Silviase/jgov_v1.4_full_ann huggingface dataset:
after the socialist revolutions. The reform of Laos was “Transition to a new consideration of economy and policy,” and were developed as measures to solve the problems rooted in central planning itself, namely ownership, economic management by state, and relations with neighboring countries. Moreover, the reforms were significant as “an experiment” of reform in Indo-china countries; they proved to be a kind of “touchstone.”

“The New Economic Mechanism (NEM)” was endorsed on The Fourth Congress of the Lao People's Revolutionary Party (LPRP) in November 1986. NEM and “Doi-Moi” (in December 1986) in Vietnam were introduced at the same time.

## 2 -1 The Outline of “The New Economic Mechanism (NEM)”

Laos embarked upon an economic reform called “the New Economic Mechanism” in November 1986. The aims were the rapid transition of its socialist control economy and the transition from an autarchic economy to a market economy. The basic political aims of “the New Economic Mechanism” were 1) open market policies and 2) introduction of market economic principles. The contents of NEM are described below.

## 2 -1-1 Budget Reform

Balancing the budget has been one of the most important targets.

## (1) Renovation of Government Expenditures

(a) Reduce the number of officials : Payment to government officials consumes most of current expenditures in Laos. All government staff were paid in cash from 1988, and in 1990 the number of officials was reduced to 80 percent of the 1988 total. $ ^{7} $

(b) Abolition of subsidies: Petroleum subsidies for the difference between the international and domestic oil price was abolished. Donations of agricultural machinery and fertilizer to “Cooperative Farms” were suspended. $ ^{8} $ Subsidies towards state enterprises were abolished altogether.

## (2) Increasing Revenue

(a) Tax reform : By government ordinance number 47, “The National tax system” of June 1989, a system of transfer from state enterprises was abolished and a profit tax was introduced. Due to it, most revenues changed from non-tax (mainly transfer from state enterprises) to tax. And by government ordinance number 12, “The Revised national tax system” of February 1991, all enterprises, both state and private, had been taxed by profit tax (45 percent) uniformly. Tax rates were simplified from 5 levels (3, 6, 10, 15, and 20 percent) to 2 levels (5, and 10 percent). $ ^{9} $

(b) Revision of public utility fares: Electricity, water and telephone were not privatized because of high costs. In order to strengthen the finance of these enterprises, electric power rates were raised by 43 percent on average, while postal and telephone fares were raised by 80 percent on average. $ ^{10} $

## 2 -1-2 Supply Side Reform

(1) Liberalization of Domestic Trade: By government ordinance number 12, “Promotion of goods and money circulation.” the circulation of goods was liberalized within country. $ ^{[11]} $ Buying and selling restrictions of agricultural products was eased, and were soon sold.
everywhere within the prefecture.

(2) Liberalization of Foreign Trade: By government ordinance number 18, “State monopoly on strategic export and import goods,” import duties were reduced and customs procedures were revised. Government ordinance number 18 was revised in 1990: the number of restricted items on the list of strategic goods was reduced. The strategic goods that state enterprises had exported monopolistically were reduced to only coffee, logs and mineral resources (plaster and tin). $ ^{12} $ People have also been able to engage in trade by getting a license, quantitative restriction of import goods was abolished in substance, all necessary goods could be imported.

(3) Introduction of Market Principle of Price Determination: By government ordinance number 14 “Price policy,” price control on both goods and services were abolished. All prices except logs and public utility fare became “free.” So far the government has bought agricultural products by lower prices, but its purchase prices were raised up in order to close the gap in international prices.

