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In Laos: Land-linked, not Land-locked

August 27, 2008

By Gretchen A. Kunze, V. Bruce J. Tolentino

With its GDP growing at an average of 6-7% annually since 2000, the Lao People’s Democratic Republic (Lao PDR) is a country on the move. Not very fast when compared to its rapidly-burgeoning neighbors China and Vietnam, but fast when compared to its historically languid pace.

In meeting after meeting with senior Government officials and representatives of the international community during a recent visit to Laos, our hosts often stressed that Laos is no longer an isolated, landlocked country; rather, “Laos is a ‘land-linked’ country!” they enthusiastically declared.

Historically, being landlocked has been regarded as a disadvantageous position. Landlocked countries are cut off from sea resources such as fishing, and more importantly, have no access to seaborne trade, which makes up a large percentage of international trade. Thus, coastal regions tend to be wealthier and more heavily populated than inland areas. In the case of Laos, this disadvantage is strikingly apparent, as Laos is the only landlocked country in the whole of Southeast Asia.

Yet the Lao government is determined to transform this traditional limitation by promoting the perception that Laos is a land bridge, providing the most direct overland transport routes between its seaboard neighbors. Recent progress in regional transport links engineered under the Greater Mekong Subregion (GMS) initiatives underpins Laos’ transition to being a land-linked country and economy. Roads connecting Vietnam, China and Thailand have been opened and improved. The GMS East West Corridor now links Vientiane, the capital, with the large port of Danang in central Vietnam, 500 kilometers away. The East West Corridor is anticipated to eventually link Myanmar, Thailand, Laos and Vietnam. On the other axis, the North-South Corridor of the Great Asian Highway officially opened early this year, and connects Laos with Cambodia and Thailand to the South and Southwest, and to China in the North. Rail connections between Laos and its neighbors are currently under negotiation.

Moreover, there are ongoing discussions on the transformation of the transport corridors into “economic corridors” that also facilitate enterprise and investment across the entire region. This is already taking place, as the results of the very rapid growth of China and Vietnam have inevitably spilled over into Laos in the form of increased investments, tourist arrivals, and rising demands for Laos’ exports ” dominated by electricity and agricultural commodities.

Laos remains one of the world’s poorest countries, with an estimated per capita income of US$500 in 2006. The recent acceleration of growth of Laos will have to be maintained — or even accelerated — in order to make a sustained difference in poverty. Over the last decade, using the Lao PDR national poverty line (of approximately US$1.50 a day) the incidence of poverty has fallen from 46 percent in 1992-93 to around 33 percent in 2002-03. Other social indicators are similarly improving, but these still remain among the worst in the region.

The single-party government of Lao PDR introduced the “New Economic Mechanism” (NEM) in 1986, thus beginning a transition from a centrally planned to a market-oriented economy. Gradually, price controls have been lifted, socialist cooperative farming abandoned, the exchange rate system unified, the government’s monopoly on trade removed, the number of state-enterprises was reduced, and operation of private firms allowed.

While Laos has been a member of the International Monetary Fund (IMF) and the Asian Development Bank (ADB) since the 1960s, it was only in the late 1990s that the government began to activate its fiscal programs and development borrowing. Laos was accepted as a member of the Association of Southeast Asian Nations (ASEAN) in 1997, and is now in the advanced stages of accession to the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC) Forum. In 2004 the Bilateral Trade Agreement between Laos and the U.S. came into effect. The banking law passed in 2006 now allows foreign banks to open branches throughout the country. There is even a development plan to open a stock market by 2010, supported by the Korean government.

These days, Laos does seem “open for business.” A recent American Chamber of Commerce business mission was addressed by an impressive roster of public officials, including the Deputy Prime Minister. Expressing how much the country welcomes international investment, the Minister of Planning and Investment even encouraged the high-level business delegation to let his ministry assist them by asking, “What do you need? Let me know. Tell me.” This degree of openness and encouragement is indeed a dramatic turnaround from the previous cautious dealings with international investors.

Progress on the international front has also been accompanied by gradual and careful engagements with outside actors in domestic affairs. In the early 2000s, Laos worked with representatives of the international community in Laos to produce its “Interim Poverty Reduction Strategy”. The IPRS was combined with the “National Socio-economic Development Plan for 2001-05” and taken through a consultation process to prepare the “National Poverty Eradication Program” (NPEP).

The NPEP was presented to the donors’ Roundtable Meeting in September 2003, discussed by the National Assembly in October 2003 and finally released as the “National Growth and Poverty Eradication Strategy” in early 2004, articulating Laos’ development framework, targets and goals for poverty reduction and outlining the policy reform and public expenditure programs needed to achieve these goals. In November 2006, the Government presented the “National Socio-Economic Development Plan for 2006-2010”.

These engagements with the international community have been carefully calibrated by the national authorities to generate a sense of forward movement. On many fronts, economic conditions and daily life are improving for Lao citizens. Yet, much work remains to ensure that the development dialogue becomes more inclusive of Laos’ general populace, especially those in far-flung, isolated and much-poorer communities. If not, those parts of Laos that are indeed “land-linked” will be limited only to those who are already connected and better-off.

Related locations: Laos
Related programs: Inclusive Economic Growth


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