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Forestry in Laos

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In the 1950s, forests covered 70 percent of the land area in Laos; yet, by 1992, according to government estimates, forest coverage had decreased by nearly one-third, to just 47 percent of total land area. Despite the dwindling expanse, timber--including ironwood, mahogany, pine, redwood, and teak--and other forestry products-- benzoin (resin), charcoal, and sticklac--constitute a valuable supply of potential export goods. The forest has also been an important source of wild foods, herbal medicines, and timber for house construction and even into the 1990s continues to be a valued reserve of natural products for noncommercial household consumption. Since the mid-1980s, however, widespread commercial harvesting of timber for the export market has disrupted the traditional gathering of forest products in a number of locations and contributed to extremely rapid deforestation throughout the country.

Agriculture in Laos

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At least 5 million hectares of Laos's total land area of 23,680,000 hectares are suitable for cultivation. However, just 17 percent of the land area (between 850,000 and 900,000 hectares) is actually cultivated, less than 4 percent of the total area. Rice accounted for about 80 percent of cultivated land during the 1989- 90 growing season, including 422,000 hectares of lowland wet rice and 223,000 hectares of upland rice. This demonstrates that although there is interplanting of upland crops and fish are found in fields, irrigated rice agriculture remains basically a monoculture system despite government efforts to encourage crop diversification. Cultivated land area had increased by about 6 percent from 1975-77 but in 1987 only provided citizens with less than one-fourth of a hectare each, given a population of approximately 3.72 million in 1986. In addition to land under cultivation, about 800,000 hectares are used for pastureland or contain ponds for raising fish. Pastureland is rotated, and its use is not fixed over a long period of time.

Money and Prices In Laos

By Decree 14 of March 1988, prices of most goods are no longer set by the government; exceptions include basic utility and mineral prices. Instead, a new system of "unified prices"--free market prices--was instituted. As a result, prices of rationed and subsidized goods such as rice, sugar, cloth, and petroleum increased, and procurement prices were raised by 50 percent to 100 percent.

Foreign Exchange Rate in Laos

In June 1976, the "liberation kip" replaced the old kip at a rate of twenty to one. Three years later, following a massive collapse of the value of the currency, a "new kip," or National Bank kip, was introduced, worth 100 liberation kip, and the official exchange rate was fixed at thirty-five new kip to one United States dollar. A system of multiple exchange rates has been implemented in an effort to control inflation; different rates are applied to the transactions of businessmen, tourists, senders of remittances, and aid agencies. In September 1987, however, with a devaluation of the commercial rate of roughly 900 percent relative to the United States dollar, the multiple rates were abandoned in favor of a single floating exchange rate applicable to all transactions.

Foreign Aid

Between 1975 and 1990, total foreign aid to Laos, including grants and loans, was approximately US$2.3 billion. Of this sum, only 65 percent had been spent as of 1989, of which grants and loans made up approximately equal quantities. Fifty-five percent of spent aid derived from the nonconvertible currency area, 17.8 percent from convertible currency area countries, and 27.2 percent from international organizations and financial institutions.

Banking System

In March 1988, Decree 11 on the reform of the banking system was passed, separating commercial bank functions from central bank functions. The Vientiane branch of the old State Bank, the Banque d'État de la République Démocratique Populaire du Laos (RDPL), became the central monetary agency. In June 1990, the Central Banking Law was passed, establishing the Bank of the Lao People's Democratic Republic, or Central Bank, to replace the State Bank. Under this law, the Central Bank assumes responsibility for regulation and supervision of commercial and regional banks; maintenance of foreign exchange reserves; issuance and supervision of money for circulation; licensing, supervision, and regulation of financial services; and management of the monetary and credit system. The Central Bank has about ninety regional branches; as of 1991, the government was considering separating these branches into three regional banks, serving the southern, northern, and central regions.

Lao Public Finance

The Government of the Lao People’s Democratic Republic (Lao PDR) aims to achieve economic growth, reduce poverty, and advance from its least-developed-country status by 2020. The National Growth and Poverty Eradication Strategy (NGPES) was approved by the National Assembly of the Lao PDR in October 2003. The NGPES provides a broad strategic framework from which future growth and poverty reduction programs will be developed and implemented. The NGPES emphasizes the need for capacity building relating to public financial management (PFM) at all levels of public administration.

Private Sector Development in Laos

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The Lao PDR Constitution of 1991 protects state, collective, and private forms of ownership. During the 1990s an active legislative program laid the foundations for developing market based rules and institutions to support private sector development. Today, agricultural production and most manufacturing production are in private hands, and SOEs only cover around one percent of employment. Nearly 97 percent of manufacturing units are small (less than 10 employees). Of the medium and large units, 35 percent are privately owned by Lao PDR citizens and 55 percent are joint ventures with foreigners. The remainder is owned by government. Foreign investment inflows have increased rapidly, in both resource and non-resource sectors (mainly hydropower, mining, agriculture, processing industries, and tourism). Between 2003 and 2008, actual investments increased from US$110m to about US$770m. The main foreign investors are from Thailand, China, Vietnam, Australia, Malaysia, Singapore, South Korea, Taiwan, India, France, the Netherlands, and the United States. The National Social and Economic Development Plan recognized the need to improve the business environment and promote domestic and foreign private investments to foster growth, reduce poverty, and achieve the Millennium Development Goals.

Lao Trade Reform

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Lao PDR has been gradually integrating into the world economy through the accession to regional and multilateral trade organization such as ASEAN and WTO. The country initially applied to join the WTO in 1997, and has recently made accelerating progress. However, as its integration is still at an early stage, evidence suggests that Lao exports are less affected by the global financial crisis than initially expected. The GOL is implementing a sector-wide approach to trade-related reforms based on the 2006 DTIS/IF Action Matrix5, to help address the supply-side constraints that inhibit export competitiveness.

Foreign Direct Investment in Laos

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Foreign Direct Investment (FDI) inflows to Lao PDR are expected to fall considerably in 2009 due to the impact of the global economic crisis. As discussed above, the nominal FDI value is expected to decline from about $771 million in 2008 to $614 million in 2009 (or by about 20 percent) due to recent delays of new hydropower and mining projects, as well as slow growth in the non-resource sectors. Assuming the global economy continues to recover - Annex 1), FDI to Lao PDR is expected to rise considerably in the medium term, as large resource and non-resource projects resume, compounded with the expected recovery of regional and global demand.

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