## 2 -1-3 Monetary Reform

(1) Revision of Banking System and Implementation of Central Bank Law :

The banking system was revised in order to increase the national financial supply with positive deposit interest rates in order to channel the money into industry. So far there was only the Central Bank, but by government ordinance in March 1988, it was divided into the Central Bank, commercial banks, foreign trade banks and local banks. Though this, a saving promotion policy was adopted. The Laos Central Bank raised the official discount rate, and took a high-interest policy. $ ^{13} $

## 2 -1-4 Foreign Exchange Rates

(1) Rectifying Foreign Exchange Rates: Laos created a single official exchange rate that was nearer to the market exchange rate, and did it earlier than Vietnam or the other socialist countries. The existing seven exchange rates were unified into single official rate. The commercial exchange rate was 35 kips = 1 dollar until 1985. By 1986, a dollar was worth 95 kips; 350 kips in 1987; 470 kips in 1989, and then official exchange rate and market exchange rate met at around 700 kips to the dollar in 1990 and around 720 kips in February 1994. $ ^{14} $ With the help of export promotion as well as a reduction in unnecessary imports, the stabilization of foreign exchange was expected. $ ^{15} $

## 2 -1-5 Reform of State Enterprises (Privatization)

By the government notification in January 1991, a “Disengagement plan” was established. This plan emphasized: (1) privatization of superior enterprises except strategic sectors, such as military affairs, police, electricity, telecommunication and post service; (2) closing hopelessly profitless enterprises that could not operate without subsidies and loans; (3) strengthen the finances of enterprises that remain in government property.

By government ordinance number 17, “Change of state enterprises ownership form state to others,” privatization of well performing state and public enterprises (except strategic sectors) was promoted. $ ^{16} $
## 2 -1-6 Foreign Investment

(1) Promoting Participation of Private Sector Including Foreign Investment:

The Foreign Investment Law was enacted in 1988 to encourage foreign investment, and promote capital inflow and external economic activity. 100 percent foreign investment was permitted, with a guarantee that foreign capital affiliated enterprises would not be nationalized. Foreign investors have to invest at least 30 percent of a gross investment. Because capital in Laos is needed, the Lao government even welcomes 100 percent foreign investment. $ ^{17} $ To provide convenient conditions for foreign investment, “The Foreign Investment Management Committee (FIMC)” was established in 1989. Investment promotion policy was introduced with investment guarantees, such as reduction or exemption of duties, to promote investment. $ ^{18} $

## 2 -1-7 Legal System

A legal system coming economic activity such as “Foreign Investment Law” (first established in 1988), “Ownership Law,” “Labor Law,” “Insurance Law,” “Audit Law of State Public Enterprise” etc. was established. And in 1991 the “Constitution of Lao PDR” was established.

## 2 -1-8 Ownership and Management

The centrally planned economy was put to an end, and decentralization, (i.e., all districts and enterprises take responsibility for their own economic activity) was promoted. Autonomous management was promoted: state enterprises began deciding production amounts, buying prices, selling prices, employment, wage and dismissal policies, etc. They also became free to use their profits as they saw fit.

## 2 -2 Execution of Public Investment Program (PIP)

“The Second Five Year Plan” ended in 1991 in the midst of the economic reform, and was followed by “The Third Five Year Plan (1991-1995).” But The Third Five Year Plan has not gained the approval of Parliament, since the socialist long term plan had had little practice effect. Instead the Public Investment Program (PIP) was established. This program is based on support for the establishment of infrastructure in order for the private sector to operate smoothly. $ ^{19} $

## 3 Evaluations and Economic Reform

--- Macroeconomic Stability and Achievements of Economic Reform ---

3-1 The Achievements of Reform

--- Objective Result ---

3-1-1 Macro Economic Stabilization

(1) GDP Growth Rate

In 1987 and 88, GDP growth was negative because of drought and the confusion of policy changes. But during the period from 1989 to 92, GDP growth rates were stable. For each year growth rate was 11.5 percent, 5.9 percent, 4.0 percent, 7.0 percent respectively (see Appendix 1). It is expected that the GDP growth rate will have reached 4 percent in 1993. The growth
## (1) Infrastructure

## (a) Set up of transportation network

Laos has little resources within the country along with undeveloped industries; therefore the construction of a transportation network is an essential target. The Lack of a transportation network obstructs free and smooth circulation of goods, a basis for commodity market economy, which has detrimental effects upon the agriculture sector, manufacturing sector and money circulation. The establishment of a transportation network should receive the highest priority.

