Laos: At the Crossroads

Introduction

There was no diversion in 2007 from the policy directions set down by the Eighth Congress of the ruling Lao People's Revolutionary Party (LPRP) in March 2006. The Lao People's Democratic Republic will remain a one-party state with old-style, Soviet-era political institutions, while encouraging free enterprise and foreign investment. The outcome has been a remarkable political stability, and an impressive economic performance. The economy has been booming at over 7 per cent growth for the past two years, due largely to massive foreign investment in the development of hydroelectric power and gold and copper mining as well as a rapidly expanding tourism industry.

According to the government's poverty reduction plans, the country, which now has a gross national income (GNI) per capita of approximately US$500, should by 2020 exit Least Developed Country (LDC) status —or countries with a per capita income of a three-year average of less than US$750, and some other criteria —and join the ranks of middle-income countries. So far, only two of the nearly fifty LDCs worldwide have managed to pass the threshold by leaving LDC status and moving on to a level whose lower limit of having a GNI per capita exceeding US$900 is required for obtaining the middle-income status: Botswana in 1994 and Cape Verde in 2007.

For Laos to "graduate" in a similar manner, it would have to achieve a more even distribution of wealth, improve education, and, perhaps above all, take stern measures against corruption. With more money in circulation and more goods available in the markets —combined with abysmally low salaries for civil servants —it is hardly surprising that the World Bank and other international financial institutions have urged the Lao government to tackle these problems. But corruption is not the only contentious issue.

According to an article released by the Asia Foundation on 14 December 2007:

Low civil service salaries are blamed the world over for encouraging corruption, mismanagement, and absenteeism. But now, with the number of mega-projects coming to Laos, like huge electric dams, it is [also] easier to increase one's income through completely legal means. Skilled individuals are simply taking jobs with international organisations and businesses running these projects, leaving government agencies and ministries with an acute shortage of high-calibre staff. Not coincidentally, the ministries in most need of experts in today's Laos —those concerned with natural resources, protecting the environment, financial management, and investment regulation, to name a few —are those in direct competition with the fastest growing private interests in the country.¹

This could result in what the Lao authorities fear the most: losing control over development strategies as well as parts of the population which it wants to remain within the confines of the established bureaucracy. With the urban population becoming wealthier, new social trends can also be discerned, which do not necessarily conform with the authoritarian ideals of the LPRP. Laos has no political opposition as such, but in the capital Vientiane and other urban centres, a new middle class is emerging, which sooner or later may be asking for participation or a higher degree of political pluralism than is the case today.

Even in the provinces, the authorities are worried about the influence of foreign non-government organizations (NGOs) and aid workers, who are empowering local, rural communities in a way that is perceived by some as a threat to the existing order. This will be the country's main dilemma before it achieves the goals of its "2020 vision": how to balance more openness and the influx of outside influences with the desire on the part of the ruling party to remain in control of most aspects of life and society in Laos. The land-locked country would also have to balance its relations with its more powerful neighbours, especially as China over the past year has considerably strengthened its economic and political influence over Laos.

Domestic and Social Issues

"Marxism-Leninism" as an ideology guiding economic policies is dead in Laos, but it remains a powerful tool to discipline civil servants and others and keep them in check. And significantly, while in the past, ideological training courses, which usually lasted for five months, were held almost exclusively in the Vietnamese capital Hanoi, these now take place mostly in Kunming in China's Yunnan province, which is bound to have domestic consequences as well, with different groups jockeying for power in Vientiane as well as the provinces.

At the same time, cultural influences from Thailand remain strong, as the Lao and Thai languages are closely related. Most Lao, at least in the Mekong river valley, watch Thai TV and read Thai popular magazines, which convey an entirely different cultural message. The irony is that most Lao, thanks to the Thai media, know more about Thai politics than that of their own country. In a carefully but skilfully worded article in the English-language Vientiane Times on 11 April 2007, a local journalist, Ekaphone Phouthonesy, wrote:

In the era of a free flow of information, it seems that the Party and government have no choice but to allow reporters to do their jobs with a greater measure of freedom. Otherwise the quality of Lao publications will suffer and the content will become uninteresting, resulting in apathy among readers. Without public regard for the media there will be no widespread awareness of Party and government policies.²

A foreign observer once described Laos not as a "land-locked but a land-linked country" with different economic, political, and cultural influences coming in from all directions.³ Vatthana Pholsena and Ruth Banomyong allude to this same description of the country in the title of their recent book, Laos: From Buffer State to Crossroads?⁴ Which way it chooses to go will affect the balance of power in the region. Recent changes in the top leadership may give some indication of possible rejuvenation of the ruling elite and the dilemma facing younger cadres in the Party, who cannot ignore the wishes of their older patrons.

