Laos’ Economic Woes Will Continue In 2024

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Laos’ Economic Woes Will Continue In 2024

Given their connection to structural features of communist rule, there will be no quick respite from the economic woes.

Laos’ Economic Woes Will Continue In 2024

Vegetables for sale at a market in Pakse, Laos, September 13, 2013.

Credit: Depositphotos

Most mornings your columnist must scroll through feeds of the latest Southeast Asian news headlines. The feed on Laos is, to put it mildly, beginning to get tiresome. For how many months can you read the same headline, “Lao PM Introduces New Measures to Tackle Inflation” or “Lao PM Highlights Key Measures to Address Economic Crisis in Cabinet Meeting,” and then click on the latest economic update and see that, alas, nothing has improved and the same measures (which are actually aspirations) are constantly repackaged anew? See the words of one Laotian interviewed recently by Radio Free Asia. The prime minister “just talks and talks, nothing happens. He has said this many times before, nothing has gotten better. The government can’t do anything; [the government] announces this measure, then that measure – but the inflation and the kip depreciation are still high, way too high.”

In this swirl of apparent nose-to-the-grindstone ministerial work, Vientiane likes to advance two narratives. The first is that Sonexay Siphandone was a new broom when he became prime minister in December 2022. In fact, he had been minister of planning and investment beforehand and was put in charge of the government’s special economic task force under his predecessor early in 2022, so economic failings muddied his hands for longer than is recognized. The second narrative is that Laos’ economic problems are administrative and fiscal, not structural, and that a firmer hand from the central bank could soothe inflation and a collapsed local currency.

Yet Vientiane finds itself in the same situation almost all governments face in an economic crisis. The reasons for the crisis are partly out of its hands – it cannot tell the Federal Reserve what to do about the dollar’s interest rates nor do anything about China’s economic woes, which are drawing down private investment into Laos – and partly because of structural issues that had infected the Lao economy decades ago but which went unnoticed (or unchecked because they created rich income streams for corrupt officials) whilst the economy appeared to be in rude health.

Those problems have been pointed out by uncharacteristically rumbustious National Assembly delegates this year: Laos has accumulated a national debt that now stands at around 120 percent of GDP; too many goods are imported; it has few exports other than energy and what’s dug from the earth; the state is woeful at revenue collection; and the authorities have been so careless (to put it nicely) that only a third of export receipts enter Laos through the banking system. This means that in 2022, for instance, the value of exports stood at $8 billion but only $2.7 billion apparently entered the country via domestic bank accounts that all companies are supposed to hold, as the central bank governor, Bounleua Sinxayvoravong, admitted earlier this year.

A full list of problems would span an entire article. As the World Bank put it a week ago in a financial review, “Laos’ current economic instability largely results from low revenue and accumulated debt. There is moreover a need to improve the efficiency of public expenditure and tackle the potential costs of state-owned enterprises and public-private partnerships.” All true, but these were problems decades in the making and only the most Panglossian of communist officials reckon they can be rectified in months or even a few years.

Instead, Vientiane keeps telling the people to be patient; “the reforms will work in the long term,” it says. Indeed, they might. But one response is how much longer the people must wait. At a National Assembly session in October, Minister of Planning and Investment Khamjane Vongphosy announced that per capita GDP fell from $2,595 in 2021 to $1,824 in 2023 because of the kip’s depreciation. He expects it to rise to $2,880 by 2025, but that forecast is based on some optimistic interpretations of what could happen and it’s rather unappetizing for Laotians who aren’t accustomed to their wealth growing by just $300 in four years.

Indeed, GDP per capita rose from $1,127 in 2010 to $2,598 in 2019. Nowadays, children are being ripped out of schools so they can work and earn money. Those who remain in education face a crisis in teacher staffing and are expected to cough up more money to pay for things that ought to be free. It’s not alarmist to warn about a “lost generation.” Culturally, can the Laotian people put up with another year or two of much of the young generation being forced to migrate to Thailand for work? I’ve argued recently that emigration is a godsend for the communist party, an escape valve that releases political pressure in what is a sweltering atmosphere of repression and financial hardship. However, many Laotians, especially those in their thirties and forties, aren’t too happy that their children have to live abroad for work, perhaps for many more years to come.

The other response: why trust a ruling party that, in many ways, admits that the problems exacerbating the economic crisis result from its own past actions? The World Bank’s latest report was rather generous to the Lao People’s Revolutionary Party (LPRP).

“The Lao PDR’s fiscal system is currently not enabling the government to fulfill its policy commitments or maintain economic stability…a high debt burden, poor revenue collection, limited financing options, and low foreign currency reserves are undermining development prospects.” Not enabling? Those are the problems the communist government created for itself. If a failing one-party system isn’t bad enough, the LPRP appears to be also descending back into dynastic politics; Sonexay is the son of a former party leader and president, while the children of other political families are rising through the ranks. What does it say about the health of an authoritarian regime when the unelected children are now insinuating that they must rectify the mistakes of their unelected parents?

One shouldn’t expect any major improvement in 2024, not least with the inflation rate. The Asian Development Bank reckons the economy will grow by 4 percent next year, compared to 3.7 percent in 2023. Perhaps the “Visit Laos” PR scheme will bear some fruit next year, but much depends on the whims of Chinese tourists. Nor is it likely that Laos’ tenure as Association of Southeast Asian Nations (ASEAN) chairman in 2024 will do much to appease the masses. Not least because all they’ll see are road closures, black Mercedes driving past in police motorcades, and much of the same propaganda they find every day about how magnificent their leaders are, only next year the likes of Thongloun Sisoulith, the president, and Sonexay will be photographed standing next to foreign leaders.

In all likelihood, I gauge from my Laotian sources, the ASEAN chairmanship will simply annoy most people. They’ll rightfully question where the money has come from to pay for the gala events and hotels for world leaders – or, rather, they’ll ask themselves whether all that money might have been better spent on (say) higher wages for civil servants or a few more cash handouts.

It’s not even as though the people will get the same feel-good factor as they did in 2016, Laos’ last tenure as ASEAN chair, when Barack Obama showed up in Vientiane. It wasn’t quite the same as when he visited Hanoi the same year, but your columnist was in Vientiane that day in 2016 (although I spent much of the morning detained by the military) and most of the people I spoke to seemed genuinely proud that a sitting U.S. president showed up. The sight of Obama’s autobiography (I think it was “The Audacity of Hope”) being sold at local bookshops spoke to something about Laos engaging with the rest of the world. But Joe Biden probably won’t attend next year’s ASEAN Summit, having missed out on this year’s, too. Xi Jinping never shows up to such events anyway. And is it all that heartwarming to know your leaders only beautify the cities when world leaders, most of whom you don’t recognize, fly in?