Laos - Introduction

Laos is a landlocked, sparsely populated, mostly mountainous country located on the Indochinese peninsula. Why was Laos of importance to the United States? A statistical summary of Laos is singularly unimpressive. As the prominent Southeast Asian scholar Bernard Fall observed, Laos was "neither a geographical nor an ethnic or social entity, but merely a political convenience." Yet, these very factors brought Laos to the forefront of international concern and attention. In the jittery post-World War II world, remote Laos would become the locus of a major cold war struggle.

In December 1975, with the declaration of the Lao People's Democratic Republic (LPDR, or Laos), the king abdicated. The Lao People’s Democratic Republic is an authoritarian state ruled by the only party that the constitution legitimizes, the Lao People’s Revolutionary Party (LPRP). The Lao People's Revolutionary Party is the only legal political party in Laos. Although Laos was reorganized as a communist "people's democracy," important vestiges of traditional political and social behavior remained.

Since the LPDR was proclaimed in December 1975, its leadership has been remarkably stable and cohesive. The record of continuous service at the highest ranks is equaled by few, if any, regimes in the contemporary world. Laotian leaders have an equally impressive record of unity. Although outside observers have scrutinized the leadership for factions--and some have postulated at various times that such factions might be divided along the lines of MarxistLeninist ideologues versus pragmatists or pro-Vietnamese versus nationalists (or pro-Chinese), there is no solid evidence that the leadership is seriously divided on any critical issues.

Relations with Vietnam had secretly set the strategy for the LPRP during the struggle to achieve full power, and the "sudden" opportunity to establish the LPDR in 1975 left no leeway to consider foreign policy alignments other than a continuation of the "special relations" with Vietnam. The Vietnam-Laos relationship was the common invaluable treasure of the two nations and an important element ensuring the success of the revolutionary cause of each country, said a joint statement issued on 22 June 2011 in Vientiane, Laos.

Laos is a landlocked country with an inadequate infrastructure and underdeveloped human resources. The country's per capita income in 2011 was $1010. Agriculture, mostly subsistence rice farming, dominates the economy, employing an estimated 75% of the population and producing 33% of GDP. Laos to relies heavily on foreign assistance and concessional loans as investment sources for economic development. In 2010, donor-funded programs accounted for approximately 8.5% of GDP and 90% of the government’s capital budget.

Modern-day Laos has its roots in the ancient Lao kingdom of Lan Xang, established in the 14th Century under King Fa Ngum. For 300 years Lan Xang had influence reaching into present-day Cambodia and Thailand, as well as over all of what is now Laos. After centuries of gradual decline, Laos came under the domination of Siam (Thailand) from the late 18th century until the late 19th century when it became part of France's Indochina colonies. The Franco-Siamese Treaty of 1907 defined the Lao border with Thailand that persisted for the next century and beyond.

The country was occupied by Japan and Thailand during the Second World War, with Thailand agreeing to withdraw from areas it occupied following the secession of hostilities. Following independance from France in 1949 and the Geneva Accords in 1954, which declared Laos' neutrality, the country proceeded to go from one political crisis to the next. A civil conflict between various factions persisted in the background, despite three coalition governments existing between 1949 and 1975. US intervention, including covert intervention utilizing ethnic minorities in the country added an additional dynamic, and drew the country into the regional conflict.

The government of Laos began decentralising control and encouraging private enterprise in 1986. A gradual, limited return to private enterprise and the liberalization of foreign investment laws began in 1988, and Laos became a member of ASEAN in 1997.

The results, starting from an extremely low base, were striking - growth averaged 6% per year from 1988-2008 except during the short-lived drop caused by the Asian financial crisis that began in 1997. Despite this high growth rate, Laos remains a country with an underdeveloped infrastructure, particularly in rural areas. It has no railroads, a rudimentary road system, and limited external and internal telecommunications, though the government is sponsoring major improvements in the road system with support from Japan and China. Electricity is available in urban areas and in many rural districts. Subsistence agriculture, dominated by rice, accounts for about 40% of GDP and provides 80% of total employment. The government depends upon aid from international donors for over 80% of its capital investment.

The economy has until recently benefited from high foreign investment in hydropower, mining, and construction. The fiscal crisis of late 2008, and the rapid drop in commodity prices - especially copper - has slowed these investments. Several policy changes since 2004 may help spur growth. Laos is taking steps to join the World Trade Organization. Economic prospects are improving gradually as the administration continues to simplify investment procedures and as a more competitive banking sector extends credit to small farmers and small entrepreneurs. The government appears committed to raising the country's profile among investors. Foreign donors have praised the Lao government for its efforts to improve the investment regime. The World Bank has declared that Laos' goal of graduating from the UN Development Program's list of least-developed countries by 2020 could be achievable.