation for the fiscal 1995/1996 year (ending on September 30) had fallen to 12%. However, the macroeconomic levers available to the financial authorities are limited, and inflation remains vulnerable to supply-side pressures (especially increases in food prices). This does not, however, appear to have deterred foreign direct

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investment or damaged the competitiveness of Laos’s exports. One reason for this is that average wage levels have probably risen more slowly than increases in the consumer price index. (See Reference table 5 for historical data on consumer price inflation.)

Inflation (% change) Average 1995 1991-95 Consumer prices 20.4 11.2 Source: IMF, International Financial Statistics.

Regional trends

Regionalism versus The economic gap between Vientiane and the rest of the country has widened centralisation since the reforms began, as the lion’s share of foreign investment has gone to the capital and its environs. In addition, central control over the regions has always been weak in Laos. To a large extent this is due to the country’s rugged topography, which makes communication between provinces difficult. Ethnic diversity and the self-sufficiency developed during the long periods of conflict have further weakened central control. It has been argued that the “open door” economic policy is making such problems worse, since as crossborder trade develops, northern Laos is being drawn into the orbit of Yunnan (in China), the north-eastern provinces are looking to Vietnam, and the centre and south of the country is becoming oriented towards Thailand.

Resources

Population

The population is largely The official census conducted on March 1, 1995, put Laos’s population at rural— 4.58 million. Of this total 37% reside in three lowland provinces, Savannakhet, Vientiane (including Vientiane municipality), and Champassak. The least- populated provinces, of Luang Namtha, Bokeo and Attapeu, are home to only around 2% of the population. Over 76% of the population live in rural areas (World Bank estimate). Vientiane, the capital, is the only large town, with 528,109 inhabitants, or almost 12% of the population. With the exception of this city where population density is 135 persons per sq km, the country is very sparsely populated. According to most recent estimates, the national average is 19.3 persons per sq km nationwide. In neighbouring Vietnam, the nationwide average is 214 persons per sq km. In Myanmar, it is 64 persons per sq km.

A full breakdown of the age structure of the population is not available. Esti- mates vary, but over 56% of the country’s inhabitants are below the age of 15 (World Bank, World Development Report 1996). There are also slightly more women than men: 50.6% compared with 49.4%. This is probably explained by the relatively recent period of prolonged warfare in Laos.

—and ethnically diverse The government recognises the existence of 65 distinct ethnic groups. Based on settlement patterns, culture and language, these can be divided into three broad categories: Lao Lum (“Lao of the plains”), Lao Thoeng (“Lao of the mountain slopes”), and Lao Sung (“Lao of the mountain tops”). Some 60% of the population belong to Lao Lum groups, generally residing in the western valleys. A further 35% belong to the various hill tribes. In addition there are a small number of ethnic Vietnamese or Chinese. The largest group, the lowland Lao, are politically dominant; historical tensions between the Lao Lum and the minority groups still persist. One of the most alienated groups is the Hmong ethnic minority. Before the communists took power in 1975, they were opposed by a US-trained Hmong army. There are still Hmong refugees in Thailand, who are periodically accused of acts of sabotage by the Lao government. Some of these Hmong refugees have been given residence in the USA. Others are expected to be repatriated to Laos.

Over 45% live below the According to the World Bank, average annual income per head in 1994 was poverty line $320. Based on a World Bank study in 1995, some 22% of the population falls below the food poverty line (defined as a level of income sufficient to buy 2,100 calories per person per day). Some 46% of the population falls below a more generous estimate of poverty, which includes a level of income sufficient to buy basic goods. On this measure, the incidence of poverty in rural areas is 53% compared with only 24% in urban areas. There is also a marked difference between regions, with almost 60% of the population of the south falling below the poverty line, compared with only 40% in the centre, and 46% in the north.

Population indicators

Life expectancy (years)a 52 Population growth rate (%)b 1.8

a 1994. b 1995; government estimate.

Sources: World Bank, World Development Report 1996; EIU.

Official figures may Official population figures suggest that the population growth rate has slowed underestimate population markedly in recent years (see Reference table 6). However, official population growth figures, including the 1995 census, have tended to be underestimates. The World Bank estimates that the population had reached 5 million in 1994, and that the average annual growth rate for the period 1990-94 was 3.1%, compared to the official growth rate of 1.8% in 1995. The age structure of the population means that population growth rates are likely to remain high, despite high mortality rates.

Education

Low literacy levels Only 57% of the adult population is literate, according to World Bank estimates for 1995. Although this represents an improvement on earlier years, it is still well below regional standards (for example, 94% of the population of Vietnam is literate according to the World Bank’s World Development Report, 1996). Laos suffers from a shortage of schools, a lack of textbooks and poorly qualified teachers. Laos’s low literacy levels also reflect poor school enrolment

and completion rates. According to government figures, the enrolment rate in primary schools was 60% in 1995, although only 30% completed. According to a World Bank study in 1995, only 55% of households it surveyed had access to complete (ie five years) primary school education, with under 50% having access to “lower secondary” education.

Tertiary training is woefully inadequate to meet the demands of the recent market reforms, with gaps in key areas such as information technology and accountancy. In tackling educational deficiencies, the government is focusing on raising primary and secondary school enrolment rates. It is receiving some external assistance in improving tertiary level education, while a very small number of people are receiving training abroad. There is also some educational provision by the private sector. Budgetary constraints make improvements difficult. To its credit the government has kept spending on education at 3-4% of GDP throughout the 1980s and early 1990s. However, the 1994-2000 public investment plan drawn up in consultation with the World Bank projected a decline in the share of total investment accounted for by education.

Health

Healthcare provision Health standards in Laos are poor. Infant mortality was estimated by the World is poor Bank at 92 per 1,000 live births in 1994, although recent government estimates have been rather higher. Maternal mortality for the period 1989 to 1995 was 660 per 100,000 live births, which is quite high even for a low-income country. Rates of immunisation are low. Life expectancy at birth is 52 years compared to 68 in Vietnam and 58 in Myanmar. Underlying these poor results is a public health system that is in a state of disrepair and inaccessible to a large percentage of the population. For example, out of 117 district hospitals, only 20 were reported to be fully operational in 1994.

Many people seek medical treatment from the private pharmacies which have sprung up in recent years, where personnel are often inadequately trained. Around half of the poorest 15% of the population rely on such forms of healthcare. However, public expenditure allocated for healthcare under the Public Investment Programme for 1994-2000 was scheduled to rise to 9.2% of total investment by 1999/2000, from 6.6% of the total in 1994/1995. Given the resource constraints, the government is focusing on developing a more efficient primary healthcare system, including improving immunisation rates.

Natural resources

Laos is a landlocked country, bordered by China to the north, Vietnam to the east, Cambodia to the south, Thailand to the west, and Myanmar to the north- west. Its topography is dominated by mountains bisected by narrow river valleys. In the northern half of the country the uplands rise to over 1,500 metres above sea level. Southern Laos is less hilly, but still rugged and densely forested. Despite serious deforestation, some 45% of the country as a whole is still forested. Of Laos’s many rivers, the most significant is the Mekong, which provides a natural border with Thailand and Myanmar.

Main resources The country’s most valuable natural resources are its forests and its rivers (the latter have considerable potential for generating hydroelectric power). There are growing concerns over the sustainability of the exploitation of these resources. Laos is also endowed with a wide range of mineral deposits; the most important are tin, gravel, gypsum and salt, although there are also small coal, iron ore, gold and oil and gas deposits. Exploration of Laos’s natural resources is not complete.

A tiny proportion of land Estimates vary, but according to the World Bank, only 6% of Laos’s total land is cultivated area was used for pasture or crops in 1993. Irrigation is sparse; most farming relies on the rains, permitting only one paddy or hillfield crop per year. Perma- nent agriculture is practised in areas adjacent to the Mekong River and its tributaries, and shifting “slash and burn” cultivation is practised in the uplands.