## (b) Education system, human resources development

There is a shortage of teachers conventional educational institutions largely because of their low payment. Thus many teachers have side businesses. This brings about a low quality of education in Laos. In order to raise it, an educational basis needs to be developed urgently.

(c) Social aspects (medical care, housing, waterworks and drains)

The social indications of Laos show that subsistence rate of new born baby, number of nurses and doctors per capita and the average lifespan are extremely low. (Life expectancy is around 50, and the infant morality rate (per 1,000 live births) was 105 in 1988.) Medical institutions need to be improved quickly. Waterworks facilities are, with the exception of urban areas, in poor condition and the supply shortage is serious. Drains also remain under developed, except in some urban areas. These conditions create a high death rate of children and bad conditions of public sanitation. $ ^{39} $

## (2) Relation with Thailand

Economic relations with neighboring Thailand are now very important for Laos in order to strengthen its economy. There is some economic conflict with Thailand: price negotiation of export logs and electric power are important foreign currency sources for Laos; passenger tax when Laos cargoes pass through Thailand; and an import tariff on Laos manufactured goods. Strengthening economic ties with Thailand is one effective development strategy for Laos. The market economy must be advanced by introducing foreign capital, as well as developing human resources and technology in both the public and private sectors of Laos. Private investment from Thailand is quite substantial, and brings technology transfer and job creation. It is also expected that Thailand's experiences of economic development will be a good reference case for Laos, in particular in the area of fiscal policy, and receiving assistance and investment.

## 3 -3 Direction and Strategy of Future Development of Laos

The lessons and unfinished agenda of Laos are as mentioned above. The future direction of Laos from a long-term prospect determines strategy in the transitional period. Two points will be considered. One is how to utilize the resources (electric power, agriculture, forest) and the other is how to overcome the geographic conditions.

## 3 -3-1 Electric Power

Laos is rich in water resources. Only the Nam Ngum Dam covers most domestic demand. Electric power export is 30 percent of the total export of Laos. But assuming a 10 percent increase per year in future domestic demand, an essential source of export
Laos. Today there is a solid consensus that close economic relations with neighboring countries alone can make economic development possible in Laos. The government is going ahead in its training of administration staff in order to accept smoothly the direct investment from neighbor countries and former Western countries, as well as its organization of the bureaucratic system. To sum up, “how not to fall behind” is as important an issue as “the separation of politics and economy.” It is true that among Lao people there is anxiety about corruption and a rapid increase of crime flow into Laos from mainly Thailand after opening of the Mekong bridge. Based on this criticism there is some argument that the government staff seriously delays the procedure regarding permission of foreign investment. But the strongest reasons are the shortage of human resources and a poorly functioning decision-making channel. Laos is a low developed country rather than a socialist country. However because Laos is also a socialist country institutionally, sooner or later it will face the problems of “the separation politics and economy” and “democracy” even if it may not be as serious as China or Vietnam. But if the transition to a market economy does not induce the collapse of the present political power soon, the transition may be able to stabilize the present political order through economic development and increase of public welfare. Actually in Laos today political thoughts have not yet been diversified. Under the poor media situation, it is not expected that they will have hot arguments about political issues like democracy or the multi-party system. Even if these issues are not aired, considering that the political leaders of Laos are very old, natural generation changes will contribute to the smooth achievements of liberalization. That may turn into an opportunity for new political liberalization and openness.

(Hosaka)
## FOOTNOTES

1/ Asian Development Bank, [1993]

2/ Institute of Developing Economies, [1985]

3/ SUZUKI, [1993, p.36]

4/ SUZUKI, [1993, p.36]

5/ SUZUKI, [1993, p.43]

6/ Institute of Developing Economies, [1987]

7/ SUZUKI, [1993, p.41]

8/ SUZUKI, [1993, p.41]

9/ SUZUKI, [1993, p.41]

10/ SUZUKI, [1993, p.41]

11/ SUZUKI, [1993, p.48]

12/ SUZUKI, [1993, p.45]

13/ SUZUKI, [1993, p.48]

14/ From Prof. Motoyoshi SUZUKI.

15/ Kokusai Kyouryoku Suisin Kyoukai (Zaidan Houjin).

