ECONOMY
Laos is a poor, landlocked country with an inadequate infrastructure and a largely unskilled work force. The country's per capita income in 2007 was estimated to be $710. Agriculture, mostly subsistence rice farming, dominates the economy, employing an estimated 78% of the population and producing 41.3% of GDP. Domestic savings are low, forcing Laos to rely heavily on foreign assistance and concessional loans as investment sources for economic development. In 2006, donor-funded programs accounted for 13% of GDP and 70% of the capital budget. In 2007, the country's foreign debt was estimated at $4.47 billion.
Following its accession to power in 1975, the communist government imposed a harsh, Soviet-style command economy system, replacing the private sector with state enterprises and cooperatives; centralizing investment, production, trade, and pricing; and creating barriers to internal and foreign trade. Within a few years, the Lao Government realized its economic policies were preventing, rather than stimulating, growth and development. No substantive reform was introduced, however, until 1986 when the government announced its "new economic mechanism" (NEM). Initially small in scale, the NEM was expanded to include a range of reforms designed to create conditions conducive to private sector activity. Prices set by market forces replaced government-determined prices. Farmers were permitted to own land and sell crops on the open market. State firms were granted increased decision-making authority and lost most of their subsidies and pricing advantages. The government set the exchange rate close to real market levels, lifted trade barriers, replaced import barriers with tariffs, and gave private sector firms direct access to imports and credit.
In 1989, the Lao Government reached agreement with the World Bank and the International Monetary Fund on additional reforms. The government agreed to expand fiscal and monetary reform, promote private enterprise and foreign investment, privatize or close state firms, and strengthen banking. In addition, it agreed to maintain a market exchange rate, reduce tariffs, and eliminate unneeded trade regulations. A liberal foreign investment code was enacted and appears to be slowly making a positive impact in the market. The process of economic reform continues.
These reforms led to increased availability of goods and economic growth that has continued since the early 1990's, despite short-term economic setbacks resulting from the 1997 Asian financial crisis. The economy continues to be dominated by an unproductive agricultural sector operating largely outside the money economy, and the public sector continues to play an important role. Tourism is a growing industry and important source of foreign exchange. The Government of Laos is promoting infrastructure development, especially in the hydropower and mining sectors. Several large hydropower projects currently under construction are expected to increase national revenue significantly once completed.
International indices rate Laos poorly on transparency and ease of doing business. Corruption continues to hamper economic development. Laos has begun the World Trade Organization accession process, with the intention of joining that organization by 2010.
GDP (2007 est.): $4.2 billion.
Per capita income (2007 est.): $710.
GDP growth rate (2007 est.): 7.0%.
Natural resources: Hydroelectric power, timber, and minerals.
Agriculture (41.3% of GDP, 2007 est.): Primary products--glutinous rice, coffee, corn, sugarcane, vegetables, tobacco, ginger, water buffalo, pigs, cattle, poultry, sweet potatoes, cotton, tea, and peanuts.
Industry (32.2% of GDP, 2007 est.): Primary types--garment manufacturing, electricity production, copper, gold, gypsum, and tin mining, wood and wood processing, cement manufacturing, agricultural processing, and tourism.
Industrial growth rate (2007 est.): 12%.
Services (2007 est.): 26.5% of GDP.
Trade: Exports (2007 est.)--$970 million: garments, gold and copper, electricity, wood and wood products, coffee and other agricultural products, rattan, and tin. Major markets--Thailand, Vietnam, France, and Germany. Imports (2007 est.)--$1.376 billion. Major imports--fuel, food, consumer, goods, machinery and equipment, vehicles and spare parts. Major suppliers--Thailand, China, Vietnam, Singapore.