Economic infrastructure

Transport and communications

Years of war and a lack of investment have left Laos’s transport and communications infrastructure in a poor state. This represents a major constraint on economic development. By far the majority of freight and passenger traffic is transported by road, supplemented by a small amount of river and air transport. (See Reference table 9 for historical transport data.)

The government’s priorities for infrastructure development to 2000 are set out in its 1994-2000 Public Investment Programme. Some $671m is targeted to be spent on the sector, with the largest portion (74%) reserved for upgrading the road network. Laos will also benefit from the regional infrastructure projects planned by the six countries of the Greater Mekong Subregion (comprising Laos, Myanmar, China, Cambodia, Thailand and Vietnam). These will include the construction of more bridges across the Mekong River (the first bridge over the Mekong, the Mitraphab or Friendship bridge, was completed in 1994, linking Laos with Thailand). However, many of these projects are unlikely to be completed until well into the 21st century—assuming finance can be arranged.

Roads Of the country’s 18,857 km of roads, approximately half are surfaced. Accord- ing to the World Bank, around one-third of all villages or 22% of the population are in areas which are never accessible by vehicle. The percentage is higher in the north of the country (55% of all villages). In addition many roads become temporarily impassable in the rainy season. Work is being carried out to create all-weather roads on Route 13, which runs from Luang Prabang in the north to the Cambodian border in the south, and on Routes 7, 8 and 9, which run east-west giving access to Vietnamese seaports. The development of the rural road network is a key part of the government’s transport policy, as this will allow national markets to become more integrated. With the exception of Vientiane, traffic density is very light.

Inland waterways Although there are some 4,600 km of navigable waterways along the Mekong River and its tributaries, they are not used extensively as a means of transportation. Although up-to-date figures are not available, there was evidence of a slight upturn in river use in the early 1990s following the upgrading of a number of river ports. Efforts are being made to improve river access, including by dynamiting rocks and rapids.

Air transport Laos’s once well-developed air services (a legacy of the Indochina wars) went into decline from the late 1970s. Efforts are now being made to upgrade air transport, reflecting the desire to develop the tourism industry. The main international connections are with Bangkok, Hanoi and Phnom Penh, but new routes to South-east Asian and Chinese destinations are planned. Since 1993 Lao Aviation (International), the country’s only airline, has been managed by China Travel Air Services; in 1995 agreement was reached to lease aircraft from another Chinese company, Yunnan Airlines, to operate on both international and domestic routes. Luang Prabang, Pakse and Savannakhet airports are being upgraded, to enable them to receive commercial planes. Eleven smaller airfields are also to be upgraded.

Railways As yet, the country has no rail network. However, in 1996 work began on the construction of a 30-km rail link between Vientiane and Nong Khai in Thailand, crossing the Mitraphab bridge. Although there has also been talk of extending the line 1,400 km to China, no firm decisions have been made. There are no plans to develop a more comprehensive rail network.

Telecommunications Laos’s telecommunications are still undeveloped, although gradual improvements are being made. There are an estimated 0.7 telephones per 100 people. The target is to increase this to 3 telephones per 100 by 2000, rising to 5 by 2009. The telephone network is expected to reach all 17 provinces very shortly, although some towns are still without telephones. International dialling outside the main urban centres can be difficult.

The most active foreign company in the sector is a Thai company, Shinawatra International, which has a 15-year joint venture agreement with the state- owned Entreprises des Postes et Télécommunications de Laos to install and operate a variety of telecommunications services. Following an agreement with an international consortium in 1996, two telecommunications satellites, Lao-Star 1 and Lao-Star 2, are scheduled to be launched in 1997 and 1998 respectively. Once operational, the satellites will provide a fully integrated network including broadcasting and digital data communication services.

Energy provision

Electricity production Generated capacity in Laos stands at 256 mw. Even allowing for the small size of the country’s population and economy, this is minute by regional standards. Neighbouring Vietnam generates over 6,000 mw, while Myanmar has installed capacity approaching 1,000 mw. According to the government, only 17% of the population has access to electricity (the World Bank says 11%). Power cuts are commonplace, especially during the rainy season. The majority of the

population meet their energy requirements by burning wood. (See Reference table 8 for historical energy statistics.)

Almost 90% of Laos’s generated capacity comes from hydroelectric sources, where the country has great potential. The largest share comes from the Nam Ngum hydroelectric plant (Units 1 and 2), near Vientiane, which has a capacity of 150 mw. Also important is the Xeset hydroelectric plant in Saravan province, which has a capacity of 45 mw. The remaining electricity is generated by diesel-power generators.

Electricity exports Over 80%, or 210 mw, of Laos’s hydroelectric power is exported to Thailand each year. Based on agreements signed between Vientiane and the Electricity Generating Authority of Thailand (EGAT), these exports are expected to rise to 1,500 mw per year by the year 2000, climbing to 2,500 mw by 2005. In 1995 a memorandum of understanding was signed with Vietnam for it to purchase 1,500-2,000 mw of electricity from Laos between 1998 and 2000. The largest project for integrating regional electricity grids is the 1,500-km Mekong Power Express, which is to link Laos with Thailand and Vietnam. Funding is expected to come from the Asian Development Bank (ADB) and the Japanese government.

To meet the expected level of future electricity sales a large-scale expansion of generating capacity is planned over the next few years. In the early 1990s the government predicted that installed capacity would reach 2,500 mw by the year 2000 and 7,000 mw by 2010. However, these targets now look on the ambitious side, with financing difficulties and environmental concerns causing delays. In 1996 the country’s largest project to date, the 681-mw Nam Theun 2, was awaiting the result of a second environmental impact study demanded by the World Bank, which is its main financier. Assuming the all clear is given, construction is not expected to begin before 1999, some three years behind schedule. Other hydroelectric power stations scheduled for completion over the next few years include Hong Sa (600 mw), Houai Ho (150 mw) and Theun Hinboun (210 mw). A total of ten hydroelectric power projects have been approved, including a Nam Ngum 3, while as many as 60 are reportedly on the drawing board.

Energy balance, 1995 (m tons oil equivalent) Elec- Oil Gas Coal tricity Other Total Production 0.00 0.00 0.00 0.28a 1.05 1.33 Imports 0.10 0.00 0.00 0.02a 0.00 0.12 Exports 0.00 0.00 0.00 0.23a 0.00 0.23 Primary supply 0.10 0.00 0.00 0.07a 1.05 1.22 Net transformation 0.02 0.00 0.00 0.05 0.00 0.07 Final consumption 0.08 0.00 0.00 0.02b 1.05 1.15

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

Financial services

Financial-sector reforms Reform of the financial sector began in 1988. Until then the State Bank of the Lao People’s Democratic Republic discharged both central and commercial banking functions. From 1988 the State Bank started to devolve its commercial banking functions and to adopt a more supervisory central banking role. Its extensive structure of provincial and local branches was rationalised, and two state-owned “autonomous” commercial banks were created (Nakhoneluang Bank and Sethathirath Bank). The first private-sector involvement in banking came in 1989, with the creation of the Joint Development Bank, a joint venture between the Lao government and Thai investors. Four more autonomous banks were created out of former State Bank branches in 1989.

The Central Bank Law of June 1990 formally outlined the powers of the central bank, renamed the Bank of the Lao PDR, which was given autonomy to conduct monetary and exchange rate policy. In 1993 the government established the Bank for Agricultural Promotion from the rural credit departments of the Nakhoneluang and Sethathirath Banks. As its name suggests, the new bank was designed to improve the flow of credit to the agricultural sector. A number of steps have been taken to develop indirect monetary instruments (see Economic policy). Treasury bill auctions have been held since 1994, but a stock market remains a distant prospect.