16/ SUZUKI, [1993, p.45]

17/ From Prof. Motoyosi SUZUKI.

18/ Sougou Kenkyuu Kaihatu Kikou, [1990, p.80]

19/ From Prof. Motoyosi SUZUKI.

20/ Institute of Developing Economies, [1993, p.242]

21/ Far Eastern Economic Review, [1993, p.154]

22/ Far Eastern Economic Review, [1993, p.154]

23/ Institute of Developing Economies, [1993, p.242]

24/ Far Eastern Economic Review, [1994, p.158]

25/ SUZUKI, [1993, p.5]

26/ SUZUKI, [1993, p.3], Kokusai Kyouryoku Suisin Kyoukai (Zaidan Houjin).

27/ Institute of Developing Economies, [1993, p.241]

28/ Institute of Developing Economies, [1993, p243]

29/ From Prof. Motoyoshi SUZUKI.

30/ Far Eastern Economic Review, [1993, p.155]

31/ Far Eastern Economic Review, [1993, p.155]

32/ Kokusai Kaihatu Center (Zaidan Houjin).

33/ Kokusai Kaihatu Center (Zaidan Houjin).

34/ Institute of Developing Economies, [1993, p.240]

35/ From Prof. Motoyosi SUZUKI.

36/ Kokusai Kaihatu Center (Zaidan Houjin).

37/ Far Eastern Economic Review, [1993]

38/ Sougou Kenkyuu Kaihatu Kikou, [1990, p.85]

39/ Kokusai Kaihatu Center (Zaidan Houjin).

40/ From Prof. Motoyoshi SUZUKI

41/ Kokusai Nouringyou Kyouryoku Kyoukai.

42/ From Prof. Motoyosi SUZUKI
## REFERENCES

Asian Development Bank, Asian Development Outlook 1993 1993

-----, Key Indicators of Developing Asian and Pacific Countries 1993

Institute of Developing Economies, Ajia, Cyuutou Doukou Nenpou 1985, Ajia Keizai Kenkyuujo Edition

-----, Ajia, Cyuutou Doukou Nenpou 1987, Ajia Keizai Kenkyuujo Edition

-----, Ajia Doukou Nenpou 1993, Ajia Keizai Kenkyuujo Edition

Far Eastern Economic Review, November 4, 1993

Far Eastern Economic Review, Asia 1994 YEARBOOK

JOUTOU, Teruo, “Gendai Laos Gaikan” Doubunkan Edition

Kokusai Kaihatu Center (Zaidan Houjin), “Keizai Kyouryoku Keikaku Sakutei no tame no Kiso Cyousa - Kunibetu Keizai Kyouryoku Keikaku - (Laos)”

Kokusai Kyouryoku Suisin Kyoukai (Zaidan Houjin), “Laos no Keizai -syakai no Genjou” Kaihatu Tojoukoku Kunibetu Keizai-kyouryoku series Ajia-hen No.3

Kokusai Nouringyou Kyouryoku Kyoukai, “Laos no Nougyou-Genjou to Kaihatu no Kadai” Kaigai Nougyou Kaihatu Cyousa Kenkyuu Kunibetu Kenkyuu series No.46

MURAKAMI, Atsushi., Le Thanh, Nghiep, Chira, Hongladorom, “Tenkanki no Vietnam, Laos, Cambodia Fukkou to Keizai Hatten eno Kadai” May 1992

Nhongvongsithi, Leuam, Inthamith, Somchith, “Trade and Investment in Lao PDR” September 2, 1991

SUZUKI, Motoyoshi, “Gaikoku Enjo to Laos-jinmin-minsyu-kyouwakoku” Kokusai Kyouryoku Kennkyuu Vol.8, No.2

------, “Henbou suru Ajia Syakaisyugi, Wasurerareta Tougenkyou Laos” Syuukan Touyou Keizai, August 15/22 1992

-----, “Laos no Ikoukeizai no Genjou to Mondaiten” Keizai Kyouryoku Hyouka Cyousa Gaimusyou Itaku Cyousa Houkoku, May 1993

