In 1975, the Pathet Lao group took control of the nation of Laos, bringing 600 years of monarchy to an end by installing a strict socialist regime. The new communist leadership employed centralized economic decision-making and new security measures including control over all media. It also arrested numerous members of the previous government and military and held them in ‘re-education camps.’
A gradual return to private enterprise and the liberalization of foreign investment laws began in 1986. This policy shift has dramatically changed the economic landscape of Laos. The country’s overall financial growth averaged 6 percent yearly between 1988 and 2008, with the exception of 1997, during the Asian financial crisis.
However, despite this high growth rate, Laos remains one of the poorest countries in Asia. With an underdeveloped infrastructure, particularly in rural areas, it has no railroads, a basic road system, and limited external and internal telecommunications. The government is introducing improvements to the road system with financial support from Japan and China. Subsistence agriculture, dominated by rice, accounts for about 40 per cent of Laos’ GDP and constitutes 80 per cent of total employment—but less than 5% of its land is arable.
Laos’ economic prospects are expected to improve gradually with the simplification of investment procedures and with a more competitive banking sector that extends credit to small farmers and small entrepreneurs. Although the government currently appears committed to raising the country’s appeal to outside investors, its poor transparency record and an overall less than desirable business climate hinders economic development. Laos became a member of ASEAN in 1997 and is in negotiations with the WTO with the intention of joining as soon as possible.
Chinese investment and the number of Chinese workers in Laos are increasing rapidly. Thailand remains the largest single foreign investor in Laos. Laos and Thailand signed a joint agreement in 2007, covering infrastructure development, avian influenza, border control and Hmong migration issues.