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Tuesday, 21 August, 2001, 21:37 GMT 22:37 UK
Laos' crippled economy
Pressure for change is likely to grow
By Tim Luard in Laos

Huge tropical forests, wetlands and gem-mines provide Laos with a potential treasure chest of natural resources. But it remains one of the 10 poorest countries in the world.

The average wage is less than $1 a day.

After years of socialist stagnation, the communist government began talking about reform more than a decade ago.

It dropped the hammer and sickle from its flag, called for foreign investment and encouraged those who fled into exile when the revolutionary Pathet Lao seized power in 1975 to return and start private businesses.

But the only Lao to have got rich since the economy began to open up a decade ago are a tiny, corrupt minority at the top.

Their Mercedes-Benzes and smart villas are easy to spot around the capital, Vientiane - the only other cars on the sleepy, pot-holed streets belonging to the international aid-workers on whom the country heavily depends.

Financial ruin

Foreign assistance makes up 80% of public investment in Laos.

Now even some of the most loyal of the aid organisations are pulling out, following in the footsteps of hundreds of foreign companies that simply gave up hope of the Lao authorities ever getting to grips with a fully opened and efficiently managed market economy.

The government is wondering if opening up to the outside world is really worth it after all

Inflation is soaring and the local currency - the appropriately named kip - has slumped to as low as 9,000 to $1. When the Asian financial crisis struck a few years ago the Lao kip was worse hit than any other currency in the region - and while others are now recovering, Laos is still poised on the edge of financial ruin.

A few well-placed individuals may have done well. But the government as a whole remains fearful of being taken advantage of by Laos' nearest neighbour Thailand and other representatives of what it still sees as the big bad world of global capitalism.

Gem trial

Officially, the plan is still to turn this backward, remote, landlocked nation into a thriving crossroads at the heart of South East Asia.

But Laos' experiences of the free market so far - including the battering it received during the regional economic crisis - have made the authorities more inclined than ever to hold back.

I watched in a rundown court-house, the walls faded and peeling, as an Australian couple went on trial for stealing gems and money from a sapphire mine - the largest in Laos and potentially in the world. The couple, who had been employed at the mine by a foreign company, had already been held without charge for six months, despite strong protests from Australia, the country's most active donor.

In the end they were each sentenced to seven years in prison. The mine is now being nationalised.

And as the appeals and possible sanctions begin the government is wondering if opening up to the outside world is really worth it after all.

Pressure for change

Tourism has become the country's biggest income-earner. Laos, after all, is a land of myths and magic, colourful costumes and fun - of water festivals and candlelit boat-races on the Mekong. All this, plus the ready availability of opium and marijuana, have helped make it a backpacker's paradise.

Laos is lagging behind its neighbours
At the same time, it is a highly secretive, bureaucratic and authoritarian police state, where those who say the wrong thing are locked up and never heard of again. Tourism on anything like the scale seen in Thailand remains inconceivable.

The octogenarian peasant revolutionaries who still hang on to power remain highly suspicious of foreign ideas, even though they can do little to stop them flooding in via the Internet and Thai satellite television.

But the pressure for change is likely to grow, both from abroad and from the vast majority of Lao - 85% of whom are subsistence farmers - who continue to struggle by on less than $1 per day.

The communist governments in neighbouring China and Vietnam have pinned their hopes for survival on loosening economic controls to make their people richer.

Unless their counterparts in Laos start to do more than merely talk about reform, and learn to carry it out, their economic problems could lead to political ones - and the world's stock of communist states could soon dwindle even further.

Tim Luard was in Laos reporting for the BBC World Service current affairs programme, The World Today

BBC's Tim Luard in Laos
"The old saying goes: 'In Vietnam they plant rice, in Laos they watch it grow'."
See also:

27 Aug 01 | Asia-Pacific
Laos: Caught between its neighbours
23 Aug 01 | Asia-Pacific
Mekong: 'Mother of rivers'
27 Jul 01 | Country profiles
Country profile: Laos
12 Mar 01 | Asia-Pacific
Pledge to treble Laos incomes
02 Dec 00 | Asia-Pacific
Laos marks 25 years of Communism
20 Dec 00 | Asia-Pacific
Laos' battle with poverty
03 Jan 01 | Asia-Pacific
'Australians held over Laos gems'
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