-----, “Laos no Kinyuu Seido,” Ajia Mondai Kaigi, September 1993 Vol.144

------, “Laos no Shinkeizai Mekanizumu - Torirenma no Kokufuku -” Ajia Keizai, May 15, 1993 Vol.34, No.3

Sougou Kenkyuu Kaihatu Kikou, “1990 Nendai no Nihon to ASEAN : Gekidou no Kokusai Kankyou ni okeru Aratana Yakuwari” NIRA Kenkyuu Houkokusyo No.930024

Vokes, Richard, Fabella, Armand, “Economic Reform in The Lao People’s Democratic Republic”, July 1992

World Bank, “Lao People's Democratic Republic Issues in Public Economics,” August 10, 1990
Table 2-III-1 Economic Reform Chronology of Laos

Price	Finance	Monetary	Enterprise	Agriculture	Exchange	Trade/Investment
1979	*Rise of supply price for farmers*Abolition of subsidy at retail*Permission of farmers direct sale in market, etc.	*** Agricultural collectivization was not yet realized.
1980
1981	*Improvement, adjustment and strengthening of enterprise management
1982
1983
1984	*Reconstruction of enterprise
1985
1986
1987	*Fixed rate of exchange system
1988	*Liberalization of goods circulation within country*Abolition of price control	*Pay in cash	*Monetary reform*Rise of discount rate*Establishment of Sethathirath Bank and Nakhoneloung Bank	*Reduction of duty and revision of customs formalities*Foreign investment law
Table 2-III-1 Economic Reform Chronology of Laos

Price	Finance	Monetary	Enterprise	Agriculture	Exchange	Trade/Investment
1989	*National tax system (abolition of transfer)	*Establishment of Joint Development Bank and BCEL	*Foreign exchange and precious metal control	*Establishment of foreign investment management office *Detailed rules of foreign investment law
1990	*Cut the number of government staff	*Central bank law *Establishment of clearing house	*Labor law *Insurance law *Audit law of state public enterprise *Privatization of superior enterprise except strategic sector	*Ownership law	Revise foreign exchange and precious metal control	*Reduction of the number of restriction items on the list of strategical goods *Liberalization of dealings
1991	*Revised national tax system (tax uniformly etc.) *Raise the public utility rate	*Central bank starts “window guidance” *Issuance of the first central bank bond
Table 2-III-2 Calculations of Laos Economy

(unit)	1975	77	80	84	85	86	87	88	89	90	91	1992
1. Macro Economy	(%)
Growth rate of Nominal GDP	7.2	4.8	-1.1	-1.8	11.5	5.9	4	7
Growth rate of Real GDP	7.2
Rise rate of Consumer Price Index	61.9	52.7	65.7	62.9	35.1	13.4
Current Balance / GDP	-10	-3.9	-6.9	-12.8	-14.7	-16	-8.9	-4.6	-5.6
2. Financial Policy (percent of GDP)	(%)
Current Revenue	17	12.2	14.9	12.5	12.3	8.4	10.2	10.5	10.9
Tax revenue	62.5	36.6	13.1	33.7	13.6	9.5	9.8	75.3	77.1	61.8	68.8	70.8
Nontax revenue	37.5	63.4	86.9	66.3	86.4	90.5	90.2	24.7	22.9	38.2	31.2	29.2
Current expenditure	14.2	11.2	11.9	10	12.3	9.3	11.4	11.3	11.1
Defence
Education	2.6	6.6	8.4	4.6	4.3	4.8
Health	5.9	6.1	6	3	0.4	1.3
Housing & community amenities
Economic services	71.8	69.3	67.2	78.6	79.4	85.3
Others	19.7	18	18.4	13.8	15.9	8.6
Overall surplus/deficit	-11.8	-11.1	-6.5	-5.8	-20.3	-16.4	-13.5	-9.5	-8.9
3. Monetary Policy	(%)
Money supply (M2)	0	34.8	70	308.7	37.1	89.3	7.8	15.7	49
4. Industrial Structure (percent of GDP)
Agriculture	(%)	53.8	56.3	57.1	59.1	59.9	60.7	53.3
Mining	(%)	0.4	0.2	0.1	0.2	0.2	0.1	0.1
Manufacturing	(%)	11.6	14	11.8	10.2	11.6	12.8	17.2
Service	(%)	34.1	29.4	30.9	30.5	28.3	26.4	29.3
5. External Trade	(Million US$)
Import (total)	42	58	92	162	193	186	216	193	197	276	292
(growth rate)	(%)	38.1	58.6	76.1	19.1	-3.6	16.1	-10.6	2	40.1	5.8
Export (total)	3	9	28	44	54	55	62	63	63	146	113	132
(growth rate)	(%)	200	211.1	57.1	22.7	1.9	12.7	1.6	0	131.7	-22.6	16.8
6. Balance of Payments	(Million US$)
Trade balance	-39	-49	-64	-118	-139	-131	-154	-105	-147	-123	-131	-133
Current balance	-66.4	-82.8	-93.7	-90.5	-114.3	-83.8	-118	-77.1
7. External Indebtedness	(Million US$)
64	163	295	433	478	599	728	822	946	1073	1121
8. Population	(Million US$)
3.43	3.53	3.2	3.53	3.62	3.72	3.83	3.94	4.05	4.14	4.25	4.36

