IMF poised to resume lending to Laos

Les Schaffer schaffer at
Sun Mar 18 19:45:28 MST 2001

[ bounced form unsubbed "Ulhas Joglekar" <uvj at> ]

16 March 2001

IMF poised to resume lending to Laos

VIENTIANE, Laos: The International Monetary Fund is ready to resume
assistance to Laos after a five year hiatus, with a $ 40 million loan
over three years to shore up official reserves, an official said on
Thursday.  The IMF had withheld assistance since 1996 as it did not
agree with government policies that had fueled hyperinflation,
especially the use of central bank reserves to fund expansion of rice
production, said Eric Sidgwick, IMF resident representative to Laos.
But the communist government has since stopped issuing credit in this
way and has stabilized the kip currency, which had depreciated sharply
because of increased cash in circulation. Inflation is now at an
annualised rate of around 17.5 per cent, down from 140 per cent in
early 1999.  "They have achieved a degree of stabilisation that has
earned them consideration for a new lending facility," Sidgwick said
in an interview at the IMF's office in Vientiane.  At the end of
April, the IMF board in Washington will consider extending the funds
to Laos under its poverty reduction and growth facility. The
government and a visiting IMF mission agreed in principle on the
assistance in January.  But first, Sidgwick said, the government must
meet several technical conditions, including publication of the state
budget for the current fiscal year that started in October. He said
the government has promised to do this.  Laos, which is controlled by
a secretive regime that took power 25 years ago, has not published its
budget since the onset of the Asian financial crisis in 1997 - to the
annoyance of foreign donors who account for 80 per cent of public
investment.  The crisis had a knock-on effect on Laos' small market
economy, now starved of foreign investment. Annual per capita gross
domestic product among the 5 million population is only about $ 300.
Salaried workers, particularly government servants who earn the
equivalent of about $ 15-20 a month, were hit particularly hard by the
inflation and currency instability, which cast doubts over the aging
leadership's ability in financial management.  The government plowed
central bank reserves equivalent to 3.5 per cent of gross domestic
product - about $ 50 million - into a scheme which it says has helped
increase irrigable land for growing rice threefold since 1995.  A five
yearly congress of the ruling Lao People's Revolutionary Party that
ended Wednesday reappointed the top leaders and indicated the state
would continue to play a major role in the economy despite free market
reforms begun 15 years ago.  The IMF package would include technical
assistance to strengthen macro-economic stability, which remains
"quite fragile," Sidgwick said, although the government has stopped
central bank financing of its budget deficit.  It would also aim to
make state enterprises more commercially viable, to liberalize the
trading system and start addressing problems in the state-controlled
banking sector, he added.  Analysts say Laos turned for help during
the crisis from its neighbours and closest allies, communist Vietnam
and China, which agreed to take payment for goods in the kip currency,
which is otherwise not exchangeable outside Laos.

(AP) For reprint rights:Times Syndication Service

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