Overview

There is a new wave of market-oriented transitional economies in the countries of Indochina – Laos, Vietnam and Cambodia. Since 1988, economic reforms and political liberalization in the Indochinese states have paved the way for them to re-enter the global system and improve their economic growth.

The new thinking in economics suggests that institutions can either facilitate or retard growth in developing countries. Accordingly, institutions must develop simultaneously with reforms so as to capture innovations in order to achieve economic growth. In line with this theory, the recent economic and political liberalization measures accompanying institutional changes in the Indochinese states have been encouraging.

In July 1992, Laos and Vietnam signed the Treaty of Amity and Cooperation with ASEAN. Accordingly, they gained observer status in ASEAN which should help to foster trade and investment linkages. Meanwhile, the European Community (EC) will continue to be a major aid donor to the Indochinese states.

Laos

The New Economic Mechanism (NEM), launched in 1986 and based on market-pricing and better distribution policies, should continue to reform the multi-sector economy. Laos' economic reforms and policies since 1990 include the introduction of a new accounting system in production and domestic trade, assigning a permanent body for monitoring budgetary revenue, promulgating a central bank law, and integrating official and parallel exchange rates.

Real GDP (gross domestic product) growth in Laos, at constant 1988 prices, was reported to be 4 per cent for 1991, and is projected to grow at 4 per cent and 4.5 per cent in 1992 and 1993 respectively. The Laotian economy is characterized by a high share of government consumption (89.6 per cent of the national economy in 1991). Thus, greater economic liberalization and privatization will be required to capture improved economic efficiency and growth in the future.

Agriculture and agro-forestry will remain the major economic sectors in Laos on the basis of sectoral employment and output.