COUNTRY REPORT Cambodia Laos November 2000 The Economist Intelligence Unit 15 Regent St, 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 50 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 our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 1361-1437 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 1 Contents 3 Summary Cambodia 5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2001-02 8 Political outlook 9 Economic policy outlook 9 Economic forecast 11 The political scene 14 Economic policy 16 The domestic economy 16 Economic trends 17 Agriculture 18 Industry 18 Energy 19 Foreign trade and payments Laos 20 Political structure 21 Economic structure 21 Annual indicators 22 Quarterly indicators 23 Outlook for 2001-02 23 Political forecast 23 Economic policy outlook 24 Economic forecast 26 The political scene 29 Economic policy 30 The domestic economy 30 Economic trends 31 Agriculture 32 Industry 33 Mining 33 Services 34 Foreign trade and payments EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 2 List of tables 29 Laos: Government finances List of figures 10 Cambodia: gross domestic product 10 Cambodia: riel real exchange rates 17 Cambodia: money supply 19 Cambodia: balance of trade and current account 26 Laos: gross domestic product 26 Laos: kip real exchange rates 31 Laos: money supply and inflation 32 Laos: foreign investment EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 3 Summary November 2000 Cambodia Outlook for 2001-02 The local elections expected in 2001 will pose a test to the stability of the coalition government. However, overall political stability is likely to be maintained during 2001-02. Economic growth is likely to be on a rising trend during 2001-02, averaging 6-6.5% annually. Inflation is expected to remain in single digits in 2001-02 although it is likely to pick up later in the forecast period. A repeat of the exchange-rate instability of 1997-98 during 2001-02 is most unlikely. Import growth is expected to outstrip export growth in the forecast period, pushing up the trade and current-account deficits. The political scene Hun Sen has appealed to the international community for aid for flood- stricken areas of Cambodia. Prince Norodom Ranariddh is doubtful that the draft law on holding a Khmer Rouge trial will be passed this year. A FUNCINPEC and two SRP politicians have been killed in incidents linked to the run-up to the local election. The SRP has promised a more conciliatory style. The military has been accused of extra-judicial killings. A CPP delegation has visited Vietnam and military ties have been cemented with China. The number of Thai soldiers stationed on the border is to be reduced. Hun Sen has visited the Philippines and Brunei. A new landmines body has been set up. There has been renewed concern over the sexual exploitation of children. Economic policy The IMF has expressed satisfaction with the pace of reform. Further tax reforms are planned but the government is still struggling to meet revenue targets. Civil service wages have been frozen pending a review of public administration reform. Military demobilisation is effectively a year behind schedule. A ten- year economic master plan is being drafted with Thailand. A Singapore delegation has investigated business opportunities. Business working groups are planned to help improve the investment climate. The natural habitat of the Cardomom mountains is under threat from logging. The domestic economy Severe floods struck in September which are likely to depress economic growth. There is still very little inflationary pressure in the economy although money supply growth has picked up. The riel continues to be stable. Rural credit is being expanded. Textile and garment manufacturers say Cambodia is too expensive. Nike has backed out amid underage labour allegations. Vietnam is to supply electricity to Cambodia. Foreign trade and The trade and current-account deficits fell sharply in 1999. Foreign reserves payments remain at healthy levels. EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 4 Laos Outlook for 2001-02 Despite recent setbacks the ruling Lao People’s Revolutionary Party will retain its hold on power during 2001-02. Leadership changes anticipated at the Seventh Party Congress in 2001 and following the National Assembly elections in 2002 will not alter the government’s cautiously pro-reform stance. However, policy implementation is likely to be painfully slow. Economic growth is forecast to strengthen during 2001-02 but will average a rather modest 5-5.5% GDP growth in the period. Private investment is likely to recover only gradually while the prospect of normal trade relations (NTR) being granted by the US before 2002 look dim. Inflation is likely to remain in double digits during 2001-02. Periodic falls in the kip cannot be ruled out but a repeat of the volatility witnessed in 1997-98 is unlikely. The absence of NTR will act as a constraint on export growth. The trade and current-account deficits will widen but will remain manageable as long as foreign aid inflows are maintained. The political scene The government has played down the bomb blasts as it prepares for next year’s Seventh Party Congress. The prime minister has rallied National Assembly delegates as a new session opens. A government minister, Khamsay Souphanouvong, may have defected. There is pressure on the US government to show greater support for Lao democracy. Lao soldiers have occupied three islands in a border dispute with Thailand. Relatives of anti-government rebels face extradition from Thailand. The government has strengthened defence ties with China. The foreign minister signed a co-operation agreement with Libya and has visited Myanmar. Economic policy Large revenue and expenditure increases have been budgeted for 2000/01. Germany and Vietnam have extended technical assistance to the Lao central bank in a bid to strengthen monetary policy. The government has accepted debt relief from Japan. The domestic economy Growth in Vientiane was much faster than nationwide growth in 1999/2000. Inflation is still high but falling, and growth in broad money has slowed. The kip has remained stable. Severe flooding has hit the agricultural sector. Foreign investment remains small-scale based on cumulative figures for the last 12 years. The textiles and garment sector is seeking to raise quality. Japan has formally handed over the second trans-Mekong bridge. The government is reviewing its tourism targets in light of recent political instability. Foreign trade and The government is anticipating a smaller trade deficit in 2000/01. Trade with payments Vietnam has continued to rise. The foreign reserves remain small. Editors: Jen Miles Davies (editor); Graham Richardson (consulting editor) Editorial closing date November 1st 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Cambodia 5 Cambodia Political structure Official name Cambodia Form of government Constitutional monarchy The executive The cabinet is constitutionally responsible to the National Assembly Head of state King Norodom Sihanouk. The king is selected by the Throne Council and holds office for life National legislature The 122-seat National Assembly has a term of five years and consists of 120 directly elected members National elections Last National Assembly election held on July 26th 1998; next election due May 2003 National government The Cambodian People’s Party (CPP) won 64 seats in the July 1998 election, followed by the National United Front for an Independent, Neutral, Peaceful and Co-operative Cambodia (FUNCINPEC) with 43 and the Sam Rainsy Party with 15.