Lao PDR

Session II
Strengthening cooperation between FEALAC  members countries in the process of transforming the growth model

Potential transforming growth models for FEALAC

At the global level, the environment has rapidly undergone complex challenges resulted by financial crisis, economic recession, food scarcity, energy shortage, natural disasters, disharmony and instability, all of which have threatened human being and decelerated growth in many countries in the world, including the East Asia and Latin America regions. Although there is a recovery from the world financial crisis, it is not sufficient employment, social cohesion and adequate growth rates for all economies, especially for FEALAC member countries.

Against this back drop, it is believed that restructured economy and growth model transformation would be feasible for sustainable development and would be a new potentiality for sustained growth for economies of FEALAC member countries. Therefore strengthening cooperation between FEALAC member countries in transforming the growth model is a key factor for addressing the global and regional economic challenges and exploring common measures towards global, regional and national sustainable development.

In this regard, there are some recommendations on potential cooperation fields among FEALAC member countries, in transforming the growth model as follows:

• FEALAC member countries to strengthen cooperation based on mutual respect for and recognition of rich variety of cultures and traditions and the level of Economic development,
• Continue sharing of experiences, know-how and best practices on sustainable development , including sharing experience in effective management of macro economy, sustained economic growth and poverty reduction,
• Cooperate to support and respond to the needs of less developed countries for attainment of MDGs, human resources development and poverty alleviation,
• Promote foreign investment between FEALAC member countries by sharing information on investment laws and regulation and incentives, and organizing investment road shows in both regions,
• Promote people-t0 people exchange of Government officials, experts and youth to share view and learn more best practices in sustainable development,
• Emphasise the importance of effective governance and leadership in building consensus behind policies designed to produce improvements of livelihoods of people by choosing the right models and strategies for growth.
• Stress the importance of competent management of the macroeconomic environment in such a way as to promote domestic and foreign investment.

• Promote high level and effectiveness of saving and investment, especially public and private sector investment.
• Also promote resources mobility, particularly labour mobility, combined with rapid creation of new productive employment.

In addition, it is important to note and appreciate the assistance of international and regional organisations such as the Asian Development Bank (ADB), the Inter-American Development Bank (IDB), the World Bank (WB), the Economic and Social Commission for Asia and Pacific, the Economic Commission for Latin America and the Caribbean (ECLAC) and the ASEAN Secretariat. These organisations were encouraged to play a greater role in the FEALAC process by promoting cooperation, enhancing socio-economic development and contributing to the process of growth model transformation for East Asia and Latin America regions.

I. Success and challenges of socio-economic growth in the past and future direction of socio-economic development of the Lao PDR

The socio-economic development in the Lao PDR has been growing steadily at average of 8% annually, foreign direct investment has increased by more than 30% and the poverty reduction target has been met, thus gradually improving the livelihood of the Lao multiethnic people. These positive developments have laid a solid foundation for attaining the MDGs by 2015 and created conditions conducive for the country for graduate from LDC status by 2020. All this success has been due to the right policy and the timely measures undertaken by the Lao Government and the decisive factors of political stability and social order thus creating enabling suitable environment for national social economic development over the past years.

2.1   Lesson Learnt of the implementation of the 6th Five-year National Socio-Economic Development Plan (NSEDP, 2006-2010)

1). Domestic and international funds mobilisation in an effective and transparent manner is the main driver in socio-economic development.

- Any agency, province or business unit able to mobilise resources can effectively implement plans and projects and also mobilise additional resources from other sources. The experience of Lao PDR in resource mobilization for the Sixth Five-year Plan and getting assistance to combat the global financial crisis and the natural disaster in 2008 without compromising its sovereignty and economic independence, and yet integrating with the region and the larger world economy, suggests that Lao PDR has the prowess in such activities.

- During the past five years, internal resource mobilisation has been a decisive factor in ensuring development, stability and national security. This is not to say that external funds are not important: both, external and internal resource mobilization and effective utilization of these are important factors in the development of the national economy.

- Mobilization of internal resources must be parallel to human resource development, and this should include persons from all ethnic communities. Next, the exploration and utilization of natural resources must be sustainable, and the deals and operations transparent.

- Three decisive factors in resource mobilization are government policy, effectiveness of projects, and market response.

2).  Transition through industrial restructuring and modernisation should be consistent with the potential in each sector and location. Including all sectors in an economy can promote faster and more inclusive economic growth, and bring about change.