State banks remain Foreign banks have been permitted to open full branches since 1992, although dominant they are limited to operating in Vientiane municipality. Most of the foreign banks are Thai-owned, although Standard Chartered of the UK opened a representative office in 1996. However, state banks continue to dominate the banking sector; by far the majority of banking assets (valued at $120m in 1992) are in the hands of the state-owned banks. Nearly 50% of total assets are in the hands of one “autonomous” state-owned commercial bank, the Banque pour le Commerce Extérieur Lao (BCEL), which handles foreign trade and other overseas transactions. The other domestic banks are all small, with assets below $10m on average. (The insurance sector is also dominated by the state, in the form of the state-owned Assurances Générales du Laos.)

The banking sector is The reach of the banking sector is limited. Over 50% of the sector’s assets and limited in scope as much as 90% of bank deposits are concentrated in Vientiane. However, some state-owned commercial banks are active outside the capital. Pak Tai Bank, for instance, provides services in the south, while the Lao May Bank and Lane Xang Bank provide services in the centre and north respectively. Lending to state companies is more common than to the non-state sector, and there is a bias towards short-term loans. This has led to a thriving informal capital market, including credit cooperatives and revolving credit circles. As in neighbouring Vietnam, these informal credit institutions have often proved volatile. The most notorious case was the collapse of the Silavay Credit Cooperative’s pyramid scheme in 1991.

State bank bad debts are Doubts remained about the health of individual banks created by the structural under control changes to the banking sector of the late 1980s. A number of the state-owned commercial banks inherited non-performing loans from the old State Bank. In

addition, many of the state-owned banks had difficulties raising sufficient deposits, relying instead on the central bank for funds. A survey of the situation was undertaken in 1990, and completed in 1994; according to the IMF, the survey found that around K18bn ($22.4m) (1.6% of 1994 GDP) would be needed to overcome the state banks’ bad debts and improve capital adequacy ratios. With assistance from the Asian Development Bank, some K4bn was injected into the state banking sector in March 1994, and K14bn was raised through government bonds in 1994, effectively removing the problem of bad loans. However, despite technical assistance in this field, the central bank’s capacity to regulate the banking sector remains an area of concern.

Other services

Tourist arrivals are Since the late 1980s the government has been seeking to develop the tourism growing rapidly— sector, partly as a means of increasing much-needed foreign exchange earnings. Since 1994 overseas visitors have been able to travel more or less unre- stricted throughout the country except in areas designated as dangerous. Visas, which previously were issued at a very limited number of embassies, are now more easily obtainable. The government’s efforts have met with some success. Tourist arrivals increased from less than 15,000 in 1990 to just over 146,000 in 1994. The majority come from Asia, particularly Thailand. (See Reference table 10 for historical tourism data.)

Poor infrastructure remains a constraint on the sector. Hotels, and hotel services, are generally below international standard, although foreign investment in hotels and tourism is bringing gradual improvements. Efforts to train tourist personnel are also being made.

—but tourism Thai-style is The main state tourism body is the National Tourism Authority of the Lao to be avoided People’s Democratic Republic, which has eight provincial offices. However, to coordinate tourism development, the authorities have established the Lao Tourism Development Coalition (LTDC), a joint government-private sector body. It has been said that the LTDC is aiming to promote a “middle way” between the extremes of almost total exclusion that prevailed during the 1980s and the mass tourism which has developed in Thailand. In particular its aim is to ensure the preservation of the natural and cultural heritage that tourists come to see, by developing so-called eco- and cultural tourism.

To date, this has involved obtaining UNESCO World Heritage status for the former royal capital of Luang Prabang and the designation of certain areas as National Parks. In addition a government committee was established in 1994 to draw up a town plan for Luang Prabang, control new construction and preserve historic buildings. In early 1996 Malaysia’s Syuen Corporation signed a $118m joint-venture agreement with Laos’s defence ministry to develop a tourist resort along the Nam Ngum reservoir over a ten-year period.

Production

Industry

The industrial sector, 1993

Output (K bn, constant 1990 prices)a 125 Employment (’000)b 65.0 Real output growth (%) 10.3

a Includes construction. b 1992.

Source: World Bank, Lao People’s Democratic Republic Country Economic Memorandum, 1994.

The industrial sector is now characterised by small-scale manufacturing, processing and assembly plants, predominantly concentrated in and around Vientiane. Heavy industry is virtually non-existent. In 1995 the sector’s share of GDP (including construction) was 18.9%, up from 13.2% in 1989 (Asian Development Bank figures for 1995, World Bank figures for 1989). Manufacturing accounts for at least 75% of this. Since 1991, annual industrial growth has averaged 11.9%, according to Asian Development Bank figures. A more vibrant industrial sector can be attributed to efforts to reform the state-enterprise sector, as well as to inflows of foreign direct investment.

Key sectors The key growth areas, as reflected in export performance, are textiles and garments, agribusiness and wood products. Car and motorbike assembly has also begun to develop. However, as recently as 1993, 50% of manufacturing output was generated by rice-milling, and a further 25% from beer and soft drinks production. Furthermore, manufacturing growth was below the growth rate for industry as a whole in 1994 and 1995, with growth averaging 7%, according to the Asian Development Bank (ADB). This was due to constraints on growth from infrastructure bottlenecks, growing competition from imports in the border regions, cautious private-sector investment, high transportation costs, cumber- some customs procedures and high tariffs on key imported inputs.

Looking to the future, the Sixth Party Congress in 1996 identified agro-processing as a key sector for development, stressing the importance of developing backward linkages to agriculture. The report also emphasised the importance of increasing the output of construction materials in order to reduce the construction sector’s reliance on imports. Cement production in particular is scheduled to increase over the next few years. (See Reference tables 15 and 16 for composition of industrial output and physical output of selected industrial goods.)

Mining and semi-processing

The mining sector Laos is endowed with a range of minerals (see Natural resources), although remains undeveloped— their precise extent is largely undetermined. Almost all mining output came from tin, gypsum, coal and salt in the 1990s, and there have been few moves to develop other mining sectors, despite government commitment to do so (See Reference table 17 for historical data on mining and quarrying.) The sector is

poorly regulated and most non-state production is very small-scale (the majority of domestic mining companies are state-owned). Constraints include difficult terrain and poorly developed infrastructure, which make both extraction and transportation very costly. As a percentage of GDP, the sector’s contribution is tiny, accounting for no more than 0.2% since the late 1980s.

—although there is some The mining sector has been open to foreign investment since the early 1990s. foreign investor interest A number of companies have signed exploration agreements, including in the oil and gas sector, but few have reported commercially viable finds (although onshore oil exploration started in 1996). In the short term gold and other precious minerals look the most viable minerals, particularly alluvial gold (where extraction costs are relatively low). Lotus and Newmont Mining of the USA, and the Malaysian Mining Corporation have received prospecting licences in recent years.

Agriculture and forestry

The agricultural sector is the backbone of the Lao economy, providing more than 50% of output and employing over 80% of the labour force. Like many former centrally planned economies, the agricultural sector in Laos is grappling with a history of chronic underinvestment and, to a lesser extent, the legacy of collectivisation. The majority of agricultural land is given over to rice production, and this remains the largest single crop. Timber and wood products have historically been Laos’s most important source of export earnings, although restrictions on logging imposed in 1993, together with the emergence of new products, have now displaced them from the top of the list. There are also modest exports of other agricultural products, most notably coffee, although this is declining in importance.

Rice Nearly 80% of the 800,000 ha of land under cultivation in Laos is devoted to rice production. This usually involves one rain-fed crop per year. A small amount of dry-season cultivation does take place. In recent years rice output has fluctuated sharply depending on the climate, and Laos has often required emergency rice aid. The most prosperous rice-growing provinces are Savannakhet and Champassak. Average yields have improved modestly during the 1990s, although there is some doubt over the official statistics. (See Reference table 11 for historical data on paddy production and yields.)

