No. Macroeconomic Policy Support for Socio-Economic Development in the Lao PDR Sector Report Vol.1 July 2002 Committee for Planning and Cooperation Japan International Cooperation Agency Lao People’s Democratic Republic R 1 I J R 02 - 07 Contents Vol. 1 FOREWORD PREFACE 1．Roles of the Government in Transition, Global Integration and Economic Development in Lao PDR 〈Yonosuke Hara〉.................................................................. 1 2．Macroeconomic Perspective and Policy Issues 〈Kenji Domoto〉................................................................... 10 3．Fiscal Management 〈Bounsamack Xayaseng〉................................................. 36 4．Lao PDR Financial Sector 〈Khamphouth Sithirath〉.................................................. 76 5. Banking Reform: Situation Analysis, Strategies and Policies 〈Khamphouth Sithirath〉.................................................. 89 6．Current Situation of Financial Sector and Its Problem in the Lao PDR 〈Hisatsugu Furukawa〉..................................................... 99 7．Lessons from the Asian Financial Crisis － A Case of Indnesia － 〈Masaaki Komatsu〉......................................................... 137 Vol. 2 8．Directions for Sustainable Agricultural Development in the Mekong Corridor 〈Seiichi Fukui〉..................................................................... 1 ANNEX Problem and Directions of IMT in Lao PDR 〈Makoto Sukegawa〉.......................................................... 31 9．Agriculture and Rural Development in the Northern Mountain Region： An Alternative Model for Environmentally-Friendly Agricultural Systems 〈Koji Tanaka〉..................................................................... 42 10．Agricultural Policy Strategy in the Lao PDR 〈Anonh Khamhoung〉 〈Kham Phalakone〉............................................................. 55 11．Manufacturing Industry 〈Akihiko Ohno〉 〈One-sy Boutsivouqsakd〉 〈Sirisamphanh Vorachith〉 〈Chaleuan Inthavy〉 〈Sirivanh Khonthapane〉.................................................. 76 12．Overview of Foreign Direct Investment in the Lao PDR 〈Viravanh Khamtanh〉.................................................... 142 13．Comparative Study of Lao’s Foreign Direct Investment Enviroment among ASEAN － FDI Impediments in the Lao People’s Democratic Republic － 〈Souknilanh Keola, Motoyoshi Suzuki〉.................... 146 14．Issues of Foreign Direct Investment in the Lao PDR：Interview Survey 〈Motoyoshi Suzuki〉 〈Phonethavong Singhalath〉 〈Khamsing Palatkhamone〉 〈Souknilanh Keola〉......................................................... 166 15．Issues of State-owned Enterprises in the Lao PDR：Intervew Survey 〈Motoyoshi Suzuki〉......................................................... 192 Vol. 3 16．Economic Evaluation of Torism Development and Tourism Resources in Laos － Case Study of Luang Prabang － 〈Seiichi Fukui〉..................................................................... 1 Appendix 16 － 1：Economic Evaluation of Tourism Resources in Luang Prabang by the Travel-Cost Method 〈Nana Miyahara〉............................................................... 15 Appendix 16 － 2：Economic Evaluation of Suburban Tourism Resources of Luang Prabang － Using Choice-Based Conjoint － 〈Sanae Morimoto〉.............................................................. 27 17．Poverty Alleviation Policy：Efficiency and Capability 〈Yukio Ikemoto〉................................................................. 51 18．Consumption and Poverty Analysis 〈Bounthavy Sysouphanthong〉....................................... 80 19. Comments on Poverty Analysis in the Lao PDR 〈Nobuhiko Fuwa〉............................................................. 110 No. Macroeconomic Policy Support for Socio-Economic Development in the Lao PDR Sector Report Vol.2 July 2002 Committee for Planning and Cooperation Japan International Cooperation Agency Lao People’s Democratic Republic R 1 I J R 02 - 07 Contents Vol. 1 FOREWORD PREFACE 1．Roles of the Government in Transition, Global Integration and Economic Development in Lao PDR 〈Yonosuke Hara〉.................................................................. 1 2．Macroeconomic Perspective and Policy Issues 〈Kenji Domoto〉................................................................... 10 3．Fiscal Management 〈Bounsamack Xayaseng〉................................................. 36 4．Lao PDR Financial Sector 〈Khamphouth Sithirath〉.................................................. 76 5. Banking Reform: Situation Analysis, Strategies and Policies 〈Khamphouth Sithirath〉.................................................. 89 6．Current Situation of Financial Sector and Its Problem in the Lao PDR 〈Hisatsugu Furukawa〉..................................................... 99 7．