of the state enterprises is needed. Money-losing state enterprises are becoming not only a burden to government finance, but they also obstruct privatization. If management of the state enterprises becomes efficient, privatization can be promoted. If privatization is advanced and economic activity of the private sector is enhanced, tax revenue will rise. But during periods in which revenues can not finance capital expenditures, Laos will have to depend on foreign assistance. In a while, the financial base should be established enough to absorb foreign assistance efficiently. In addition, it is important to give high priority to capital expenditure.

## (2) Monetary Side

Although monetary systems have been formulated gradually, monetary function does not work well for economic activity. The reasons are as follows. In rural areas, the money economy is not prevailing. There are no customs of bank deposits, even in urban areas. Also, the savings of the private sector are not utilized toward investment because of defects in the banking system. The essentials are monetary function promotion and establishment of a monetary system, which help the lack of capital.

## (3) Legal Aspects

In order to promote economic activity in the private sector, and to invest in Laos with confidence, the legal establishment of laws such as “Commercial Law,” “Civil Law,” and “Bankruptcy Law” are needed.

## (4) External Trade and Foreign Investment

The trade deficit has not changed; there is no hope for its decline because imports demanded by both the private and public sectors, continue to expand without an equivalent expansion in exports. On the other hand, trade balance deficit has no hope of recovery now because there are no export goods that are expected to grow remarkably. Most of the foreign capital provided by the Western countries and international organizations are spent on government capital expenditures and for financing the budget deficit. Because of the inefficiency of public investment, lower investment efficiency will create a larger excessive investment over savings, which brings about a larger balance of payment deficit. Eventually Laos external debt burden will increase. Considering the sharp increase of debt, more efficient allocation of foreign assistance is required. $ ^{32} $

## (5) Development of Manufacturing Sector

As mentioned above, manufacturing in Laos accounts for very little of the whole economy; it remains underdeveloped. Therefore, a wide array of goods -- from daily necessities to fuel and machinery -- are dependent on imports. In order to develop the manufacturing sector, it is important that the privatization of state enterprises should have good results: the environment for industrialization must be improved. On the financial side, proper utilization of foreign assistance and appropriate management of fiscal policy are needed, in order to finance the burden of investment projects and maintenance costs of the projects. In addition, it is important for banks to raise the inspection ability and finance to only highly profitable projects. $ ^{33} $

Laos is in a disadvantageous situation, because of the small market within country (sparse population - 4.4 million), lack of good quality labor because of a less-developed educational system, a landlocked condition which makes import-export difficult and exis-