Non-rice crops Cash crop cultivation has also been encouraged over the last few years with the emphasis on coffee, cotton, groundnuts, sugar cane and tobacco. However, these crops have also been vulnerable to climatic fluctuations. Measures announced by the government in 1995 allow coffee and cotton exports without tariffs, and farmers cultivating these crops are exempt from paying duty on imported farm equipment. Tobacco and coffee are the most important non-rice crops. Production is centred on the southern Bolavan Plateau straddling Champassak, Saravane and Sekong provinces. Other non-rice crops include maize, peanuts, and soybeans. Rubber cultivation is at an experimental stage. (See Reference table 12 for data on the output of principal non-rice crops.)

Animal husbandry There has been a steady expansion in the rearing of farm animals, such as cattle, poultry and pigs, since the late 1970s, facilitated by the establishment of animal breeding stations by the government. Since the mid-1980s there has also been a drive to develop fish farming. According to World Bank figures, output of livestock and fisheries expanded at twice the rate of agricultural crops between 1988 and 1993. (See Reference table 13 for data on animal husbandry.)

Forestry The forestry sector provided on average around 4.5% of GDP during the early 1990s, and until recently was the main export earner. Forestry products com- prise a wide variety of different woods, as well as rattan, bamboo, cardamom and resins. The authorities face the challenge of managing this resource in a sustain- able way. Illegal logging and slash-and-burn cultivation have been responsible for a rapid reduction in forest cover. Forests still cover around 47% of the country (although only half of this is commercially accessible), but this is down from a figure of 55% quoted in official statistics as recently as 1991. The government has issued numerous regulations limiting the amount of living timber that can be felled each year and banning the export of unprocessed logs. However, this control has proved notoriously difficult to enforce. Officially annual extraction of living timber is not to exceed 300,000 cu metres but the actual figure is almost certainly higher. A forestry law is expected to identify protected areas and to include incentives to encourage tree planting at the grassroots level. (See Reference table 14 for historical data on forestry.)

Construction

A mini-boom in The construction sector’s contribution to GDP is small, at around 4%. How- construction ever, its contribution has been increasing since the late 1980s, and in recent years the construction industry has undergone a mini boom. In part this is the result of increased demand for hotels and residential housing, although the sector has also benefited from the development of light industry and the hydroelectric power sector. According to Asian Development Bank figures, the construction sector grew by an unprecedented 22% in 1995, compared with 11% in 1994. Another indicator of the sector’s buoyancy is increased demand for cement, which in 1995 outstripped domestic supply by about 350,000 tons. This has prompted the government to step up the development of the domestic cement industry, including approving the first Thai investment in the sector in 1996. The construction sector’s vibrancy is, however, largely concentrated in and around Vientiane, which accounted for around 30% of total cement consumed in 1995. Both state and private firms are active in the construction sector, although the state sector’s share of output has fallen rapidly since the late 1980s, to around 40%, from over 70%. The military also has well-developed commercial construction interests, while foreign construction companies are employed on some projects.

The external sector

Merchandise trade

Foreign trade, 1995 ($ m) Merchandise exports (fob) 347.8 Merchandise imports (fob) –540.2 Trade balance –192.4 Source: IMF, International Financial Statistics.

Reforms have boosted The shift away from central planning has involved the rejection of the govern- export growth ment’s former bias against foreign trade. Exports are no longer viewed purely as a means to pay for imports but rather as an engine of growth. A series of trade-liberalising measures have been taken, and the kip was devalued and brought in line with the free-market rate in 1987. The authorities have been rewarded by a surge in exports in the 1990s. Between 1991 and 1995 exports increased in dollar terms at an average rate of 34.6% annually. This period also saw considerable diversification of both export products and markets.

Diversification of exports Exports of hydroelectric power and forestry products continue to be important but their share of total exports has declined. Hydroelectric power provided 8.9% of total export revenue in 1994, compared with an average of over 40% in 1980-90. The reduction in the share of timber and wood products is less marked, but has also dropped well below the share of around 50% in the late 1980s. Coffee exports are growing strongly (the aim is to export 15,000 tons of coffee annually by 2000), but their share of export earnings has dropped dramatically to under 2%, from around 20% in 1979. The reductions in the share of exports for these key items reflect the recent rapid emergence of low-technology, labour-intensive manufactured exports, and also re-exports.

The most important of the new export sectors is textiles and garments, which were estimated by the IMF to contribute around 18.5% of total export earnings in 1994, from negligible amounts as recently as 1988. These new industries have been stimulated largely by foreign investment, particularly from Thailand, by companies seeking to escape high domestic costs. Since 1989 re-exports have also been growing rapidly. Among items counted as re-exports are cars and motorcycles (sold on mainly to China and Vietnam), and timber, mainly from Cambodia (although the measure of re-exports does vary). Re-exports and “other” items overtook forestry products as the largest source of export earnings in 1992, and remained ahead in 1993 and 1994 (based on IMF estimated figures). However, there have been repeated attempts to restrict entrepôt trade in timber, while car and motorcycle re-exports are vulnerable to the development of domestic capacity in China and Vietnam. (See Reference table 18 for data on main exports.)

Imports are growing Through the 1990s, imports have expanded somewhat more slowly in dollar more slowly terms than exports, averaging 26% growth annually in 1991-95. However, Laos remains dependent on imports for a wide range of products, including nearly

all its capital goods. It imports all the petroleum products it consumes and a large percentage of its cement requirements. The garment and assembly industries are also highly dependent on imported inputs. (See Reference table 19 for data on main imports.)

Main trading partners During the 1990s there has been a marked reorientation of trade away from the countries of the now defunct CMEA (Council for Mutual Economic Assistance) towards Asia. The trend started when trade with the Eastern bloc shifted to a hard-currency basis. Exports to the non-convertible bloc fell from 26.2% of the total in 1990, to 2.5% in 1991, while imports from the bloc fell from 35.2% of the total in 1990 to 2.1% in 1991. Laos’s external trade is now dominated by Thailand, which accounted for 48.5% of imports and was the destination for 20.8% of exports in 1994. The second largest trade partner is Japan, although it is considerably less important than Thailand. China was an insignificant destination for Laos’s exports in 1994, although it was the second largest source of imports; however, trade with China is more important than official statistics suggest, owing to the large amount of smuggling which takes place across Laos’s northern border. There is also a small amount of trade with the EU and the USA.

Main trading partners, 1994 (% of total) Exports to: Imports from: Thailand 20.8 Thailand 48.5 Japan 8.6 China 6.4 France 5.5 Japan 6.2 Germany 5.5 France 3.6 Netherlands 2.8 USA 1.7 Source: Asian Development Bank, Key indicators 1995.

Trade liberalisation In recent years the government has taken a number of steps towards liberalising trade. Quantitative restrictions remain only for imports of vehicles and exports of timber, and there have been moves to simplify the tariff structure. However, tariffs remain high on a range of products, reflecting an unwilling- ness to subject infant industries to too much competition, and a desire to preserve a much-needed source of revenue. Membership of the Association of South-east Asian Nations (ASEAN), which Laos is scheduled to join in 1997, will however include commitments to lower tariff barriers as required by the ASEAN Free Trade Area (AFTA). AFTA requires tariffs on designated products to be reduced to between 0% and 5% by 2003 for the founder countries, although Laos may be given until 2006. Although Laos has not expressed a view on whether it wishes to join the Asia-Pacific Economic Cooperation (APEC) forum or the World Trade Organization (WTO), membership of these groups would also entail further trade liberalisation. The USA is also now considering whether to grant most-favoured nation (MFN) trading status to Laos.

Invisibles and the current account

Current account, 1995 ($ m) Current-account balance –223.6 Trade balance –192.4 Services balance –28.0 Source: IMF, International Financial Statistics.