- Managing economic transition is one of the most important factors in strengthening any economy. To ensure industrial restructuring and modernisation, it is essential to sustain economic growth and its direction. The government is actively engaged in establishing strategic plans, programmes and projects to encourage all sectors of the economy to play an active role to effect an economic transition and develop provinces based on principles of a market economy, under the overall control of the government.
- Economic transition must run parallel to domestic market development in order to raise production and standards of living. During the period when the access to international markets is limited due to inadequate economic integration, domestic markets must be developed sustainably for the local producers to sell their products. This will require raising people’s purchasing capacities, which is possible through promoting employment in agricultural and non-agricultural sectors (including seasonal jobs), which fetch people sufficient incomes.

3).   Regional and international economic integration on the basis of economic sovereignty, increased competition, and achieving both quality and quantity

- Economic integration is very important for Lao PDR since the country would deeply benefit from such integration. However, the country must be ready in all aspects to ensure effective integration. It should open its doors to international markets for increasing exports and also expand domestic markets; e.g. acquiring advanced technologies and experiences from others to enhance the competitiveness of domestic business enterprises.
- There should be political and economic stability, increased foreign exchange reserves, improved and functional infrastructure, and high quality services, to ensure smooth economic integration.

4). Socio-economic development following market mechanism
- Lao PDR continues and reaffirms commitments to the development of a    market oriented economy aiming at transforming the country from a landlocked into land-linked, sustaining economic growth in tandem with socio-cultural development protection, and promoting regional economic intergartion.

- A market mechanism demonstrates the demand and benefits to targeted groups in a society. At the same time, it shows directions for action, and targets for production to businesses.

- A planning process provides broad directions, information, and macro level integration. It is not a process that would help determine micro level management of the economy. The country has been able to overcome the impact of global financial crisis, as well as keep economic growth rate at a normal level.

5). It has been the priority to attain sustainable and quality development in economic growth, social justice, prosperity and environmental conservation.

- It is important that for establishing a democratic regime, economic growth should be sustainable, environment conserved and cultural and human resource development promoted. Additionally, equality should be promoted, workforce trained, living standards improved, laws promulgated, rural development and poverty eradication furthered, and income differences between the poor and rich people and rural and urban areas minimized.

- The above issues should be incorporated into the macro policy and actual implementation process to ensure the effectiveness of the development plan at various levels. Areas where these processes are not followed, will face slow development, difficulties and even disputes, and are likely to face shortage of natural resources due to degradation of the natural resource base. Thus, both quantity and quality of growth matter.

6). Innovating and improving public management system to ensure efficiency, transparency and prompt action, and government officials acting as both, administrators and service providers for people, are important to the socio-economic development process.

- The lessons learnt earlier suggest that innovating and improving public management systems to ensure efficiency, effectiveness, transparency and prompt action, and government officials at each level acting as administrators and service providers, contributes to achieving socio-economic development. This has to be considered as pivotal to developing capacity at both central and local levels.

- The global financial crisis in the recent past and floods in 2008 and 2009 have both adversely affected Lao PDR. Government authorities at central and local levels have been putting together possible solutions, including mobilising human-power. It has been grappling to overcome obstacles and put up a fight against the odds. In next five years, the achievement of the 7th five years Plan will depend upon the capacity and ability of the government officials at all levels to work together. In this regard, the Party and government will have to assign responsibilities to officials in conjunction with the increased and diversified roles.

- For better implementation of the plan it necessary to reassign officials appropriately and clearly identify their responsibilities and obligations. There should be flexibility in drawing up a new organizational structure as well as increasing/decreasing the number of officials. In addition, there is need to respond to the needs of officials. There should be an administrative mechanism to address the issue of incentives to the staff for raising their effectiveness.

7). Social-economic development needs to be in conjunction with national defense, on one hand, and realities at the grassroots level on the other. This reconciliation is possible if development begins at the village level, fulfilling the four contents and four targets of the plan as its foundations.

- There are recognised achievements in addressing poverty in rural and remote areas, having production in remote rural regions, establishing crime-free villages, and setting up role-model villages for health and peace. In contrast, rural villages where the authorities have not yet implemented the plan (at the grassroots level), are facing difficulties and have not achieved their targets.

8). The achievements of any development plan are critically guided by a monitoring and evaluation system. The M&E system will have to operate at the national, sectoral, local and business/unit levels. This measure is also a protection against illegal actions, corruption and leakages.

