Country Report Laos March 2009

Outlook for 2009-10

There is little prospect that the ruling Lao People's Revolutionary Party (LPRP) will face a serious threat to its authority in 2009-10. As inflation decelerates in 2009, the main challenge facing the LPRP will be to prevent popular protests, as the economy slows and workers lose their jobs. No major change in the LPRP's ideology or policies is likely during the forecast period. The government will continue to pursue economic reforms, and will remain keen to attract foreign investment. Although efforts to join the World Trade Organisation may provide some impetus for reform, progress overall will be slow. Economic growth will slow to an average of 4% a year in 2009-10, down from 7.5% a year in 2007-08, but there are downside risks to this forecast. Consumer price inflation will fall to 3.4% in 2009, from an estimated 8.6% in 2008. The current account will remain in deficit, owing to the deficit on the merchandise trade account and to the repatriation of profits and dividends by foreign mining firms.

The political scene

The National Assembly (the legislature) showed a degree of independence from the executive when it met in December, by refusing to pass a proposed law on state investment. Preparations have begun to be made to strengthen the 1999 environment law to give state agencies more power to act against illegal mining and logging. However, such practices will persist so long as the perpetrators receive protection from senior figures within the LPRP regime.

Economic policy

The government is concerned about the economic downturn, but its response so far has been piecemeal. In February the prime minister, Bouasone Bouphavanh, said that the government would create a more favourable business environment but called on firms to raise productivity. A new value-added tax has been introduced, but officials from the Ministry of Finance have already called for its suspension in order to support domestic consumption.

The domestic economy

An Australian company, OZ Minerals, which operates Laos's largest copper extraction facility, the Sepon mine, is expected to be acquired by a Chinese investor after it failed to refinance its debts. As a result of OZ Minerals' financial difficulties, plans to increase copper production at the mine have been suspended.

Foreign trade and payments

Laos's exports to its main market, Thailand, fell sharply in January. According to the Bank of Thailand (the Thai central bank), Thai imports from Laos fell in January by 28.6% year on year, to US$35m, their lowest level since May 2007.

This report covers the following industry codes:
SIC Code: 60;10;49;39;22;47;70
NAICS Code: 52;212;22;31;313;48;72