The current-account In recent years Laos has consistently recorded current-account deficits. (See deficit Reference tables 20 and 21 for historical balance-of-payments data.) The main reason for this has been the country’s merchandise-trade deficit. Although exports are growing more rapidly than imports, Laos remains dependent on imported inputs. The government’s encouragement of tourism over the last few years has led to a steady increase in earnings from this source. However, services remained in deficit in 1995 (according to the IMF International Financial Statistics figures). Since the economic reforms began, private transfers in the form of remittances from overseas Lao have increased.

The current-account deficit (excluding official transfers) is high, reaching the equivalent of 13% of GDP in 1995. It should be noted that the size of the current-account deficit based on the IMF figures is somewhat overestimated, since positive inflows of transfers (including aid) are excluded, due to problems with the data. The chronic deficit on the merchandise-trade account means that the pattern of high current-account deficits is likely to continue for many years. However, this is not unusual for a country at Laos’s stage of development (where imported inputs are vital), and financing it is likely to present few problems.

Capital flows and foreign debt

Official transfers The large current-account deficits that Laos has experienced since 1975 have been financed through foreign aid and concessional financing. Between 1975 and 1988 a large portion of this financing came from the Soviet Union and through associated Eastern bloc trade. Since 1990 economic relations with the former Eastern bloc have almost entirely halted (see Merchandise trade above). Multilateral and bilateral assistance from the former convertible currency area has filled the gap. Bilateral assistance, notably from Japan, Australia and Sweden, has largely been in the form of tied aid (although in 1995 Japan agreed to resume yen loans). Laos remains reliant on official transfers to fund both the current-account deficit and the budget; according to the Asian Development Bank, budgeted capital expenditure is still largely financed by external grants and loans. (See Reference table 22 for further data on official development assistance.)

FDI inflows are still small Laos’s market-oriented reforms have resulted in increased inflows of foreign direct investment (FDI). From 1988 to mid-1996, nearly $6bn of foreign investment has been approved by the Lao authorities, although only around 30% of this has actually been disbursed. Thailand accounts for 41% of approved investment, with US investors (largely overseas Lao) a distant second, followed by South Korea, France and Australia. The foreign investment agencies were

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Laos: Foreign reserves and the exchange rate 75

reorganised in mid-1996, as part of the government’s attempts to boost foreign investment inflows (see Economic policy).

External debt According to the World Bank’s World Debt Tables, Laos’s total external debt stock, comprising both convertible currency and transferable rouble debt, was $2.08bn at the end of 1994. Of this, $2.02bn was medium- and long-term, 26% from multilateral sources and 74% from bilateral creditors, all on concessional terms. Outstanding debt owed to private creditors was only $4m.

These figures yield high debt ratios. In 1994 the ratio of debt to GNP was 136%, and the ratio of debt to exports of goods and services was over 800% (although the debt/service ratio was only 7.7%). Over 70% of Laos’s long-term debt is owed to former Eastern bloc creditors, mainly Russia, and this non-convertible currency debt is artificially inflated by the use of an unrealistic rouble-dollar exchange rate. In 1994 the Asian Development Bank calculated that Laos’s convertible-currency debt was $579.6m, which is equivalent to 38% of GNP. Apart from the transferable rouble debt, Laos is honouring its debt servicing commitments. Total debt service paid in 1994 was $20m. At least some of the rouble debt is likely to be written off and the rest valued at an exchange rate much more favourable for Laos. (See Reference table 23 for external debt data.)

Foreign reserves and the exchange rate

Exchange rate regime A dramatic reform of the exchange rate system began in 1987. The central bank has operated a managed float since 1988, and the kip was made convertible on almost all current account transactions. A series of devaluations brought the official exchange rate more in line with the market rate; the kip fell against the dollar from around K100:$1 in 1986 to K708:$1 in 1990. This adjustment was then followed by a period of stability, resulting from macroeconomic stability, increased foreign assistance, stronger exports and growing confidence in the kip. Between 1990 and 1994 the currency remained stable, appreciating modestly at around K718:$1. During this time Laos’s inflation exceeded that of its main trading partners, notably Thailand, resulting in an appreciation of the real exchange rate. Concern grew that this might lead to a deterioration in the competitiveness of garment and other light industrial exports. In September 1995 the kip was devalued to K925:$1 at a time when the dollar itself was weak. It has remained at about that level ever since. Despite the stability of the kip in recent years, Thai baht, US dollars and gold are all widely used in the free market. (See Reference table 25 for data on exchange rates.)

Reserves remain low The central bank’s ability to defend the currency is hampered by the small size of its reserves, although they have increased strongly in recent years. Total reserves (excluding gold) amounted to $92.1m at the end of 1995 (IMF figures). Taking IMF figures for exports of goods and services, this was still equivalent to only 2.5 months import cover (below the accepted minimum safe level of 3 months). (See Reference table 24 for data on reserves.)

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 76 Laos: Foreign reserves and the exchange rate

Total reserves (excl gold) ($ m) Sep 1996 Laos 136.3 Cambodia 231.8 Burma 193.5 Source: IMF, International Financial Statistics.

Appendices

Source of information

National statistical sources Laos authorities, Outline Public Investment Programme 1994-2000, Vientiane, 1994

Lao Urban Labour Force Survey, Vientiane, 1992

Ministry of Agriculture and Forestry, Sawmill Surveys, Vientiane, 1989 and 1990

Ministry of Industry, Power Development Plan 1991-2010, Vientiane, 1991

Ministry of Transport, National Transport Survey Plan to 2000, Vientiane, 1990

National Census Committee, Population Census 1995, Vientiane, 1995

National Statistical Centre, Lao People’s Democratic Republic Expenditure and Consumption Survey, 1994

State Statistical Centre, Basic Statistics About the Socio-Economic Development of the Lao People’s Democratic Republic, Vientiane, 1993

International statistical Asian Development Bank, Asian Development Outlook 1996 and 1997 sources Asian Development Bank, Asian Economic Indicators (annual)

IMF, International Financial Statistics (monthly)

IMF, The Lao People’s Democratic Republic: Systemic Transformation and Adjustment, May 1996

World Bank, Lao People’s Democratic Republic: Country Economic Memorandum, 1994

World Bank, Lao People’s Democratic Republic: Social Development Assessment and Strategy, 1995

World Bank, World Development Report (annual)

World Bank, World Debt Tables (annual)

Select bibliography L Brahm and N Macpherson, Investment in the Lao People’s Democratic Republic, Hong Kong, 1992

M Brown and J J Zasloff, Apprentice Revolutionaries: The Communist Movement in Laos 1930-1985, Stanford, 1986

J Deuve, La Royaume de Laos 1949-65, Paris, 1984

Economist Intelligence Unit, Cambodia, Laos Country Report (quarterly)

G Evans, Lao Peasants Under Socialism, New Haven, 1991

B Funck, “Laos: Decentralisation and Economic Control” in B Ljunggren (ed), The Challenge of Reform in Indochina, Harvard, 1993

J Hamilton-Merritt, Tragic Mountains: The Hmong, the Americans, and the Secret Wars for Laos 1942-92, Indiana, 1993

A W McCoy, The Politics of Heroin in South-east Asia, New York, 1972

M Stuart-Fox, Laos: Politics, Economics and Society, London, 1986

M Stuart-Fox, “Laos: Towards Subregional Integration” in South-east Asian Affairs 1995, Singapore, 1995

UN Industrial Development Organisation, Lao People’s Democratic Republic: Industrial Transition, 1994

Vientiane Times (weekly in English), Vientiane

R Warner, Back Fire: The CIA’s Secret War in Laos, New York, 1995

J J Zasloff, The Pathet Lao: Leadership and Organisation, Lexington, MA, Heath, 1973

J J Zasloff and L Unger (eds), Laos: Beyond the Revolution, Basingstoke, 1991

Reference tables

Reference table 1 Government finances (K bn unless otherwise indicated) 1991 1991/92a 1992/93 1993/94 1994/95 Total revenue 74.7 85.6 113.3 135.8 169.6 Tax 54.4 60.8 85.9 106.7 136.7 Non-tax 20.3 24.9 27.3 29.1 32.9 Total expenditure 151.1 174.4 170.5 258.9 290.8 Current 82.0 99.5 104.9 127.1 151.0 Capital 69.1 74.9 65.6 131.8 140.0 Deficit –81.4 –95.6 –72.9 –123.1 –121.0 Financing Domestic 19.3 14.3 14.5 5.2 10.5 Grants 32.6 34.0 31.3 67.3 52.5 Other foreign 29.6 47.2 27.1 50.6 58.0 Revenue (% of GDP) 10.3 10.5 11.9 12.2 13.3 Expenditure (% of GDP) 20.9 21.4 17.9 23.2 22.8 of which: capital expenditure 9.6 9.2 6.9 11.8 10.9 Deficit (% of GDP) –11.3 –11.7 –7.8 –11.0 –9.5

a In 1992 the fiscal year was changed to October 1-September 30, from the previous calendar year basis. The 1991/92 figures were calculated by the IMF, for purposes of comparison.

