The Lao People's Democratic Republic (Lao PDR) has for the second time in slightly more than a decade been subjected to the vagaries of the global economy. The adoption of market reforms in 1986 generated steady economic growth which was momentarily but sharply derailed by the 1997 Asian financial crisis and ensuing policy responses which were counterproductive. This chapter examines how vulnerable the Lao PDR is to the recent global economic crisis and particularly its attempts to develop the education sector which is critical for the reduction of poverty and the country's aim of graduating from its LDC (least developed country) status by 2020. The chapter argues that contrary to some expectation that its physical isolation, size, and limited interaction with global financial markets would protect it from the global slowdown, recently established linkages with the global economy threaten the progress that has been achieved. The country has weathered the global crisis better than many other countries in the region but the impact is being felt. The chapter consists of three main sections and a concluding section.

The first section relates the key demographic and geographical features of the country and the evolution of the economy since 1986. Despite steady economic growth, poverty is still substantial, particularly in the remote areas where ethnic minorities constitute the majority of the populace. The second section discusses the education sector of the country. Progress in terms of spreading literacy, improving access to primary schools, and creating a system of higher education has been substantial, but low efficiency and quality are major and pervasive challenges. Three sub issues which are key variables in terms of the impact of the recent crisis on the education sector are discussed: demand for education, expenditure on education including external assistance, and decentralization of education functions.

The third section examines the impact of the economic crisis on the education sector and asks two important questions. First, is the Lao PDR vulnerable to the recent crisis and, if so, what are the determinants of this vulnerability.