The Nation / 21 June 1998  

Isolated Laos feeling pain of Asian economic contagion: 
report  

   BANGKOK, June 21 -- Isolated Laos is feeling the sting 
of globalisation as the Asian economic crisis spills over 
the borders of the tiny, land-locked country, a report by a 
major Thai research centre has warned.
   Efforts by Lao authorities to stabilise the kip currency 
were failing and the country had little hope of emerging 
unscathed from the crisis which has swept the region since 
being sparked by last July's float of the Thai baht, the 
Bangkok-based Thai Farmers Bank Research Centre said in a 
report received over the weekend.
   "The measures taken by the Lao government cannot make 
the kip stable," it added. The report said dwindling 
overseas investment, low foreign reserves, a sharp decline 
in border trade with neighbouring Thailand, and a heavy 
reliance on loans and aid meant Laos could not isolate 
itself from regional woes.
   "When you take into consideration the fundamentals of 
the economy, which is still very weak, the kip will remain 
weak during the second wave of the crisis in the region," 
the research centre said.
   Analysts and observers have been warning a second wave 
of regional economic and financial turmoil is sweeping 
across Asia, causing currencies and stockmarkets to plumb 
new depths.
   The Lao currency has been trading at record lows of 
about 3,400 units to the dollar, down nearly 75 per cent 
from a year ago.
   As the kip has declined, the government has introduced a 
range of measures to stabilize the unit, including halting 
the sale of foreign currencies by banks and imprisoning 
blackmarket dealers.
   In early June authorities announced that foreign 
currencies could only be purchased by businesses registered 
in Laos in an effort to control speculation and currency 
flows.
   The move followed a ban on the use of foreign currencies 
in trade last June, but the use of the Thai baht and the 
dollar in every-day business transactions remains 
widespread.
   Both measures backfired by effectively bringing an end 
to the local foreign exchange market, stimulating the 
reemergence of a thriving black market for currencies, the 
research centre report said.
   Nearly 50 per cent of Lao imports come from Thailand, 
and recent volatility in the baht-kip exchange rate has 
made importers wary of being unable to sell their fresh 
produce, leading to shortages in Vientiane, a diplomat 
said.
   The introduction of 5,000 and 2,000 kip banknotes, 
(previously the highest denomination was 500 kip) sparked 
fears of renewed inflation and further speculation against 
the kip, observers say.
   Laos has also ordered limits on some imports, such as 
motorcycles, in an effort to reduce demand for foreign 
currencies and the outflow of capital from the economy.
   But the research center cautioned that despite being 
less exposed to global and regional economic and financial 
turbulence than many neighbouring states, Laos could not 
escape realities, particularly as its economy was so 
dependent on that of Thailand, one of the hardest hit 
countries in Asia.
   The report pointed to a dramatic slump in foreign direct 
investment approvals, from a peak of about 1.2 billion 
dollars in 1995, to 972 million in 1996, and 150 million 
dollars in 1997.
   For the first quarter of 1998, investment approvals 
worth some 65 million dollars have been made, of which 57 
million dollars, or nearly 90 per cent, has come from 
Thailand.
   The report added that about half the approved Thai 
textile projects in Laos were currently on hold due to the 
economic slump.
   Only three million dollars has trickled in from 
Malaysia, the country's second biggest souce of foreign 
investment in the first quarter, while China has injected 
900,000 dollars and South Korea 580,000.
   Laos largely depended on 58 million dollars in foreign 
loans for 1997 budget and was burdened with 2.3 billion 
dollars in overseas debt at the end of that year.
   Much of the loaned funds arrive via the Asian 
Development Bank, but its sources in major regional 
economies are also feeling the pinch, the report said.
   Weak foreign reserves of 190 million dollars, equivalent 
to 3.5 months of imports, compound the problems and the 
International Monetary Fund has warned the figure is too 
low to withstand a second wave of the crisis, it added. 
(AFP)