Edited by Suiwah Leung, Ben Bingham and Matt Davies
Chapter 8: The Lao People’s Democratic Republic: Growth, Reform and Prospects
Kotaro Ishi INTRODUCTION 1 A landlocked location, a mountainous geography, a rough topology and poor transport infrastructure largely disconnected the Lao PDR from regional and global economies until the middle of the 1980s. Over the last two decades, however, the country has made remarkable progress in transforming a centrally planned economy into a market-oriented system. Introduced in 1985, the New Economic Mechanism (NEM) marked the cornerstone of the shift in the government’s economic policy. Objectives included breaking up the elements of the command economy inherited from the decade of socialist rule and introducing an integrated market economy. Reform covered every aspect of the economy, including pricing, domestic and external trade, exchange rate, state-owned enterprises (SOEs), banking and finance. They yielded progress in both system transformation and macroeconomic management. Nowadays, prices are mostly marketdetermined and private enterprise plays a more important role than SOEs. Notably, trade has become relatively open with Lao PDR’s economy integrating into the global economy, especially with its neighboring ASEAN economies. Moreover, quite recently, Lao PDR has been emerging as a resource-rich country, with large-scale foreign investment in minerals and hydro-power. However, daunting challenges face Lao PDR. The priority is how to entrench gains, improve growth and reduce poverty. In particular, with the prospect of further trade liberalization (including entry to WTO), advancing necessary structural reform remains crucial to reap the benefits from deeper integration into the global economy. Besides, the country’s ability to cope with shocks attendant upon these increased linkages will become increasingly important. The...
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