Laos needs prescription for a healthy economy
Laos needs prescription for a healthy economy
Laos must take serious action to strengthen the health of its economy as the country is now at risk of infection with so-called Dutch Disease, a senior economist has warned.
Dutch Disease is the apparent relationship between an increase in the exploitation of natural resources and a decline in the manufacturing sector. The theory is that the increasing revenue earned by a country from its natural resources raises the value of its currency and so makes the price of its exports too high for other nations to buy.
Director General of the Lao National Economic Research Institute, Dr Liber Leebouapao, said on Thursday the institute is conducting a study on the likelihood of Laos developing this economic disease. It is well known that most resource rich nations cannot avoid being infected with this ailment.
According to the Institute, Laos' economic growth is largely based on the exploitation of natural resources as half of all national inc ome and investment revolves around the natural resource sector, including mining.
Since Laos began to develop its natural-resource based industry in 2003, the value of the kip has increased from 10,000 kip per US dollar to 8,000 kip per US dollar. The rising value of the kip has already hurt exporters, especially garment manufacturers.
Dr Liber said Laos needs to provide incentives to attract foreign investment in non-resource sectors to ensure that economic growth is sustainable, pointing out that one day the country's natural resources will be depleted.
He said there are many ways to help non-resource exporters to survive, despite the rising value of the kip and the stronger competition that will inevitably arise when the Asean Economic Community comes into being in 2015.
Dr Liber suggested that one way was to provide tax incentives to exporters. This would lower their production costs and enable them to sell goods on regional markets at a competitive price. Another form of assistance would be to issue low interest loans to exporters.
Other officials have recommended that Laos should reinvest the revenue generated by the resource sector in education, health and infrastructure development. This would create a better business and investment climate in the country.
The Ministry of Industry and Commerce has named nine sectors that have export potential and can benefit from the country's membership in the World Trade Organisation and future participation in the Asean Free Trade Area.
These sectors are hydropower, tourism, organic agriculture, minerals, garments, and silk and cotton handicrafts. Wood products, medicinal plants and locally produced goods are also on the list.
vientiane times