- Achievements in social-economic development at each phase have confirmed the need for a scientific vision. It is required that the authorities take into account the actual ability, especially in mobilising and balancing the source of funds, and the capacity of the human resources in different sectors and regions. Furthermore, there should be no duplication in implementing the plan.

- The Monitoring and Evaluation System should trace usage of funds, outcome of the implementation process and projects, and effectiveness of projects at each stage. Therefore, having a high quality statistical information system is necessary and is of high importance.

2.2 The targets of the 7th NSEDP (2011-2015)

The Seventh Five-year NSEDP is a continuation of the  Sixth Five-year NSEDP and it has an important role in realizing the Ninth Party Congress Resolution, and is regarded as a measure for achieving socio-economic development and the industrialization and the modernization between now and the year 2020. As a result ,the socio-economic development of the Lao PDR has been growing at a steady pace with a GDP growth rate at 7,9% between 2006-2010, 8,1% in the fiscal year 2010-2011, and 8,3% in 2011-2012. The household poverty rate continued to decline falling from 27,7% in 2002-2003 to17,77% in 2010-2011 and 13% in 2012. Thus gradually improving the livelihood of the people. Foreign direct investment and number of tourist arrival in the country have also increased. These positive developments have laid a solid foundation for the Lao PDR to prepare prerequisites to join the ASEAN community and to attain the MDGs by 2015, and to lead the country to graduate from the LDC status by 2020.It is also expected to create new changes through taking firm steps, to move the country out of its least-developed country status, and widen and deepen regional and international integration. The characteristic of the NSEDP-7 is a continuation of dynamic plan “Boukthalu Plan or break through paln ” which consist of 4 dynamic objectives: (1) dynamic in imagination, (2) dynamic in human resource development, (3) dynamic in mechanism, regime, administrative rules, and (4) Dynamic in poverty reduction by seeking sources of funds and implementing special policy, and constructing basic infrastructure focally. This five-year plan aims to accelerate national economic growth and to maintain the country’s stability and security. It aims to bring about positive changes, emphasising on quality and the sustainability of the growth, accomplishing of the Millennium Development Goals (MDGs) by 2015, and building primary foundations for the future industrialisation and modernisation of the country. The different components the Seventh NSEDP (2011-2015) components consist of: Evaluation of the Sixth NSEDP (2006-2010) evaluation and The Seventh NSEDP (2011-2015).The latter presents the domestic and international environmental context, target setting, the overall task to be performed, macro-objectives, sectoral and local development activities, and the implementation measures and mechanisms.

Its overall targets are following:

1. To ensure continued and stable national economic growth, with an annual per capita income reaching US$1,700 by 2015.
2. To enhance state capacity and effectiveness in economic management; improve laws and regulations and mechanisms on economic management to serve as positive stimulus.
3. To achieve the Millennium Development Goals (MDGs), build necessary material and technical foundation for graduating the Lao PDR from the least developed country status by 2020, as well as for advancing the country towards industrialization and modernization.
4. To build harmony and balance between economic, social and cultural development and protection of sustainable natural environment.
5. To ensure the firm political stability, security and social order, and to actively integrate the country with the region and the world.
6. Laos is committed to building more sustainable hydropower plants amid rising demand for electricity on both domestic and international markets by ensuring the energy industry in Laos is developed sustainably and the Government aims to do so by building more  hydropower plants, whilst taking into account environmental protection measures and ensuring better living conditions for the Lao people, and will do the best to protect the environment by seeking modern technology and expertise from foreign countries, in particular from European nations, which have demonstrated success in dam construction. Over the past several years Laos has seen remarkable success in the development of sustainable hydropower plants, and one of the best examples is Nam Theun 2 in Khammuan province .At present, Laos has completed construction of more than 17 power plants with a combined installed capacity of about 3,000 MW, or 10 percent of the total potential. Demand for electricity in Laos and foreign markets has increased rapidly due to economic growth throughout the region.
7. To promote international cooperation between landlocked developing countries and to enhance their capacity in cross-border transport, infrastructure investment , trade facilitation, trade negotiation and poverty reduction.
In this context, the Government of the Lao PDR has given importance to promoting and stimulating domestic and foreign direct investment by providing policy incentives especially for investment projects carried out in the remote and rural areas. Concurrently, the Government has further enhanced market mechanism and created all enabling environment for strengthening small and medium enterprises while promoting natural and cultural tourism. Moreover, particular attention has been given to providing all necessary means for farmers in the rural area to get better access to credit facilities and markets so as to increase their income generation opportunities and improve their overall well-being. One of the key priorities is to provide greater access to education and healthcare services for rural farmers and their children.

