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Country Report Laos April 2006 The Economist Intelligence Unit 26 Red Lion Square, London WC1R 4HQ 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 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 26 Red Lion Square The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road WC1R 4HQ New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7576 8000 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7576 8500 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2006 The Economist Intelligence Unit Limited. All rights reserved. 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Laos 1 Contents Laos 2 Summary 3 Political structure 4 Economic structure 4 Annual indicators 5 Quarterly indicators 6 Outlook for 2006-07 6 Political outlook 7 Economic policy outlook 8 Economic forecast 11 The political scene 13 Economic policy 15 The domestic economy 15 Economic trends 16 Agriculture 17 Industry 18 Infrastructure 20 Services 21 Foreign trade and payments List of tables 8 International assumptions summary 10 Forecast summary 21 Trade with Thailand List of figures 11 Gross domestic product 11 Consumer price inflation 17 Exchange rates Country Report April 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 2 Laos Laos April 2006 Summary Outlook for 2006-07 The ruling Lao People's Revolutionary Party (LPRP) will remain firmly in control in 2006-07. There is unlikely to be any change in the party's ideology or policies following the appointment of Choummaly Sayasone as the party's new chief in March 2006. The pace of economic reform will remain gradual, although the government's efforts to join the World Trade Organisation (WTO) may provide some impetus. Economic growth will remain robust, supported by trade growth and increased investment from Laos's neighbours. Consumer price inflation will ease steadily, remaining in single digits. Despite rising exports, the current- account deficit will remain large in 2006-07. The political scene The LPRP has held its eighth party congress, and Choummaly has succeeded Khamtay Siphandone as the party's general secretary. There were few other major changes during the congress in March, although younger and fresher faces are appearing in the leadership hierarchy. Preparations for the April 30th National Assembly (the legislature) elections have progressed well, with 175 candidates set to contest 115 seats. The LPRP has maintained close ties with Laos's neighbours in recent months, most notably with Myanmar (Burma) and Cambodia. Economic policy The IMF has praised the government for its "disciplined economic management", but the Fund's directors have warned that there are policy challenges facing the government. The sixth five-year National Socio-Economic Development Plan has been formulated, with the state's role set to remain important. However, the party continues to recognise that other sectors should be encouraged to help to strengthen the economy. The domestic economy Inflation has remained high, particularly in the north of the country, but the kip has strengthened against the US dollar. Investment in rubber production has expanded, and the mining sector remains highly active. There has also been continued foreign interest in hydropower projects. Problems remain in rural utilities, but telecoms usage and coverage has expanded. The tourism industry continues to thrive as international arrivals increase. Foreign trade and payments Trade with Thailand has increased, whereas exports to the US have finally started to rise sharply following the granting of normal trade relations status in 2004. Foreign aid has continued to flow in, with Japan remaining a leading benefactor. Editors: Danny Richards (editor); Gerard Walsh (consulting editor) Editorial closing date: April 5th 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report April 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 Laos 3 Political structure Official name Lao People's Democratic Republic Form of state One-party rule The executive The Council of Ministers is the highest executive body; the vice-chairmen of the council (deputy prime ministers) oversee the work of ministers; all members of the council are appointed by the chairman of the Council of Ministers (the prime minister) Head of state The president-elect, General Choummaly Sayasone National legislature A unicameral National Assembly; membership will expand to 115 seats in the 2006 election National elections The last National Assembly election took place on February 24th 2002; the next election will be held on April 30th 2006 National government The Lao People's Revolutionary Party (LPRP) dominates the government and bureaucracy Main political organisations Lao Front for National Reconstruction (LFNR), an umbrella organisation, the main component of which is the LPRP Main members of Council Prime minister Bounyang Vorachit of Ministers Deputy prime ministers Somsavat Lengsavad Thongloun Sisoulith Asang Laoly Bouasone Bounphavanh State Planning & Co-operation Committee president Thongloun Sisoulith Key ministers Agriculture & forestry Siene Sapangthong Commerce & tourism Soulivong Daravong Communications, transport, posts & construction Bouathong Vonglokham Defence Douangchay Pichit Education Phimmasone Leuangkhamma Finance Chansy Phosikham Foreign affairs Somsavat Lengsavad Industry & handicrafts Onnueua Phommachanh Information & culture Mounkeo Ouraboun Justice Kham Ouane Boupha Labour & social welfare Somphanh Phengkhammy Public health Ponemek Daraloy Security Thongban Sengaphone Central bank governor Phouphet Khamphungvong (acting) Country Report April 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 4 Laos Economic structure Annual indicators 2001a 2002a 2003 a 2004 a 2005b GDP at market prices K bn 15,702 21,499 25,600 29,204 33,877 GDP US$ bn 1.8 2.1 2.4 2.8 3.2 Real GDP growth (%) 5.8 10.6 6.6 5.0 7.0 Consumer price inflation (av; %) 7.8 10.6 15.5 10.5 7.0 Population (m) 5.4 5.5 5.7 5.8 5.9 Exports of goods fob (US$ m) 311 298 359 361 – Imports of goods cif (US$ m) 528 431 482 506 – Current-account balance (US$ m) -82 – – – – Foreign-exchange reserves excl gold (US$ m) 131 192 209 223 – Exchange rate (av) K:US$ 8,955 10,056 10,569 10,586 10,655 a Actual. b Economist Intelligence Unit estimates. Origins of gross domestic product 2003 % of total Agriculture & forestry 48.6 Industry (incl construction) 25.9 Services 25.5 GDP at factor cost 100.0 Principal exports 2003 % of total Principal imports 2003 % of total Garments 26.2 Consumption goods 49.2 Timber & wood products 23.3 Construction & electrical equipment 12.1 Electricity 22.7 Materials for garment industry 10.6 Coffee 4.5 Machinery & equipment 10.2 Main destinations of exports 2004 % of total Main origins of imports 2004 % of total Thailand 19.3 Thailand 60.5 Vietnam 13.4 China 10.3 France 8.0 Vietnam 7.1 Germany 5.3 Singapore 4.0 UK 5.0 Germany 2.6 Country Report April 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 Laos 5 Quarterly indicators 2003 2004 2005 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Consumer prices (2000=100) 143.8 145.5 151.9 156.2 155.1 155.9 160.9 166.9 Consumer prices (% change, year on year) 13.6 12.5 12.4 9.5 7.9 7.1 5.9 6.9 Financial indicators Exchange rate K:US$ (av) 10,476 10,429 10,557 10,810 10,547 10,341 10,577 10,872 Exchange rate K:US$ (end-period) 10,467 10,461 10,779 10,879 10,377 10,437 10,751 10,887 Bank rate (end-period; %) 20.00 20.00 20.00 20.00 20.00 n/a n/a n/a Deposit rate (av; %) 8.33 10.33 8.00 6.83 6.25 n/a n/a n/a Lending rate (av; %) 27.00 27.00 30.00 30.00 30.00 n/a n/a n/a Treasury bill rate (av;%) 21.68 21.68 21.23 19.31 19.25 n/a n/a