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Here is your Mekong Memo Laos for the week of November 8, 2023. If you like it, please share. If you hate it, please share with someone you don’t like. If you love it, please subscribe. If you’re not sure, hit reply and let us know what’s on your mind. Of course, if it turns out that it’s not for you, tap that unsubscribe button down at the bottom, no hard feelings. Thanks!
Vientiane's High-Wire Act as ASEAN Chair
As Laos prepares to assume the ASEAN chairmanship, it faces the unenviable task of maintaining bloc unity while dealing with the Myanmar crisis and contentious South China Sea issues, especially given its close economic ties with China. The Lao economic dependence on China, including significant loans for infrastructure projects, is raising concerns within ASEAN about its ability to impartially address Beijing's assertiveness in the South China Sea. Laos is further challenged to adopt a firmer stance on Myanmar, where the junta's actions have led to escalating violence and economic turmoil. ASEAN's customary avoidance of public division is at stake, with Laos' diplomatic capabilities and neutrality under scrutiny. The "troika method," - a system involving cooperation with outgoing (Indonesia) and incoming (Malaysia) ASEAN chairs, is suggested as one way to potentially manage these delicate situations effectively.
Read more: SCMP
Service Sector and Fiscal Policies Drive Growth
Apart from worrying debt issues (next article), the Lao economy continues to demonstrate resilience with a projected growth of 4.2% in 2023 and 4.5% in 2024, mostly driven by the service sector. Despite a lower than expected growth rate in 2023 due to increased production costs and a drought impacting hydroelectricity, the service sector, including wholesale, retail, and tourism, has emerged as the top performer, contributing significantly to GDP. The government is focusing on maintaining political stability and social order to support major upcoming events and achieve ambitious growth targets. Laos also faces challenges like currency depreciation and high inflation, making stricter fiscal management and tighter monetary policies necessary to sustain growth. The ASEAN+3 Macroeconomic Research Office emphasizes the importance of disciplined fiscal and monetary policies to re-establish macroeconomic stability, suggesting further tightening of monetary policy and fiscal discipline to prevent recurring arrears and enhance public finance management.
On the Edge: Navigating a Debt Crisis
Laos faces a severe debt crisis, with public debt exceeding 100% of GDP, largely due to borrowing from China for infrastructure projects. This situation, compounded by a currency crisis and inflation, is bringing the nation dangerously close to economic strife. The majority of this debt, estimated at 122% of GDP by the IMF, is attributed to China's Belt and Road Initiative. Despite government measures like interest rate hikes and spending cuts, a sustainable solution hinges on a debt reduction deal with China. Short-term relief from China has provided some respite, but long-term solutions are necessary to prevent default and maintain Laos' economic stability.
Read more: CNBC
Gov’t Overhauls International Trade Systems
The government is collaborating with private companies to create a modern registration and import-export database for better management of these sectors. This work, led by the Minister of Industry and Commerce, Malaythong Kommasith, includes stricter foreign currency management via the banking system and efforts to increase domestic production. The Ministry is also working to improve the automatic tax notification system, streamlining import-export business management and ensuring information sharing among state agencies. An online importer-exporter registration system was launched on November 1, with plans to integrate it with the Capital Flow Management System being developed by the Lao central bank. This integration is expected to be fully rolled out after a trial run next month.
Read more: Xinhua
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