$ ^{*} $ Source : Calculations from data published by ADB
Table 2-III-3 Growth Rate of Per Capita GDP (Per cent per annum)

1988	1989	1990	1991	1992	1993	1994	1995	Per Capita GNP (US$) 1992
Cambodia	1.0	-1.2	5.2	1.7
China	9.4	2.5	1.5	6.4	11.5	11.6	8.6	8.1	380
Laos	-4.5	8.5	3.6	1.6	4.1	250
Mongolia	2.9	1.8	-1.6	-12.2	-9.8	-3.6
Vietnam	2.8	5.9	2.8	3.5	5.9	5.7	6.8	7.8	220

Table 2-III-4 Growth Rate of Value Added in Agriculture (Per cent per annum)

Average 1971-80	Average 1981-90	1988	1989	1990	1991	1992	1993	1994	1995
Cambodia	5.9	7.1	1.2	6.7	1.9	3.2
China	3.0	5.5	2.5	3.1	7.4	2.4	4.0	4.0	3.7	3.8
Laos	-4.2	9.9	8.7	-1.7	7.9	0.0
Mongolia	2.0	3.0	2.4	13.8	-1.9	-5.1	-3.9	-7.0
Vietnam	6.8	4.0	7.0	1.5	2.2	6.0	3.3	6.5	5.6

Table 2-III-5 Growth Rate of Value Added in Industry (Per cent per annum)

Average 1971-80	Average 1981-90	1988	1989	1990	1991	1992	1993	1994	1995
Cambodia	15.0	1.7	-2.1	8.9	15.6	10.0
China	9.1	11.7	14.5	3.8	3.2	13.3	20.8	20.9	13.5	11.0
Laos	-2.4	35.0	16.2	19.9	7.3	11.0
Mongolia	10.2	5.8	5.1	11.1	-4.7	-13.2	-13.1	-5.5
Vietnam	6.8	2.3	-2.8	2.9	9.1	11.7	11.3	11.5	13.2

Source: Asian Development Outlook 1994

Note: Date for 1993 are Preliminary. Those for 1994 and 1995 are estimates
Table 2-III-6 Growth Rate of Value Added in Services (Per cent per annum)

Average 1971-80	Average 1981-90	1988	1989	1990	1991	1992	1993	1994	1995
Cambodia	13.6	-1.1	2.7	8.5	11.1	7.2
China	12.4	13.6	6.8	2.1	5.5	9.3	9.4	8.5	9.0
Laos	4.1	4.5	-4.2	8.0	4.3	9.2
Mongolia	7.8	3.2	5.3	5.7	-4.3	-11.6	-12.0	2.7
Vietnam	7.6	8.8	16.5	10.8	8.2	8.7	10.5	9.7	11.9

Source: Asian Development Outlook 1994

Note: Date for 1993 are Preliminary. Those for 1994 and 1995 are estimates