The Eighth Party Congress in March 2006, and elections for the 115-seat National Assembly in May, paved the way for a new leadership to take over. The octogenarian former strongman, state and party leader Khamtay Siphandone, retired, and was replaced by Choummaly Sayasone, age 70. The much younger Bouasone Bouphavanh, born in 1954, was appointed Prime Minister, replacing Bounnyang Vorachit who assumed the largely ceremonial post as Vice-President. But even if younger leaders are allowed to take over, the new appointments are also a clear indication of the desire for continuity on part of the old leadership. Choummaly, a three-star general, is a former Vice-President and once Defence Minister and, like Khamtay, he comes from southern Laos —which is important in a country where patronage networks are often based on regional and family connections.

Bouasone, too, is a southerner and a protégé of Khamtay. But unlike many others in the top party and state leadership, he is, because of his comparative youth, not a revolutionary veteran. He was a teenage student activist before 1975, and took part in anti-government demonstrations at the time, but never fought with the guerrillas in the jungle. Bouasone was trained in the erstwhile Soviet Union and thus part of an entirely new generation of leaders.

Former Foreign Minister Somsavat Lengsavad, a protégé of the late LPRP President and founder of modern Laos, Kaysone Phomvihane, was appointed one of four Deputy Prime Ministers. Another Deputy Prime Minister was Thongloun Sisoulith, son-in-law of the late party ideologue Phoumi Vongvichit. Thongloun, who is also the new Foreign Minister, received higher education in the Soviet Union and is loyal to the old leadership. First Deputy Prime Minister and President of the State Control Agency Asang Laoly is a high-land Lao (Lao Soung) from the north and a former Interior Minister as well as Major-General in the army. Major-General Douangchay Phichit, another army stalwart, serves as Deputy Prime Minister and Minister for Defence. He is also ranked number nine in the Politburo of the LPRP, where six of its eleven members are also army officers, ephasizing the close relationship that exists between the state, the party, and the army.

The population of Laos is usually divided into three groups: Lao Loum ("Lao of the Plains", or Tai-speaking Buddhists who live in the lowlands); Lao Theung ("Lao of the Mountain Slopes", Austro-Asiatic or Mon-Khmer–speaking ethnic groups that live on the hillsides); and Lao Soung ("Lao of the Mountain Tops", hill peoples of various ethnic origins who live in the highlands). This diverse composition of the population has always been a challenge to the issue of national unity in Laos. Traditionally, the Lao Loum, who comprise just over 60 per cent of the population of 6 million, have dominated governments, before as well as after 1975. The Lao Theung comprises around 22 per cent, and the Lao Soung 9 per cent.

During the pre-1975 revolutionary war, many Lao Soung, especially from the Hmong ethnic group, fought with the U.S.-supported government forces against the communist Pathet Lao (literally "the Lao Nation", the LPRP-led guerrilla front that was allied with [then] North Vietnam). The legacy of that conflict still lingers, although the authorities, which have to approve all National Assembly candidates, have tried to achieve a more equal balance among the country's many ethnic groups. In the 115-member National Assembly, that was elected in May 2006, ninety-two come from the Lao Loum group, while the Lao Theung have seventeen members, and six are Lao Soung. However, during the Eighth Party Congress, Pany Yathotou, the daughter of the once-famous pro-Pathet Lao Hmong military leader Ya Tho Thu, was elected to the Party's Politburo, the first ethnic Hmong to be elevated to that position. She serves concurrently as Vice-President of the National Assembly. Another Hmong, Sayaboury provincial governor Sombat Yialiheu is a member of the Central Committee, and ranks number 13 in the Party's hierarchy, two steps below Politburo membership.

