Chintanakan Mai
By 1985, the Lao People's Revolutionary Party, which controlled the government of Laos, recognized the need to adjust the nation's transition to socialism, primarily because of a lack of incentives to improve economic productivity. A new policy was introduced at the Fourth Party Congress in 1986 by party leader Kaysone Phomvihane. The new policy was called chintanakan mai, which literally means "new imagination" but is commonly translated as "New Economic Mechanism."
This new policy to move away from a state-planned economy to one emphasizing free-market mechanisms paralleled similar trends in Vietnam (introduction of doi moi, or renovation) and the former Soviet Union (perestroika, or openness). Among key structural reforms of chintanakan mai were deregulating prices; establishing a single floating exchange rate determined by market forces; privatizing state enterprises; opening the financial sector to foreign banks; liberalizing trade; and developing an explicit foreign investment code to facilitate increased international investments in Laos.
The government has implemented these reforms gradually. For example, it has been unwilling to adopt draconian measures to reduce the size of the public sector. Nevertheless, since 1989, Laos has divested itself of a large proportion of its state enterprises. Rather remarkably, even the national telecommunications company is now a foreign joint-venture company. Some privatization has also occurred in the education sector.
At the Fifth Party Congress in 1991, further elaboration of the economic reforms was articulated and specific national goals specified. Among these goals were export expansion, promotion of tourism, and further administrative and legal reforms to enhance the transparency (that is, making the rules of trade more apparent) of the Laotian economic and investment climate. Also in 1991, the hammer and sickle were removed from the state symbol of Laos and replaced by the most revered Laotian Buddhist temple, That Luang.
During the 1990s, Laos also became much more open internationally, with a significant increase in technical and economic assistance from both multilateral (World Bank, Asian Development Bank, and European Union, for example) and bilateral (Japan, Australia, Nordic nations, and Switzerland, for example) donors. Also, in 1997, Laos became the eighth member of the Association of Southeast Asian Nations (ASEAN).
Reflecting the success of the New Economic Mechanism, Laos in the early and mid-1990s had impressive macroeconomic performance with annual economic growth averaging 7 percent, much higher than the 1 percent average of the twenty years before 1985. Initially, it appeared that Laos might not be adversely affected by the Asian economic crisis of 1997, since its currency was not internationally traded and since it did not have a stock market. Unfortunately, in a delayed impact, the Lao economy suffered severely from the crisis, and its currency dropped dramatically, losing 87 percent of its value in only two years, with resulting serious inflation. In the early 2000s, the economy stabilized with real GDP economic growth estimated to be 4 percent in 2000.
In more recent years, some in the international community have expressed concern about the slowing of the reform process because of the political power of revolutionary leaders with strong ties to Vietnam and, increasingly, China.
Gerald W. Fry
Further Reading
Bounthavy Sisouphanthong and Christian Taillard (2001) Atlas of Laos: Spatial Structures of the Economic and Social Development of the Lao People's Democratic Republic. Copenhagen, Denmark: Nordic Institute of Asian Studies.
Bourdet, Yves (1991). Laos: Reforming Laos' Economic System. Stockholm, Sweden: Swedish International Development Authority.
——. (2000). The Economics of Transition in Laos: From Socialism to ASEAN Integration. Northampton, MA: Edward Elgar.
Butler-Diaz, Jacqueline, ed. (1998) New Laos, New Challenges. Tempe, AZ: Program for Southeast Asian Studies, Arizona State University.
Pham, Chi Do, ed. (1994) Economic Development in Lao PDR: Horizon 2000. Vientiane, Laos: IMF Resident Representative Office.
Sunshine, Russell B. (1995) Managing Foreign Investment: Lessons from Laos. Honolulu, HI: East-West Center.
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