Lessons from the Asian Financial Crisis － A Case of Indnesia － 〈Masaaki Komatsu〉......................................................... 137 Vol. 2 8．Directions for Sustainable Agricultural Development in the Mekong Corridor 〈Seiichi Fukui〉..................................................................... 1 ANNEX Problem and Directions of IMT in Lao PDR 〈Makoto Sukegawa〉.......................................................... 31 9．Agriculture and Rural Development in the Northern Mountain Region： An Alternative Model for Environmentally-Friendly Agricultural Systems 〈Koji Tanaka〉..................................................................... 42 10．Agricultural Policy Strategy in the Lao PDR 〈Anonh Khamhoung〉 〈Kham Phalakone〉............................................................. 55 11．Manufacturing Industry 〈Akihiko Ohno〉 〈One-sy Boutsivouqsakd〉 〈Sirisamphanh Vorachith〉 〈Chaleuan Inthavy〉 〈Sirivanh Khonthapane〉.................................................. 76 12．Overview of Foreign Direct Investment in the Lao PDR 〈Viravanh Khamtanh〉.................................................... 142 13．Comparative Study of Lao’s Foreign Direct Investment Enviroment among ASEAN － FDI Impediments in the Lao People’s Democratic Republic － 〈Souknilanh Keola, Motoyoshi Suzuki〉.................... 146 14．Issues of Foreign Direct Investment in the Lao PDR：Interview Survey 〈Motoyoshi Suzuki〉 〈Phonethavong Singhalath〉 〈Khamsing Palatkhamone〉 〈Souknilanh Keola〉......................................................... 166 15．Issues of State-owned Enterprises in the Lao PDR：Intervew Survey 〈Motoyoshi Suzuki〉......................................................... 192 Vol. 3 16．Economic Evaluation of Torism Development and Tourism Resources in Laos － Case Study of Luang Prabang － 〈Seiichi Fukui〉..................................................................... 1 Appendix 16 － 1：Economic Evaluation of Tourism Resources in Luang Prabang by the Travel-Cost Method 〈Nana Miyahara〉............................................................... 15 Appendix 16 － 2：Economic Evaluation of Suburban Tourism Resources of Luang Prabang － Using Choice-Based Conjoint － 〈Sanae Morimoto〉.............................................................. 27 17．Poverty Alleviation Policy：Efficiency and Capability 〈Yukio Ikemoto〉................................................................. 51 18．Consumption and Poverty Analysis 〈Bounthavy Sysouphanthong〉....................................... 80 19. Comments on Poverty Analysis in the Lao PDR 〈Nobuhiko Fuwa〉............................................................. 110 8. Directions for Sustainable Agricultural Development in the Mekong Corridor Seiichi Fukui Laos is a landlocked, sparsely populated country, with 5,090,000 people (1999) living on a national land area (23,680,000 km2 ) approximately equal to that of Honshu, the main island in Japan. Laos' GDP per capita is US$ 280 (1999), and in the World Bank's World Development Re- port, Laos is classified under the group of countries with the lowest income level. Laos is a typical agricultural country, with the agricultural and forestry sector accounting for about 50% of the GDP, and 80% of the working population (Table 8 － 1). Moreover, in Laos about 75% of the national land area is mountainous or hilly, and trans- port conditions in those regions are extremely poor. A nationwide road network has not been completed, and the fact that the lack of an en-tout-cas road network among major cities and agricultural communities severely hinders distribution, coupled with the limited market scale resulting from the characteristics of Laos as a thinly populated country with subsis- tence agriculture mainly for its own consumption, constitutes a bottleneck in agricultural de- Table 8 － 1 Development Stage of Lao Agriculture: A Comparison with South Asian Countries （1） （2） Share of Growth Rate Agricultural Agricultural Sector (%) (Value added (Labor force as % of GDP) as % of GDP EPA) 1999 1990 1990-99 Female Male Cambodia 51 78 69 2.1 Indonesia 20 56 54 2.6 Laos 53 81 76 4.6 Malaysia 14 26 28 1.1 Myanmar 53 78 70 4.9 Philippines 17 31 54 1.5 Thailand 13 65 63 2.7 Viet Nam 26 73 70 4.9 Source: World bank, World Development Report, 2000/2001. ADB, Key Indicators of Developing Asian and Pacific Countries, 2000. ─ 1 ─ velopment. Nevertheless, since the early 1990s, the agricultural sector has grown at a rate of nearly 5% per annum. In particular, since 1996, relatively speaking, the growth rate has been ex- ceptionally high, as the Government has focused its efforts on irrigation development. The level of 5%, similar to Viet Nam's and Myanmar's, is high for South-East Asia (Table 8 － 1), and a growth of 4-5% is also expected under a long-term development