The ethnic issue received international attention when, in June 2007, the authorities in California arrested Vang Pao, a 77-year-old Hmong general who had led the Central Intelligence Agency-supported hill-tribe army in Laos before 1975 and later settled in the United States. He was accused of masterminding a violent plot to overthrow the Lao government with arms and equipment that were ready to be shipped to Thailand. Eight others were also arrested and charged for violating the federal U.S. Neutrality Act; among them was former California National Guard, Lt.-Col. Harrison Ulrich Jack, a 1968 West Point graduate who was involved in covert operations during the Vietnam War. The other seven were all Hmong from Laos, who had been resettled in the United States after the end of the war. The criminal complaint said Vang Pao and the other defendants plotted an insurgent campaign, "by violent means, including murder, assaults on both military and civilian officials in Laos and the destruction of buildings and property".⁵

The arrests outraged Hmong communities in the United States and some security veterans who had worked with them during the war, and in July, Vang Pao was released on bail. But the events in California had repercussions in Thailand, where the government, fearful of upsetting relations with Laos, announced that it would forcibly repatriate thousands of Hmong refugees, mostly from a temporary camp in Phetchabun province. Now totalling about 8,000, their number has swelled in recent years by fresh arrivals, indicating that all has not been well in the Lao mountains. Although the Hmong insurgency, which simmered on throughout the 1980s and into the 1990s, now is more or less over, there are reports of occasional skirmishes and ambushes involving hill-tribe bands, mostly in the area around Phou Bia mountains south of the Plain of Jars, and near the town of Kasi on the main road between Vientiane and Luang Prabang.

However, a more pressing problem in the countryside than the low-intensity ethnic insurgency is the widening economic gap between rural and the newly rich urban areas. As late as in 1999, official statistics from the State Planning Committee showed that "remittances from abroad" was the single most important source of income in the Vientiane valley, representing 28 per cent of all household earnings, compared with 25 per cent from agriculture, 22 per cent from wages, and 18 per cent from business. After the communist takeover in 1975, nearly 10 per cent of the population left the country, and settled primarily in Australia, the United States, and France. For years, these expatriates supported their poorer relatives in Laos, but, in recent years, remittances have almost ceased. Living standards have increased in urban areas, and the expatriates become weary of sending money "home". Instead, the now thriving economy in Vientiane and some other towns has begun to attract people from the much poorer countryside, imposing stresses on the urban environment.

Laos is experiencing an urbanization rate of 4 to 5 per cent per annum, which has caused problems not only in Vientiane but also in smaller provincial centres. According to UN-Habitat: "The high percentage increase in secondary towns is creating additional burden on the local authorities for providing basic infrastructure. Nearly two-thirds of a total of 145 district towns do not have access to safe water. Water supply and sanitation coverage in secondary and district towns remain a major concern for the Government."⁶

Apart from providing water and other services for the increasing urban population, lack of employment opportunities is another problem, despite the economic boom. Many unemployed youths have turned to glue sniffing, drugs, alcohol, and prostitution, adding to the country's social problems. The geographical and linguistic proximity to Thailand has to some extent served as a social safety valve; an estimated 200,000 —no one knows the exact figure as it is often hard to tell a Lao from a Thai —have gone to Thailand seeking employment in factories, construction sites, the fishing industry, entertainment venues and even the sex industry. Although the main push factor is the lack of jobs at home, growing materialism among the (not always severely impoverished) urban Lao youth is also a driving trend.

At the same time, an increasing number of Chinese and Vietnamese are arriving and settling in Laos, with the number of Chinese being especially high in the northern provinces and Vietnamese in the south. Overpopulation in Vietnam and lack of employment opportunities in China are seen as major reasons for this new wave of migrants into Laos. According to one foreign journalist covering Laos:

One telling example [of this trend] is the thousands of Chinese who have come to work on the Asian Development Bank-funded Route 3 in northern Laos that runs from the Chinese border, through the Lao town of Luang Nam Tha, and down to the Thai border. Many of the workers have stayed on and opened shops or found other work after their construction contracts ended.⁷

That particular highway will have a fundamental impact on the economic balance in the entire region, as it, when finished, will be China's main overland connection with Southeast Asia. Then Laos will become China's gateway to the region. It crosses the Chinese frontier at Boten in northwestern Laos and reaches the Mekong river at the Houei Xai ferry crossing opposite Chiang Khong in Thailand, where a bridge is being planned as well.

