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2016—a big year for Laos


This year will be an important year for the Lao People’s Democratic Republic (PDR).  Laos is among Asia’s smallest and poorest nations, but is also one of the world’s fastest growing economies.  In January, the communist Lao People's Revolutionary Party (LPRP), from which the country’s secretive ruling elite is drawn, completed its tenth party congress and chose Mr Bounnhang Vorachit, 78, as its new leader.  

Mr Bounnhang is a former vice-president who also served as prime minister from 2001 to 2006 and as finance minister between 1999 and 2001. National Assembly elections will take place in early 2016 and the new Assembly will formally approve a cabinet and prime minister, as well as a president and vice president.  Thongloun Sisoulith, a current deputy prime minister and the foreign minister, is expected to take up the post of prime minister.  These changes follow reports of high-level corruption probes involving the former finance minister and of disagreements within the Party over the direction of the country’s relationship with China.  The predictably opaque leadership transition has also been accompanied by two confirmed attacks against Chinese workers in recent months.  An expanded US travel warning for Laos cites a series of recent shootings along a popular tourist route and notes ‘the unpredictable nature of the violence and the lack of official information regarding possible motives or a Lao government response’.

With a population of around 6.8 million and an estimated Gross National Income (GNI) per capita of US$5,060, Laos is richer than neighbouring Cambodia (US$3,080), but poorer than Vietnam (US$5,350) and Thailand (US$14,870).  According to the United Nations (UN), the proportion of Laos’ population living in poverty remains above 20 per cent.  

GNI per capita­­, 2014 (USD, PPP)

 

GNI per capita in PPP dollars

Source: World Bank

 Nevertheless, Laos is on the move. The Economist predicts that Laos will be among the world’s fastest growing economies in 2016, with annual growth forecast at over seven per cent.  Much of this growth is expected to be generated by Lao’s natural resource sector, foreign investment and concessional aid, a young labour force, growing tourism, and more controversially, the continued expansion of its hydro-power sector.  Under the country’s new five-year development plan, the government has reaffirmed its aspiration to graduate out of the UN’s class of least developed countries by 2020. 

Laos will chair the meetings of the Association of Southeast Asian Nations (ASEAN) in 2016, including the East Asia Summit (EAS).  As chair, Laos will need to work hard to maintain ASEAN unity with regard to the worsening territorial and maritime disputes in the South China Sea, disputes which involve two of its closest neighbours, China and Vietnam.  Laos will aim to avoid a repeat of the 2012 ASEAN foreign ministers meeting.  That meeting, chaired by Cambodia, saw ASEAN members unable to agree on a joint statement for the first time amid allegations that China had pressured Phnom Penh to block consensus language referring to the disputes. 

This is not a new challenge and Laos’ incoming leaders will likely draw upon the country’s long history of balancing the influence and interests of its two fraternal communist regimes.  Vietnam, one of the central protagonists in the South China Sea, has very close links to the LPRP going back to the Lao civil war and the revolution of 1975, while China has used growing trade and investment ties with Laos to advance its influence over the last decade.  As one expert has observed:

the Lao political leadership has been proficient in balancing friendly relationships with both China and Vietnam, and there is broad agreement that this balance must be maintained—just as there is general agreement that Laos should also maintain friendly relations with other ASEAN states, notably Thailand; with Japan, still the principal donor of foreign aid; and with the West. 

These latter relations have continued to grow, partly as a counter to China’s increasing influence. They remain constrained, however, by US and European concerns over Laos’ human rights record, endemic corruption, and the negative environmental consequences arising from the construction of large hydropower dams on the Mekong River.  US Secretary of State, John Kerry, visited Laos in January, ahead of the recent US-ASEAN Summit in California and President Obama’s expected visit in September.  While Secretary Kerry announced several new aid programs, he also raised ongoing human rights issues, including the alleged forced disappearance three years ago of local agronomist and civil society activist, Sombath Somphone

Australia and Laos celebrated the 60th anniversary of bilateral relations in 2012—‘the longest unbroken diplomatic relationship between Laos and another country at ambassador level of any country’.  Concerns over human rights abuses have not impeded the development of diplomatic, trade, and aid ties.  Since 2006, these concerns have been discussed through a bilateral human rights dialogue, a mechanism that, according to a 2012 Australian parliamentary committee inquiry, needs clearer benchmarks against which to assess achievements and effectiveness. 

Australia is providing  support for Laos’ chairing of ASEAN in 2016. Australia’s bilateral aid program has, however, contracted in recent years as part of the Coalition government’s overall reductions in development assistance.  The Australian Government has stated its intention to move out of the rural development sector and to consolidate its aid investments into basic education, human resource development, and trade and business environment reform.  According to DFAT’s most recent report on aid to Laos, this will include an ‘almost complete withdrawal’ of Australia’s support for the identification and clearance of Unexploded Ordinance (UXO) in rural areas.  

Australia’s bilateral aid to Laos: 2001–02 to 2015–16 (AUDm, current prices)

 

Australian bilateral aid over time (current prices): Laos

 Source: Australian Aid Tracker, Development Policy Centre, ANU

 

 With Laos in the regional spotlight in 2016, we can expect this and other aspects of the bilateral relationship to attract some prominence over the coming months.

 

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