Country Report Laos July 2007 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 60 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. 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Laos 1 Contents Laos 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2007-08 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 15 Economic policy 16 The domestic economy 16 Economic trends 17 Agriculture 19 Industry 20 Infrastructure 21 Services 22 Foreign trade and payments List of tables 9 International assumptions summary 11 Forecast summary 16 Consumer price inflation 23 Merchandise trade 23 International reserves List of figures 12 Gross domestic product 12 Consumer price inflation 17 Exchange rates Country Report July 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 Laos 3 Laos July 2007 Summary Outlook for 2007-08 The ruling Lao People!s Revolutionary Party (LPRP) will remain firmly in control and will not face any serious challenge to its authority in 2007-08. There is unlikely to be any major change in the party!s ideology or policies following the appointment in 2006 of Choummaly Sayasone as the president and the party!s new chief. The pace of economic reform will remain slow, although the government!s efforts to join the World Trade Organisation may provide some impetus. Economic growth will remain strong, 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 widen in 2007-08. The political scene The prime minister, Bouasone Bouphavanh, has taken a tougher stance on corruption, and the media are keen to play a greater role in helping to tackle official graft. The National Assembly (the legislature) has also been debating the formation of a national auditing organisation. The issue of Hmong migrants in Thailand continues to pose problems in Lao-Thai diplomatic relations. Links with Vietnam have been celebrated, and ties with other Asian partners have been strengthened. Economic policy Further steps have been taken to de-dollarise the economy. Laos continues to make preparations to meet its commitments as a participant in the Association of South-East Asians (ASEAN) Free-Trade Area. Foreign donors remain supportive. The domestic economy Real GDP growth remains strong, rising by 7.6% in the first half of fiscal year 2006/07 (October-September). Inflation has eased on a year-on-year basis. The kip has weakened against the Thai baht, but has been generally strong against the US dollar. The government has halted cash-crop concessions, owing to problems in keeping tabs on all projects awarded by different state agencies. The government has sought to improve its management of mining projects. Plans for two more "friendship" bridges across the Mekong river are moving ahead. The tourism sector has continued to grow. Foreign trade and payments The merchandise trade deficit has widened, with export revenue rising by only 1.2% year on year in the first quarter of the year. International reserves have continued to rise. Editors: Danny Richards (editor); Gerard Walsh (consulting editor) Editorial closing date: July 6th 2007 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report July 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 4 Laos Political structure Official name Lao People!s Democratic Republic Form of state One-party rule The executive The Council of Ministers is the highest executive body; the vice-chairmen of the council (deputy prime ministers) oversee the work of ministers; all members of the council are appointed by the chairman of the Council of Ministers (the prime minister) Head of state The president, Choummaly Sayasone National legislature A unicameral National Assembly; membership expanded to 115 seats following the April 2006 election National elections The last National Assembly election took place on April 30th 2006. The next one is due in 2011 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 Bouasone Bouphavanh of Ministers Deputy prime ministers Somsavat Lengsavad Thongloun Sisoulith Asang Laoly Douangchay Pichit Key ministers Agriculture & forestry Sitaheng Latsaphone Communications, transport, posts & construction Sommath Pholsena Defence Douangchay Pichit Education Somkot Mangnormek Finance Somdy Douangdy Foreign affairs Thongloun Sisoulith Industry & commerce Nam Vignaket Information & culture Mounkeo Ouraboun Justice Chaleuan Yapaoher Labour & social welfare Onechanh Thammavong Public health Ponemek Daraloy Security Thongban Sengaphone Central bank governor Phouphet Khamphungvong Country Report July 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 Laos 5 Economic structure Annual indicators 2002a 2003a 2004 a 2005 a 2006a GDP at market prices (K bn) 18,390 20,307 26,590 30,594 35,407 GDP (US$ bn) 1.8 1.9 2.5 2.9 3.5 Real GDP growth (%) 5.9 5.8 6.9 7.3 8.3 Consumer price inflation (av; %) 10.6 15.5 10.5 7.2 6.8 Population (m) 5.5 5.7 5.8 5.9 6.1b Exports of goods fob (US$ m) 301 335 363 553 882 Imports of goods cif (US$ m) 447 462 713 882 1,060 Current-account balance (US$ m) -26b -110b -56 b -219 b -149b Foreign-exchange reserves excl gold (US$ m) 192 209 223 234 327 Exchange rate (av) K:US$ 10,056 10,569 10,586 10,655 10,160 a Actual. b Economist Intelligence Unit estimates. Origins of gross domestic product 2005 % of total Agriculture & forestry 44.8 Industry (incl construction) 29.5 Services 25.7 Principal exports 2004/05a % of total Principal imports 2004/05a % of total Garments 23.6 Fuel & gas 21.6 Timber & wood products 20.8 Materials for garment manufacturing 10.5 Electricity 18.2 Construction materials 3.3 Coffee 15.8 Foodstuffs 3.0 Main destinations of exports 2006 % of total Main origins of imports 2006 % of total Thailand 42.4 Thailand 69.0 Vietnam 10.0 China 11.4 China 4.2 Vietnam 5.5 Malaysia 4.2 Singapore 2.7 Germany 3.2 Japan 1.4 a Fiscal year (October-September). Country Report July 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 6 Laos Quarterly indicators 2004 2005 2006 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices (2000=100) 156.2 155.1 155.9 160.9 166.4 169.0 168.8 n/a Consumer prices (% change, year on year) 9.5 7.9 7.1 5.9 6.5 9.0 8.3 n/a Financial indicators Exchange rate K:US$ (av) 10,810 10,547 10,341 10,577 10,872 10,831 10,494 10,142 Exchange rate K:US$ (end-period) 10,879 10,377 10,437 10,751 10,887 10,743 10,337 10,187 Bank rate (end-period; %) 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 Deposit rate (av; %) 6.83 6.25 4.33 4.67 5.00 5.00 5.00 5.00 Lending rate (av; %) 30.00 30.00 27.33 24.67 25.33 30.00 30.00 30.00 Treasury bill rate (av;%) 19.31 19.25 19.25 18.84 18.29 18.08 18.01 17.89 M1 (end-period; K bn) 1,056.3 1,207.3 1,260.7 1,170.8 1,189.2 1,558.9 1,665.7 1,670.5 M1 (% change, year on year) 40.1 44.3 21.3 17.1 12.6 29.1 32.1 42.7 M2 (end-period; K bn) 5,009.7 5,154.9 5,254.1 5,139.5 5,203.1 5,560.3 5,802.0 5,904.7 M2 (% change, year on year) 22.8 21.6 12.7 6.1 3.9 7.9 10.4 14.9 Sectoral trends Rice production (annual totals; '000 tonnes) ( 2,529 ) ( 2,350a ) n/a n/a n/a Foreign trade (US$ m) Exports fob 87.0 94.0 112.3 137.1 134.0 122.3 145.3 n/a Imports cif -115.1 -131.8 -184.5 -194.1 -220.8 -209.1 -223.9 n/a Trade balance -28.1 -37.8 -72.2 -57.0 -86.8 -86.8 -78.6 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 215.6 223.3 218.8 226.3 217.5 234.3 249.5 252.5 a Estimate.