Foreign Relations and Investment

The changing nature of Laos' international allegiances is reflected in the history of three apartment blocks on the road to Vientiane's Wattay airport. Built in the early 1970s to accommodate operatives of the CIA and other American advisers, the buildings were taken over by Soviet experts and technicians when the communists took over in December 1975. Today, they are called the Mekong Hotel and Apartments and cater to a mainly Chinese clientele. One floor houses the Beijing Restaurant, with signs in Chinese, Lao and Roman script, and a nightclub with a karaoke bar.

China's profile and influence in Laos have been growing steadily since the two countries, on 11 June 1997, signed an agreement to establish a joint Commission on Economic, Trade and Technical Cooperation. This was a major step away from the hostility of the 1980s, when Laos was a close ally of China's then rival Vietnam. At that time, some middle-ranking Lao cadres defected to China, and Beijing provided propaganda support and training facilities in Yunnan for the Lao anti-government insurgency. As a sign of the new times, China had built a huge Natural Culture Hall in downtown Vientiane, ostensibly in traditional Lao style.

Over the past ten years, China has also become a major investor in Laos with 236 projects worth around US$876 million, a considerable increase from a mere US$3 million worth of investment in 1996. The total Chinese direct investment approved by Laos' Committee for Planning and Investment up to August 2007 amounts to US$1.1 billion, second only to Thailand's projects worth US$1.3 billion. About 32 per cent of the Chinese investment was in hydropower, and Chinese companies have been granted concessions to mine for gold, copper, iron, potassium, and bauxite. Vast tracts of land in Laos have been farmed out to China for rubber plantations.

China's assistance to Laos since 1997 has reached nearly US$500 million in grants, interest-free loans, and special loans. In November 2004, China beautified the park around the Vientiane landmark Patouxay, the capital's Arch of Triumph, and is currently constructing a new sports stadium in preparation for the South-East Asian Games, which Vientiane will host in 2009. Three thousand Chinese workers have been employed for the project, and they have become noticeable in the streets of the capital.

According to a report in the Vientiane Times: "Special loans from China have been used for the establishment of the Lao Telecom Company and Lao Asia Telecom, a cement factory, and the purchase of two MA 60 aircraft for Lao Airlines, as well as several e-government projects".⁸ The Chinese ambassador in Vientiane now participates regularly in donors' meetings and plays an active role in the social life of Lao-based diplomats. A part of Vientiane is now nicknamed "Little Kunming" and, on 8 August 2007, Chinese investors opened the "China Market" near the city's airport, where merchants from China man the stalls and Chinese goods of all kinds are on sale.

This development has not gone unnoticed in Vietnam, and to alleviate possible fears of a shift in foreign allegiances, the Lao media have over the past year almost suspiciously overemphasized the country's friendship with Hanoi. The 1977 Treaty of Friendship and Cooperation between the two countries is mentioned repeatedly and, symbolically, a stylistic painting showing Lao and Vietnamese soldiers and civilians linking arms under national flags and leaders won first prize in an art competition in Vientiane on 19 September 2007, the twentieth anniversary of the signing of the Treaty. Lao TV now shows endless meetings between Lao and Vietnamese dignitaries, and programmes about the "everlasting friendship" between the two countries.

But trade with Vietnam is also brisk and should not be overlooked. Vietnam actually ranks third after Thailand and China among thirty-seven different countries that have invested in Laos. Official statistics show that total Vietnamese investment in 106 different projects reached US$517 million in May 2007. The bulk of the investment is in mining, hydropower, agriculture, timber, and pharmaceuticals. Vietnam, like China, has also shown interest in establishing rubber plantations in Laos. The state-owned Vietnam Rubber Group plans to invest US$30 million to develop a 10,000-hectare rubber plantation in the southern Champassak province. Electricity Vietnam is planning projects in Laos as well as in another neighbouring country, Cambodia.