Source: IMF, Systemic Transformation and Adjustment, May 1996.

Reference table 2 Money supply (K m; end-period) 1990 1991 1992 1993 1994 1995 Money 25,088 28,228 35,144 52,239 61,343 67,177 Quasi money 19,251 23,087 51,315 73,609 104,690 126,089 Total (M2) 44,339 51,315 76,462 125,848 166,033 193,266 Net foreign assets 20,797 22,660 36,657 72,894 58,398 77,899 Domestic credit 31,197 40,970 56,215 74,817 129,042 157,297 Source: IMF, International Financial Statistics (September 1996).

Reference table 3 Gross domestic product

1990 1991 1992 1993 1994 1995 Total (K bn) At current prices 613 722 844 951 1,107 1,395 At constant (1990) prices 613 637 682 722 781 836 Real change (%) 6.8 3.9 7.1 5.9 8.2 7.0 Per head (K ’000) At current prices 147 170 194 215 246 304 At constant (1990) prices 147 149 156 163 174 183 Sources: IMF, International Financial Statistics (September 1996); EIU estimates.

Reference table 4 Gross domestic product by sector (K m at 1990 constant prices; % of total in brackets) 1988 1989 1990 1991 1992 1993a Agriculture, livestock, forestry & fisheries 308,907 342,206 371,835 365,347 395,537 406,392 (61.5) (59.6) (60.7) (57.3) (58.0) (56.3) Industry 43,999 60,748 70,197 87,899 93,532 103,152 (8.8) (10.6) (11.5) (13.8) (13.7) (14.3) Construction 12,174 15,091 17,908 17,735 19,055 22,123 (2.4) (2.6) (2.9) (2.8) (2.8) (3.1) Services 129,328 148,103 147,427 157,038 163,093 175,667 (25.6) (25.8) (24.0) (24.6) (23.9) (24.4) Transport, storage & communications 33,702 36,181 31,687 32,124 34,333 35,397 (6.7) (6.3) (5.2) (5.0) (5.0) (4.9) Wholesale & retail trade 31,943 41,177 41,967 46,163 49,415 58,557 (6.4) (7.2) (6.8) (7.2) (7.2) (8.1) Banking insurance & real estate 1,359 4,004 6,939 6,202 6,908 7,820 (0.3) (0.7) (1.1) (1.0) (1.0) (1.1) Public administration & defence 39,434 39,434 35,683 31,932 31,070 31,008 (7.8) (6.9) (5.8) (5.0) (4.6) (4.3) Other services & import duties 14,885 19,666 16,071 28,061 34,495 40,140 (3.0) (3.4) (2.6) (4.4) (5.0) (5.6) GDP 502,587 574,276 612,731 637,204 681,854 722,057 a Based on preliminary estimates of GDP.

Source: World Bank, Lao People’s Democratic Republic: Country Economic Memorandum 1994.

Reference table 5 Prices (% change; period averages) 1990a 1991 1992 1993 1994 1995 General consumer prices 35.8 13.4 9.9 6.3 6.8 20.4

a December 1987=100. 1991 onwards, 1990=100.

Sources: Asian Development Bank, Key Indicators 1995; IMF, International Financial Statistics (September 1996).

Reference table 6 Population (m) 1990 1991 1992 1993 1994 1995 Total 4.16 4.27 4.36 4.43 4.50 4.58 Growth rate (%) 2.7 2.6 2.1 1.6 1.6 1.8 Sources: Government sources, including press reports on official census in 1995; EIU estimates.

Reference table 7 Labour force (’000, unless otherwise indicated) 1985 1990a 1992b Labour force 1,511 1,752 1,859 Employed labour force 1,466 1,699 1,803 Agriculture (%) 89.2 88.7 87.0 Manufacturing (%) 1.8 2.0 2.5 Construction (%) 0.7 0.9 1.1 Transport & communications (%) 0.9 1.0 1.2 Commerce (%) 1.7 1.8 2.1 Service/administration (%) 5.7 5.6 6.1 Annual growth (%) 2.8 3.0 3.0 Annual growth (persons) 48 53 54

a Ministry of Finance projections. b Estimates based on 1990 figures.

Source: World Bank, Lao People’s Democratic Republic: Country Economic Memorandum 1994.

Reference table 8 National energy statistics (m kwh) 1989 1990 1991 1992 1993a Production 708 844 828 753 919 Exports 469 607 562 462 n/a Imports 13 26 35 40 n/a Consumption 252 263 192 n/a n/a

a Estimate.

Source: Asian Development Bank, Key Indicators of Asian and Pacific Countries.

Reference table 9 Transport statistics 1990 1991 1992 1993 1994 1995 Road Total length (km) n/a 14,093 13,130 14,176 18,377 18,857 Passengers (’000) 12,588 14,228 15,648 15,961 16,556 12,706 Freight (’000 tons) 542 615 1,409 1,437 939 955 Waterways Passengers (’000) 583 636 690 703 898 652 Freight (’000 tons) 263 1,066 284 290 876 898 Air Passengers (’000) 117 118 156 159 199 295 Freight (’000 tons) 1.0 0.7 1.5 2.0 2.0 1.7 Sources: Ministry of Communications, Transport, Post and Construction; International Road Federation, World Road Statistics.

Reference table 10 Tourism statistics

1989 1990 1991 1992 1993 1994 Visitor arrivals (’000) n/a 15 20.6 62 102 146 Sources: National Tourism Authority of the Lao People’s Democratic Republic; EIU estimates.

Reference table 11 Paddy production and yields

1991 1992 1993 1994 1995 Total output (’000 tons) 1,223.3 1,502.3 1,250.7 1,577.0 1,423.2 Rainy-season rice 842.2 1,153.4 921.4 1,197.7 1,122.1 Irrigated rice 43.7 55.3 45.6 37.8 48.0 Upland rice 337.5 293.6 283.7 341.6 253.1 Average yield (tons/ha) 2.20 2.66 2.32 2.63 2.61 rainy-season rice 2.61 2.94 2.63 3.10 3.10 irrigated rice 2.81 3.57 3.50 3.43 4.11 upland rice 1.44 1.47 1.51 1.60 1.54 Source: National Statistical Centre, Committee for Planning and Cooperation 1975-95.

