The Banking and Financial Sector of Lao PDR : Financial Sector Note
During the second half of the 1980s, Lao PDR embarked on an ambitious program of economic reforms, called the New Economic Mechanism, whose main purpose was to gradually transform its centrally-planned economy into a market-oriented economy. The in...
| Main Authors: | , |
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| Format: | Economic & Sector Work |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/07/23851589/banking-financial-sector-lao-pdr-financial-sector-note http://hdl.handle.net/10986/21556 |
| Summary: | During the second half of the 1980s, Lao
PDR embarked on an ambitious program of economic reforms,
called the New Economic Mechanism, whose main purpose was to
gradually transform its centrally-planned economy into a
market-oriented economy. The initial reform momentum lasted
about one decade. The far-reaching reform program
encompassed many critical components including: (a)
promotion of private production through improved incentives;
(b) institutional infrastructure to improve market economy
operations; (c) the strengthening of Lao comparative
advantages through trade liberalization and further
specialization; and (d) the establishment of price stability
through macroeconomic policy measures. The systemic changes
introduced in Lao PDR have contributed to a significant
transformation of the country s economic system, away from a
rigorously centrally-planned economy and towards a form of
market economy based on private ownership. The percentage of
poor declined based on the national poverty line from 45 to
39 percent between 1992-93 and 1997-982. But the percentage
of very poor did not decline and remained at slightly above
30 percent evidencing the need for even broader and faster
growth. Moreover, several factors slowed down the economic
liberalization process. Such factors included the lack of
transparency in government-business relations, a weak civil
society, the position of some interest groups at the
national and provincial levels, and the existence of
noncompetitive economic structures with a few firms and
actors accounting for a large share of domestic production
(except in agriculture). In some areas, reform policy
stagnated and is lagging. This is the case in the financial
sector. The creation of a two-tier banking system in the
early 1990s with separate and well-defined functions for the
central bank and the state-owned commercial banks, has not
resulted in the expected benefits: Lao PDR is still
suffering from chronic macroeconomic instability and the
state-owned commercial banks are suffering from a large
amount of non-performing loans. Taking into consideration
the objective of the Lao leaders to improve the well-being
of the Lao People, this paper argues that there are valid
reasons for establishing rules that discipline the political
influence on the design and conduct of economic policy, and
more specifically, policy regulating the financial sector. |
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