Thailand's interest in Laos lies mainly in its huge hydropower potential. The expanding Thai industrial sector needs electricity, and a major future supplier of energy is expected to be the Nam Theun II dam in Laos, a 1,070 MW hydropower project with a construction cost of US$1,250 million plus US$331.5 million for contingency. The mega-project, which is underwritten by the World Bank, covers three Lao provinces: Bholikhamsay (dam area), Khammouane (reservoir power plant, channel, roads), and Savannakhet (transmission line into Thailand), and it is expected to start delivering 95 per cent of its electricity to Thailand in 2009. Thailand also has a direct interest in the development of the project as the Nam Theun II Power Company Limited (NTPC) is a consortium consisting the Electricity Generating Public Company (EGCO) of Thailand (25 per cent); Electricité de France International of France (25 per cent); Italian Thai Development Company of Thailand (15 per cent); and the government of Laos (25 per cent), represented by the Lao Holding State Enterprise (LHSE).

Nam Theun II is the largest ever foreign investment project in Laos, the world's largest private sector hydropower project, and one of the largest internationally-financed independent power producer projects in Southeast Asia. The Lao government will get tens of millions of dollars annually in royalties, taxes and dividends, and it will be transferred free of charge to Laos after twenty-five years of operation by the NTPC. If the income is used wisely, it would help alleviate poverty in Laos, and help it achieve its 2020 goals. But, as the World Bank has pointed out, Laos has to improve "public financial management and auditing … [which are] key elements in strengthening governance and combating corruption".⁹

Other Thai interests in Laos include hotels and tourism, and the trade in raw materials and consumer goods. According to Thai Ministry of Commerce figures, from January through September 2007, Thailand imported goods —minerals and timber —from Laos worth US$48.8 million while Thai exports to Laos —mainly consumer goods and construction material to the dams —were valued at US$882 million. To further strengthen relations, in December 2007 the Thai Government announced that it was going to build a third "Thai-Lao Friendship Bridge" across the Mekong river, connecting Nakhon Phanom in Thailand with the Lao province of Khammouane. The first bridge, near Vientiane, was opened in 1994, followed in December 2006 by a second bridge linking Savannakhet with Thailand's Mukdahan province. But despite the close cooperation between the two countries, problems remain. Parts of the border between Laos and Thailand are still undergoing formal demarcation, and refugees and migrant labour from Laos also continue to complicate relations.

Laos relations with Western countries is mainly in the form of bilateral aid and multilateral assistance through the World Bank and the Asian Development Bank, although one of the major donors, Sweden, announced in August 2007 that it was going to discontinue its projects in the country. Sweden has been a development partner in Laos since the end of the war in 1975, but when a new centre-right government took over in Stockholm in October 2006, it made clear that it would not be interested in providing assistance to non-democratic, one-party states.

The United States continues to look for those missing in action (MIA) from the war in Laos, and provides limited assistance to an opium eradication programme in Phongsaly in northeastern Laos. Australia plays a more active role with investment in mining as the main priority. According to Australian government figures, Oxiana Resources of Australia and Pan Australian Resources' gold and copper projects together will "probably contribute about 10 per cent of Lao GDP by 2008".¹⁰ But Laos belongs now very firmly in the Asian camp and the economic independence it will achieve when revenue from Nam Theun II starts coming in will make it even less dependent on Western aid and trade and pressure to reform.

The Future

Overall, Laos has shown a robust economic growth in recent years, for which it has been praised by the World Bank as well as the Asian Development Bank. The Lao government has identified five development priorities, which it hopes will bring poverty in the country to an end: hydroelectric power, mining, construction material, agriculture, and ecotourism. The dark days of the late 1990s and early 2000s, when Laos seemed mired in economic stagnation, appear to be over.

However, unsustainable natural resource management practices are still causing significant environmental damage. For example, according to the World Bank, the country's forest cover has declined from 70 per cent to 43 per cent over the last fifty years, largely due to clearing of lowland forest for permanent agriculture and unsustainable logging. Seventy per cent of the population also live on less than US$2 per day.¹¹ The country's wealth remains in the hands of relatively few, and the richest persons in the country all belong to, or are relatives of, the ruling State and Party elite.

