Warning reveals fears for economy

PUBLISHED : Wednesday, 21 October, 1998, 12:00am
UPDATED : Wednesday, 21 October, 1998, 12:00am

Last week's unusual warning from the Lao leadership about the need to beat corruption and curb the country's bureaucracy has raised fears the regional economic crisis may be having a deep impact.

It was clear the nation's communist rulers had realised they were much less isolated from the downturn than they had thought, diplomats and businessmen in Bangkok and Vientiane said.

'We understand that the leadership's plans to wean itself of aid lie all but shattered,' one senior diplomat said yesterday.

'Many of us expect Laos may soon have to increase requests for assistance to cope.' Laos receives US$60 million (HK$464 million) annually in direct overseas aid, mostly in the form of loans from the Asian Development Bank, and remains one of the region's poorest countries, with the lowest literacy and life expectancy rates.

Fewer than a quarter of its women can read.

Analysts said the remarks by Prime Minister Sisavath Keobounphanh were unusual given the regime's secrecy, and showed a desire to impress donors and investors.

Mr Sisavath called for the creation of watchdog committees to stamp out financial irregularities and said Laos' bureaucracy had 'hindered overall productivity'.

Many of Laos' 4.8 million people live off the land in mountainous isolation, but the economic activity centred around Vientiane has shown a sharp drop, mainly as a result of the problems of its neighbour and chief source of investment, Thailand.

Foreign reserves are understood to have slipped to about US$50 million.

Foreign investment has all but dried up, having plunged from a high of US$1.76 billion in 1995. Most of that investment was in hydroelectric power projects now in doubt due to falling demand.

One bright spot is the garment industry, where investment and output remain solid amid rising hopes the US will grant Most Favoured Nation trading status.