`A Textbook Case' Of Freeing Up An Economy...

Foreign aircraft still fly across Laos, using the same offices and hangars at Vientiane airport that the CIA-backed Air America Inc. used during the covert war against the Pathet Lao and the North Vietnamese more than two decades ago.

But the six helicopters available for hire these days from the New Zealand-owned Lao Westcoast Helicopter Co. aren't helping to crush insurgents: They're helping Laos's economic-development drive. For weeks at a time, the helicopters are used by foreign mining executives exploring for gold and other riches up-country. America's Newmont Mining Corp. and Australia's CRA Ltd. are two clients. Lao Westcoast reports that business is brisk even in the wet season, when flying is tricky.

The company is owned by Helicopters New Zealand, which has an exclusive five-year contract with the Laos government to hire out the choppers to anyone who can pay $900 per hour. The deal is just part of the $800 million the government has approved as foreign investment since the "New Economic Mechanism" was adopted in 1986. This was the same year Vietnam adopted doi moi, Hanoi's version of sliding from a command economy to capitalism.

REINED IN. As in Vietnam, Laos's economic reform crushed inflation, generated growth, and stabilized the currency. Further investment in infrastructure, especially roads in this country of about 4 million, should spur regional growth and trade. But Laos must tackle many problems, such as creating an internationally acceptable legal and commercial framework, if it is to realize its hopes of becoming a trading and financial hub linking Myanmar (formerly Burma), Cambodia, China, Thailand, and Vietnam.

Chi Do Pham, outgoing representative for the International Monetary Fund in Vientiane, says Laos serves as an example for the former Soviet bloc of how to shift from a command economy to a market system. "It's almost a textbook case," Pham says. Most prices in Laos are now determined by the market, economic decision-making has largely been decentralized, and a privatization program is in place.

The reforms have so far given autonomy to public enterprises, eradicated many of the controls on agricultural and retail prices, and encouraged the private sector. As a result, real annual output swelled by about 7% between 1989 and 1993, giving Laos an average annual per capita income of about $250. Inflation dropped from 76% in 1989 to 7% last year. "It takes two to five years just to stabilize the economy," Pham says.

Many foreign investors seem confident that a sustained economic takeoff is in the cards for Laos. "We are on the edge of something about to happen," says Bruce Boler, Laos manager of Australian telecommunications carrier Telstra.


Before anything major does occur, however, Laos faces the challenge of developing a banking and financial sector that can channel domestic savings into investment. The country still has a narrow export base--mainly primary products such as wood and power in the form of hydroelectricity that is sold to Thailand. The Mekong River system is what gives Laos the potential to become a major energy source. Two projects are under way: A Thai-Scandinavian consortium has agreed to build a $280 million dam and power plant on the Nam Theun River, while a government joint venture with Australian, French, and Thai interests has done a feasibility study on a $1 billion dam on the same river. Until they can be built, however, the biggest shot in the arm for Laos's economy could be a major find by one of the mining executives darting around the country by helicopter.

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