Corruption remains a major impediment for more equitable economic growth, but little is done to curb it. Officially, the government is committed to good governance, but, to date, not a single top Party leader has been taken to court —unlike Vietnam and China, where corrupt officials are often identified publicly and prosecuted. The reason could be that, so far, the wealth has been distributed reasonably equally within the elite, so people in power have had no strong incentive to censure other officials for wrongdoings. And without such measures taken by someone at the very top, no action is likely to happen.

A main challenge for the immediate future will be how to absorb the millions that the Nam Theun II mega-project will bring in and that is supposed to be followed by several, similar hydropower projects. One foreign observer in Vientiane described the present situation in the country as "a stable interregnum". When the cake becomes even bigger, rivalries are bound to erupt, which he argues may lead to purges and even a power struggle. How the Party will handle that situation remains to be seen.

There is also the question of grass-roots development, and different sections of the government have already showed that they do not share the same views. A fairly well publicized example of this occurred in Luang Nam Tha province in early 2007. In January, Sompawn Khantisouk, the owner and manager of the Boat Landing, a small eco-lodge in a rural area, was abducted by men believed to be local police officers. He has not been seen since, and it was widely assumed by the Western media that he was some kind of ecological activist who had been "punished" for working with local villagers to tempt them away from Chinese-sponsored rubber plantation projects in the area, that encroached on national protected forests. The abduction of Sompawn received international attention because the Boat Landing is mentioned in most travel guide books to Laos and has won several awards for its contribution to environmentally sound, sustainable tourism. Even the Lao government had held it up as an example as ecotourism is one of its development priorities.

However, a more likely explanation is that the Boat Landing had an American partner and local security authorities were not pleased with foreigners running projects and businesses in remote rural areas. At about the same time, at least two foreign NGOs were ordered out of the province, and Sompawn was not the only local person with Western links who disappeared mysteriously.

As a legacy of the war, the Lao government remains weary of uncontrollable Western influences. According to one Asian writer: "On the one hand, the government welcomes the foreign revenue from tourism, while on the other it fears the security implications of allowing tourists to wander at will at the country".¹² Officials concerned with development usually tend to be somewhat more accommodating to foreigners, while security personnel are not.

Western aid may be decreasing in overall importance, but some foreign NGOs do empower local communities by teaching them basic democratic practices, which the security services see as a challenge to the sole moral authority of the Party. Therefore, remote provinces such as Luang Nam Tha had to be "cleansed" of foreign, especially Western, influences. On the other hand, wealthy Chinese tourists coming to the newly opened casino on the Lao side of the frontier at Boten would bring in only money, not new, potentially dangerous ideas, so they remain welcome. That is the main lesson of the abduction of Sompawn, people with connections in Luang Nam Tha say. The authorities had to set an example.

On a more national level, the government has a similar dilemma. Laos is facing a skilled labour shortage with no remedy in sight —unless it employs more outside experts. The Asia Foundation has pointed out that Laos has only one university, which opened just eleven years ago. Prior to that, students were sent to the Soviet Union, Bulgaria, Poland, and other Eastern Bloc countries for higher education. Their education is of little relevance in today's Laos, and the new number of indigenously educated students is insufficient. When the National University of Laos enrolled its first batch in 1996, there were just over 8,000 students. Today there are nearly 27,000, but, the Asia Foundation says, the shortage of human and economic resources pose constant challenges, and most faculty members have no degree beyond bachelor's level. With the country's relatively few skilled individuals preferring to work for foreign private enterprises —and in Laos, university professors are also underpaid government employees —it is hard, according to the Asia Foundation, "to imagine how departments like engineering, natural sciences and business, will be able to keep their best and brightest teachers, all but eliminating the mechanism for building a future generation of capable Lao professionals".¹³

The government can either dramatically raise the salaries of Lao professors and technocrats, or employ more foreigners to fill the gaps —and hope that foreign donors will pay for their much-higher expatriate salaries. Either way, the old-style government will sooner or later be faced with its worst fear: to lose control, and see a new generation of independently minded people running enterprises and setting economic development agendas. The Lao Party and State have arrived at a crucial crossroads, and the twin powerholders can either shed some of their increasingly outdated ways and move forward —or resist change, and hope for the best, when a new set of problems and challenges inevitably arise in the wake of the country's rapid economic progress and social transformation.