VIENTIANE Dec 24 For the Communists running
Laos, the fruits of capitalism have never been so bountiful.
The Nam Phou fountain at the heart of the torpid capital,
Vientiane, has transformed from a relic into a neon-lit
phantasmagoria, surrounded by expensive restaurants. On the
increasingly congested roads, the elite car choice is a Range
Rover or, failing that, a Lexus.
This is the result of years of more than 8 percent growth,
driven by commodities exports and a flood of investment from
neighbouring China, Thailand and Vietnam. The Laos stock market,
the world's smallest, made its coy debut in 2011.
The boom in Laos, one of Asia's poorest countries, is not
over, but serious cracks are starting to show. Economists warn
the country of 6.7 million is facing the downside of a
development model based on easy credit, resource exploitation
and infrastructure mega projects.
"The economy is overheating," Ashvin Ahuja, who led an
International Monetary Fund (IMF) delegation to Laos in
September, told Reuters.
The IMF has identified a range of problems.
A shortfall in government revenues coupled with ballooning
expenditure - particularly rises in pay to public servants -
has seen the fiscal deficit rise to about 6.5 percent of GDP.
Inflation is projected to rise to about 7.5 percent by the end
of the year, and up to 9.4 percent next year.
The country's foreign exchange reserves are enough to cover
just 80 percent of one month's imports. Western banking and
business sources, who insisted on anonymity, told Reuters that
there had been a shortage of U.S. dollars for several months.
On the streets of Vientiane, frustration is growing as
prices rise and incomes become precarious.
In August, a kilo of pork sold by Chantara Phommavongsee at
Vientiane's Thong Kan Kham market went for 68,000 kip, or about
$8.60, she said. Fast-forward four months and it was selling for
75,000 kip. Civil servants are coming less often - the
government had not paid them in months.
The black economy, meanwhile, is thriving. On weekends,
smart customers drive across the Mekong River to Thailand, where
prices are cheaper, Chanthara said. Some come back with goods
for sale. "Cars, food, medicine, building materials," Chantara
reeled off the list. "All Thai."
The normally reticent and secretive government appears to be
Prime Minister Thongsing Thammavong warned in September that
"Laos is running a high level of debt and is at risk of a
financial crisis" and ordered ministers to cut costs, according
to the state-run Vientiane Times newspaper.
The government has delayed payments to some contractors,
promised to curb salary rises and suspended a 760,000 kip
monthly allowance for civil servants.
These measures have been welcomed by the IMF. But the fund
has warned a major change of course is needed if the country
wants to keep growing in the future.
Beneath the warnings of economists, there is a deeper
critique from some quarters on the Lao development model: that
the country is squandering its natural wealth and enriching its
elite, while the majority is left behind.
One of the country's traditional wealth generators, resource
extraction, faces entrenched corruption. Commodities such as
rubber and timber often pass out of the country with little or
no tax being paid, thanks to an opaque network of political
connections. At the same time, black market imports are flowing.
"Although all traditional economic indicators say Laos is
doing okay, Laos is getting screwed," a senior member of the
Western business community in Vientiane told Reuters.
"Laos is missing out on an unquantified - by anyone, not the
IMF, not the World Bank, anyone - amount of revenue."
Optimists point to headline figures, such as a one-third
decrease in the poverty rate in the 15 years to 2008. Pessimists
focus on other indicators: the tiny landlocked country has
Southeast Asia's highest incidence of child mortality and one of
its lowest school enrolment rates.
The government is staking much of its future on large-scale
infrastructure projects, including multi-billion dollar road and
high-speed rail links intended to turn Laos into a crossroads of
China, Thailand and Vietnam.
Even more ambitiously, the country is seeking to become "the
battery of Southeast Asia" through the construction of a series
of massive dams on its pristine rivers, despite howls of protest
from environmentalists. The government plans to export most of
There are 13 dams operating in the country, and another 70,
such as the giant Thai-funded Xayaburi dam on the Mekong, in the
construction, planning or feasibility stages. The country aims
to produce 12,500 megawatts of power by 2020.
Julian Newman, campaigns director at the London-based
Environmental Investigation Agency, says many projects face the
same problems that have plagued the export of commodities, with
kickbacks and benefits flowing to business people and their
allies in the Communist Party and government.
In some cases, contractors can earn a healthy sideline in
illegally clearing forests near projects, Newman said.
Viraphonh Viravong, Laos' Vice Minister of Energy and Mines,
said the government was serious about rooting out corruption and
that banks and international donors helped ensure the
transparency of large scale projects.
"Wherever you go in this world, there is corruption. It
exists not only in the least developed countries but in the most
developed countries as well," Viraphonh told Reuters by email.
Viraphonh said the government had last year imposed a
moratorium on the granting of new large mining and plantation
concessions, but would not rethink the pursuit of megaprojects.
"The Lao PDR is duty bound, morally and politically, to
continue to harness the might of the rivers that flow through
our country, to power cities, electrify rural areas and generate
the necessary resources to overcome poverty, malnutrition,
infant mortality, illiteracy and for the greater good of our
people," he said.
If any project shows that Laos can pull off its dream of
dam-based development it's Nam Theun 2, a massive 1,000 megawatt
project in the country's south.
With the backing of the World Bank and the Asian Development
Bank, the $1.45 billion dam went into operation in 2010 with a
raft of measures to mitigate its environmental impact and
contribute to local livelihoods.
For Nam Theun 2's backers, the project is already a success.
The dam is on track to earn $2 billion for the Lao government
over 25 years, with monitoring in place to make sure the money
does not evaporate. For the roughly 6,000 people displaced by
the dam, life has also improved, said Meriem Gray, a spokeswoman
for the World Bank.
Surveys done by the Nam Theun 2 Power Company found 87
percent of resettled villagers see themselves as better off, she
said. School enrolments have also jumped, along with access to
electricity and clean water.
Environmentalists, however, say the dam has been a disaster
for the displaced, as well as 110,00 people reliant on
downstream agriculture and fisheries.
A two-day visit by Reuters to the dam site also suggested
the project's achievements have been mixed at best.
Where villages once stood there is now a reservoir peppered
with dead trees and stagnant water the colour of weak coffee. A
narrow artificial peninsula hosts settlements for relocated
In interviews with Reuters, residents repeated the same
complaints. Power cuts are frequent, in spite of the nearby
power plant. The 0.6 hectares of land granted to each family as
part of the relocation deal was not enough to live off, they
said, while fishing in the reservoir was often not good enough
to provide an alternative livelihood.
One economic benefit that has arrived has been Laos'
traditional cash cow: black market resource extraction.
The project and the roads that have come with it have opened
up the area to poaching and the near-eradication of valuable
hardwoods from nearby forests, according to a recent independent
report by a panel of experts commissioned by the World Bank.
Local people admitted to taking part in the illegal logging
trade around Nam Theun 2 and claimed local government officials
"We didn't have to do this before moving here because we
made a good living from the land," said 43-year-old Wan, who
told Reuters almost every family in his resettlement village was
Mixay, the 45-year-old matriarch of a family of 10 in
another village, echoed the sense of disappointment.
"I thought life would be much better, but it isn't at all,"
she said. "We're not any richer because of this dam. The only
people who get anything, who get richer, are those in the
(Editing by Jason Szep and Alex Richardson)