Country Report Laos June 2011

The political scene: Ties to Thailand and Vietnam come under pressure

In terms of foreign policy, the LPRP congress stated that Laos aims to have a wide range of international friends and the ability to participate in regional and international integration. Among its allies, China and Vietnam are closest in ideology, and both continue to seek economic and strategic opportunities in Laos. At the close of the congress, a deputy prime minister, Somsavat Lengsavad, welcomed rapidly growing Chinese investment in Laos and the "comprehensive partnership" between the two countries. He said that the China Development Bank (a Chinese state-owned policy bank) had helped the Lao Ministry of Planning and Investment to outline the next five-year plan (2012-16) for the country and that China's Ministry of Commerce had sent a team to help with its implementation. During this period, he promised, co­operation would increase between the two countries. Total Chinese investment in Laos since 2000 has reached about US$2.9bn, and bilateral trade between the two countries was worth US$566m in the first half of 2010.

The failure of Vietnam to support a Lao proposal to build a dam on the Mekong river in Sayaboury province came as a surprise to many Lao politicians. The event shows a misjudgment of the balance of power between various interests in Vietnam, and perhaps may be interpreted as evidence of a slight weakening in the relationship between the two countries. However, Vietnam is now the largest foreign investor in Laos. Five Vietnamese projects with a combined value of over US$432m were approved in the first two months of 2011, bringing the total number to nearly 200, with total registered capital of more than US$3.3bn. Thongsing made his first official visit to Vietnam in February, meeting his counterpart there, Nguyen Tan Dung. The leaders agreed on the need to supplement existing co-operative mechanisms and policies.

Thailand's attempts to improve relations with Laos have been hit by an accusation that its treatment of Lao sweetcorn growers infringes ASEAN trade agreements. In January the Thai Ministry of Commerce imposed a 73% tax on corn imports outside fixed quotas, meaning that by late February more than 200,000 tonnes of the crop in Sayaboury province were without a buyer. Following complaints from Laos, the import tax was suspended from March 1st-June 30th, but Lao traders have already begun to seek more reliable buyers in Vietnam and China. A series of activities have been planned for this year to celebrate the 60th anniversary of Lao-Thai diplomatic relations, but the events have been low key so far. The two countries have a complex relationship; they are linguistically and culturally closer to each other than to any of their other neighbours, but they also share a history of conflict. Relations have improved in the past two years following the repatriation of Lao-Hmong refugees from a Thai camp, and Thailand is looking to strengthen its position in Laos as its relationship with Cambodia deteriorates, and as both Vietnam and China increase their investments in Laos.

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
IMPRINT