Reference table 12 Principal non-rice crops

1991 1992 1993 1994 1995 Maize (tons) 68.6 57.7 47.6 55.8 79.4 Yield (tons/ha) 1.4 1.5 1.5 1.6 1.5 Starchy roots (tons) 132.1 104.8 112.9 159.5 n/a Yield (tons/ha) 8.0 7.3 7.9 7.3 n/a Vegetables (tons) 51.2 56.6 125.1 156.4 186.6 Yield (tons/ha) 7.5 8.3 8.4 8.6 8.7 Mung beans (tons) 2,107.0 5,506.0 2,202.0 1,676.0 3,400.0 Yield (tons/ha) 0.7 0.7 0.7 0.7 0.8 Soy beans (tons) 5,509.0 5,146.0 4,521.0 5,990.0 7,200.0 Yield (tons/ha) 0.9 0.8 0.8 1.0 1.0 continued

1991 1992 1993 1994 1995 Peanuts (tons) 5,626.0 6,759.0 5,279.0 4,797.0 8,900.0 Yield (tons/ha) 1.0 0.8 0.8 1.0 1.0 Tobacco (tons) 45.3 48.2 29.2 31.8 61.6 Yield (tons/ha) 4.4 4.6 4.1 4.4 5.4 Cotton (tons) 4,749.0 5,303.0 5,947.0 5,913.0 8,400.0 Yield (tons/ha) 0.6 0.7 0.8 0.8 0.8 Sugar cane (tons) 80.5 94.4 89.6 65.1 123.0 Yield (tons/ha) 28.4 28.7 26.4 23.7 24.6 Coffee (tons) 8,017.0 7,410.0 7,622.0 9,035.0 10,000.0 Yield (tons/ha) 0.3 0.4 0.4 0.5 0.5 Tea (tons) 1,705.0 1,021.0 1,475.0 1,943.0 1,700.0 Yield (tons/ha) 4.4 1.7 0.7 0.5 0.9 Source: National Statistical Centre, Committee for Planning and Cooperation 1975-95.

Reference table 13 Livestock (’000 head) 1991 1992 1993 1994 1995 Buffalo 1,099 1,130 1,134 1,168 1,192 Cattle 903 993 1,020 1,081 1,146 Pigs 1,431 1,561 1,625 1,674 1,724 Poultry 8,032 8,906 10,091 10,697 11,338 Goats & sheep 120 104 126 142 153 Source: National Statistical Centre, Committee for Planning and Cooperation 1975-95.

Reference table 14 Forestry (K m) 1986 1987 1988 1989 1990a Logging 7,916 10,012 11,370 10,800 11,448 Cut timber 4,143 6,280 5,025 10,249 7,048 Plywood 1,165 1,675 1,156 1,805 2,215 Veneer 732 581 1,031 1,772 2,330 Parquet 177 398 512 2,391 3,520 Other wood products 0 0 42 178 220 Total excl logging 6,217 8,934 7,766 16,395 15,333 Total incl logging 20,350 27,880 26,902 43,590 42,114

a Estimate.

Source: UN Industrial Development Organisation (UNIDO), Lao People’s Democratic Republic: Industrial Transition.

Reference table 15 Composition of industrial output (% of total) 1980 1985 1990 Food products & beverages 7.6 8.9 10.2 Tobacco products 13.9 11.4 13.9 Textiles, clothing & leather products 6.9 5.1 4.6 Wood & wood products 17.5 26.1 34.3 Furniture & handicrafts 1.4 1.0 4.4 Paper & paper products 0.0 0.05 0.0 Printing & publishing 0.6 0.5 1.1 Chemicals & chemical products 3.4 4.2 3.4 Rubber & plastics 0.3 0.8 0.5 Non-metallic mineral products (concrete, cement, bricks) 0.3 3.3 3.4 Fabricated metal products (mainly roofing sheets) 14.5 10.5 9.2 Machinery & equipment 0.2 0.3 0.4 Electrical machinery & apparatus 0.0 0.5 0.2 Utilities (electrical & water supply) 33.6 27.2 14.4 Source: UNIDO, Lao People Democratic Republic: Industrial Transition.

Reference table 16 Physical output of selected industrial goods (’000, rounded figures) 1980 1986 1990 1991 Beer (bottles) 8 22 n/a 69 Soft drinks (hl) 13 7 n/a 60 Bread, confectionery (tons) 316 200 155 n/a Fermented fish (tons) 131 64 121 n/a Fish sauce (hl) 2 3 1 n/a Salt (tons) 5 11 12 n/a Ice (tons) 23 8 8 n/a Animal feed (tons) 2 6 3 n/a Cigarettes (m packs) 15 17 n/a 30 Clothing (pieces) 260 662 n/a 883 Fabrics (metres) 1,044 967 n/a 145 Plastic goods (tons) 47 584 n/a 85 Soap (tons) 2 2,223 n/a 481 Detergent (tons) 602 2,631 n/a 566 Chalk (boxes) 18 114 n/a 22 Timber (cu metres) 55 336 n/a 301 Lumber (cu metres) 11 38 n/a 71 Plywood (sheets) 76 518 n/a 347 Thin wood (cu metres) n/a 226 n/a 64 continued

1980 1986 1990 1991 Wood flooring (cu metres) 16 57 n/a 46 Nails (tons) 61 149 n/a 55 Electric wire (metres) 8 549 n/a 101 Buckets, watering cans (units) 82 114 11 n/a Agricultural tools (pieces) 63 85 n/a 6 Iron goods (tons) 12 21 n/a n/a Bricks (m pieces) 3 10 n/a 5 Concrete (cu metres) n/a 5 n/a 12 Source: UNIDO, Lao People Democratic Republic: Industrial Transition.

Reference table 17 Mining and quarrying (physical output; 1990 prices) 1987 1988 1989 1990 1991 1992 Tin (tons) 501 362 384 432 349 346 Gypsum (’000 tons) 57 80 104 56 76 90 Lime (tons) 850 495 200 200 n/a n/a Sapphire (carats) n/a 538 32,925 26,870 15,000 15,000 Coal (tons) 1,187 561 1,000 3,532 n/a n/a Gravel (’000 cu metres) 106 92 71 85 113 163 Sand (’000 cu metres) 19 21 40 48 63 92 Source: World Bank, Lao People’s Democratic Republic: Country Economic Memorandum 1994.

Reference table 18 Main exports ($ m) 1990 1991 1992 1993a 1994a Total exports 78.7 96.6 132.6 232.3 277.7 Convertible area 58.1 94.2 130.2 228.5 273.9 Wood products 18.6 40.9 42.7 58.8 97.3 Coffee 1.4 2.2 2.4 3.3 3.3 Hydroelectric power 19.2 21.3 17.0 19.6 24.8 Garments 7.0 15.1 27.3 49.0 51.5 Re-exports 4.8 9.7 22.0 36.0 43.1 Other 7.1 5.0 18.8 61.8 53.9 Non-convertible area 20.6 2.4 2.4 3.8 3.8 Coffee 7.5 0.9 n/a n/a n/a Wood 7.3 0.8 n/a n/a n/a Tin 1.3 0.2 n/a n/a n/a Other 4.8 0.5 n/a n/a n/a

a Estimates.

Source: IMF, Systemic Transformation and Adjustment, 1996.

Reference table 19 Main imports ($ m) 1990 1991 1992 1993a 1994a Total imports 201.6 215 265.6 410.7 528 Convertible area 130.7 210.4 265.6 410.7 528.0 Rice & foodstuffs 18.4 28.4 31.6 46.4 60.0 Petroleum products 7.3 21.1 24.3 29.5 41.7 Machinery & raw materials 79.8 103.2 137.1 183.8 218.8 Imports for re-export 4.8 9.7 22.0 36.0 43.1 Other 20.4 48.0 50.6 115.0 164.4 Non-convertible area 70.9 4.6 – – –

a Estimates.

Source: IMF, Systemic Transformation and Adjustment, 1996.