1)  Future direction of international and regional cooperation
Cooperation with development partners

Continue to advance the foreign policy on peace, independence, friendship and cooperation, and have open and multi-pronged relationships with other countries and regions, keeping national interests at the fore; create a favorable external environment for socio-economic development and protection of the country (by actively participating in activities linked to the regional and international arena); enhance the internal potential for heralding a new era of development; continue to increase solidarity and cooperation with other socialist countries (including special solidarity and all-round cooperation with Vietnam, and a longtime relationship with People’s Republic of China – them being good neighbors, friends and trustworthy partners); expand association with other friendly countries sharing a common border; actively participate in ASEAN activities based on the principle of common benefit, mutual assistance, and the fundamental principles of ASEAN; and further deepen cooperation with developed and emerging economies, the non-aligned movement, G77, francophone countries, landlocked developing countries, and international organisations.

As a new member of WTO, Lao PDR reaffirms its commitment to resist tempted protectionism and pursuing integration into the regional and global trading system. Internal reform have been pursued as high priority to our economic development agenda as to bring the legal framework into compliance with WTO rules

Mobilize ODA from international organisations , financial institutions and other bilateral and multilateral development partners to contribute to the socioeconomic development.

2) Future direction of cooperation under the Mekong Agreement Frame regarding Sustainable Development of Country Members of Mekong River Basin

Continue implementing Mekong Protocol 1995 regarding sustainable development of Mekong River Basin through the implementing the Strategy 2011-2015 of the International Mekong River Commission and implementing prioritized projects efficiently; strive to ensure that the country members share ownership in the International Mekong River Commission; integrate strategic framework and programmes of the Mekong Protocol into the implementation framework of the national socio-economic plan; encourage an implementation and dissemination of related regulations; expand cooperation on development and management of water resource with the other country members of Mekong River Basin to maximize the benefits of the country.

 Related measures for implementation and promotion of this work include:
- Disseminate regulations that have been already approved by the ministerial committee of the International Mekong River Committee and formulate technical guidance for the implementation.
- Strengthen capacity of human resource in the sectors that relating to water resource development and management.
- Translate the strategy of the International Mekong River Committee into detailed programmes and projects by integrating it into the implementation framework of the national socio-economic development plan.
- Continue cooperation with other country partners under Mekong Agreement regarding water resource development and management.

3) Policy of Industrialization and Modernization
 Directions for industrialisation and modernisation in Lao PDR
- Provide a boost to the strategy of industrialisation and modernisation (which is an urgent and long term duty along the path to building the nations’ prosperity and people’s wellbeing);
- embrace modern styles of livelihood and utilise untapped natural and social potentials to optimise benefits; identify sectors and regions having favourable conditions and potential and can help to narrow the country’s development gaps with other countries by generating financial resources, experience and knowledge (to enhance economic competiveness); focus on the main potential sectors (agro-processing, hydropower, tourism, mining and construction materials); and develop sectors that establish the foundations of industrialisation and modernisation, i.e. human resource development, use of science and technology, infrastructure development, and services.

 Steps towards the industrialisation and modernisation
- The concept of industrialisation and modernisation was embraced in 1975, when the country gained independence. It had been referred to in all the resolutions of the Lao Revolutionary Party since its Third Congress. After the 7th Party Congress, the strategy of industrialization and modernisation by 2020 was formulated. Subsequently, at the 8th Party Congress, it was stipulated that, “we shall actively strive to gradually industrialize and modernize the country in order to achieve the long-term vision of the Party.” With regards to the development steps for the two decades 2001-2020, they are defined in the Strategy on Industrialisation and Modernisation, as follows:

• First step: Between 2001 and 2005, strengthen the industrial sectors and their related subsectors to maintain competitiveness beyond 2008 by applying AFTA regulations.

• Second step: Between 2006 and 2010, create and improve prerequisites for having a strong and reliable governance system, have adequate human resources and a good socio-economic infrastructure, maintain a stable macro economy, alleviate poverty and eradicate shifting/slash-and-burn cultivation, develop select leading industrial sectors that constitute the basic foundation for the development of electricity, education, and quantitative and qualitative use of science-technology.

• Third step: Between 2011 and 2020, create favorable conditions for industrialisation and modernisation in the main areas, along with some potential and leading industrial sectors.