Reference table 20 Balance of payments, national estimates ($ m) 1989 1990 1991 1992 1993 Exports 63.3 78.7 96.6 132.7 203.1 Convertible area 47.2 58.1 94.2 132.7 203.1 Non-convertible area 16.1 20.6 2.4 0.0 0.0 Imports 210.7 201.6 227.9 265.6 353.2 Convertible area 135.7 130.7 223.3 265.6 353.2 Non-convertible area 75.0 70.9 4.6 0.0 0.0 Trade balance –147.4 –122.9 –131.3 –132.9 –150.1 Convertible area –88.5 –72.6 –129.1 –132.9 –150.1 Non-convertible area –58.9 –50.3 –2.2 0.0 0.0 Net services & transfers 12.4 21.4 15.2 29.1 29.1 of which: services (convertible area, net balance) 6.7 13.3 7.6 20.5 19.6 receipts 23.3 25.8 39.8 63.2 85.9 payments –16.6 –12.6 –32.2 –42.7 66.3 services (non-convertible area, net balance) –2.6 –2.8 –2.8 0.0 0.0 Private transfers (convertible area, net) 8.3 10.9 10.4 8.6 9.5 Non-convertible area –2.6 –2.8 –2.8 0.0 0.0 Current-account balance –135.0 –101.5 –116.1 –103.9 –121.0 Convertible area –73.5 –48.4 –111.2 –103.9 –121.0 Non-convertible area –61.5 –53.1 –5.0 0.0 0.0 Capital-account balance 121.9 112.1 116.3 135.1 117.4 Official transfers 19.0 23.4 69.2 62.9 61.9 Convertible area 14.7 22.6 63.9 62.9 61.9 Non-convertible area 4.3 0.8 5.3 0.0 0.0 Net capital inflow 102.9 88.7 47.1 72.1 50.6 convertible area 42.3 49.7 46.9 74.9 50.6 long-term loans 38.3 43.7 38.9 65.9 n/a drawings 47.1 49.8 47.1 71.1 n/a amortisation –8.8 –6.1 –8.2 –5.2 n/a continued

1989 1990 1991 1992 1993 Direct foreign investment 4.0 6.0 8.0 9.0 n/a Non-convertible area 60.6 39.0 0.2 –2.8 0.0 long-term loans 38.3 43.7 38.9 65.9 0.0 drawings 12.0 2.6 0.0 0.0 0.0 amortisation –1.8 –1.2 –2.3 –2.8 0.0 Bilateral arrangements 50.4 37.6 2.5 0.0 0.0 Errors & omissions 37.0 –25.1 –2.9 –15.5 28.0 Overall balance 23.9 –14.5 –2.7 15.7 24.4 Financing Changes in reserves –23.9 14.5 2.7 –15.7 –24.4 Source: World Bank, Lao People’s Democratic Republic: Country Economic Memorandum 1994.

Reference table 21 Balance of payments, IMF data ($ m) 1990 1991 1992 1993 1994 1995 Exports of goods, fob 78.7 96.6 132.6 240.5 300.4 347.8 Imports of goods, fob –185.5 –197.9 –232.8 –397.4 –519.1 –540.2 Trade balance –106.8 –101.3 –100.2 –156.9 –218.7 –192.4 Exports of services 23.7 37.8 61.4 86.7 87.1 97.4 Imports of services –26.4 –47.6 –71.3 –96.7 –108.9 –125.4 Income credit 2.2 3.3 5.6 8.6 6.8 7.4 Income debit –3.2 –4.4 –4.6 –5.6 –6.2 –7.2 Transfers credit n/a n/a n/a n/a n/a n/a Transfers debit –0.3 –2.9 –2.2 –2 –3.2 –3.4 Current account –110.8 –115.1 –111.3 –165.9 –243.1 –223.6 Direct investment abroad – – – – – – Direct investment in Laos 6 6.9 7.8 47.6 42.4 77.2 Portfolio investment assets – – – – – – Portfolio investment liabilities – 1.1 1.2 30.3 1.0 13.4 Other investment assets –4.5 34.2 –16.1 –43.2 –9.4 –5.7 Other investment liabilities 12.7 –2.7 4.1 –6.7 –25.3 –29.8 Financial account 14.2 39.5 –3.0 28 8.7 55.1 Other capital credit 10.9 10.4 8.6 9.5 9.5 13.4 Other capital debit – – – – – – Other capital balance 10.9 10.4 8.6 9.5 9.5 13.4 Net errors & omissions –40.2 –60.3 –16.3 –29.4 44.2 –74.6 Overall balance –125.9 –125.5 –122 –157.8 –180.7 –229.7 Memorandum item Total changes in reserves assets (– indicates inflow) 125.9 125.5 122 157.8 180.7 229.7 Exceptional financinga 127.1 140.7 126.7 173.3 178.2 227.3

a Includes aid transfers.

Source: IMF, International Financial Statistics.

Reference table 22 Net official development assistancea ($ m) 1990 1991 1992 1993 1994 Bilateral 51.2 67.3 77.3 92.3 123.9 of which: Japan 16.9 20.6 24.8 40.5 60.6 Sweden 17.1 14.4 15.9 17.0 13.9 France 4.0 13.5 9.0 8.2 14.3 Australia 6.0 7.5 10.6 10.4 10 Germany 3.1 6.0 7.5 7.3 9.2 Switzerland 2.5 1.8 2.2 4.3 6.5 Multilateral 100.0 76.5 88.0 114.2 94.7 of which: ADB 44.3 30.7 20.7 45.9 24 IDA 33.0 15.0 37.7 37.4 26.2 UNDP 12.2 9.8 8.1 10.2 6.9 Total 151.2 143.3 165.3 206.6 218.5

a Defined as grants and loans with at least a 25% grant element, provided by the OECD and OPEC member countries and multilateral agencies, and administered with the aim of promoting development and welfare in the recipient country.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 23 External debt ($ m unless otherwise indicated) 1990 1991 1992 1993 1994 Total external debt 1,768 1,875 1,917 1,985 2,080 Long-term debt 1,758 1,850 1,887 1,948 2,022 Short-term debt 2 4 2 1 11 of which: interest arrears on long-term debt 0 0 0 0 0 Use of IMF credit 8 21 28 36 47 Memorandum item Principal arrears on long-term debt 1 1 0 0 0 Public & publicly guaranteed long-term debt 1,758 1,850 1,887 1,948 2,022 Official creditors, of which: 1,752 1,844 1,822 1,944 2,018 multilateral 267 326 366 447 529 bilateral 1,485 1,518 1,516 1,498 1,489 Private creditors 6 5 4 4 4 of which: bonds 0 0 0 0 0 banks 0 0 0 0 0 other 6 5 4 4 4 Total debt service paid 9 9 10 29 20 continued

1990 1991 1992 1993 1994 Long-term debt 8 8 9 28 20 IMF repurchases & charges 1 0 0 0 0 Short-term debt (interest only) 0 0 0 0 0 Memorandum item Total debt service due 10 9 10 28 20 Ratios (%) External debt/GNP 203.7 182.6 161.8 148.9 135.6 Debt service paid/exports of goods & services 8.7 6.3 4.8 8.8 7.7 Short-term debt/total debt 0.1 0.2 0.1 0.1 0.5 Concessional long-term loans/total debt 99.1 98.4 98.2 97.9 97.0

Note. Long-term debt is defined as having an original maturity of more than one year.

Source: World Bank, World Debt Tables.

Reference table 24 Foreign reserves (US$ m; unless otherwise specified) 1991 1992 1993 1994 1995 Total reserves minus gold 28.65 40.31 62.96 60.93 92.12 SDRs 0.5 0.8 2.6 10.9 14.1 Foreign exchange 28.2 39.5 60.3 50.0 78.0 Gold (m fine troy ounces) 0.0171 0.0171 0.0171 0.0171 0.0171 Gold (national valuation) 0.6 0.6 0.6 0.6 0.6 Source: IMF, International Financial Statistics.

Reference table 25 Exchange rates (period averages, unit of currency per K) 1991 1992 1993 1994 1995 US $ 702.08 716.08 716.25 717.67 804.69 Source: IMF, International financial statistics.

Editor: Lucy Elkin All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023