an uncertain future for laos - An Uncertain Future for Laos

Get ready for the rumor mill to start spinning in Vietnam ahead of January’s National Congress, an event held every five years when the ruling Communist Party selects its new officials and leaders. Laos’ ruling communist party, the Lao People’s Revolutionary Party, will also hold its own National Congress early next year, likely in January, too. But nobody is talking about that – and probably won’t be until a few weeks before the event. If it is difficult to read the tea leaves of what might happen within the Vietnamese Communist Party, there’s almost no information seeping from Vientiane for divination from us pundits.

To make some broad guesses: it’s likely that Party General Secretary Bounnhang Vorachith will stay on for another term. His predecessor, Choummaly Sayasone, held the post for 10 years between 2006 and 2016. Before him, Khamtai Siphandon held the same position, which was called chairman of the Central Committee until 2006, between 1992 and 2006. Typically, though, prime ministers only serve one five-year term. Only Khamtai, who was also the prime minister between 1991 and 1998, held the post for longer than five years. As such, one might expect the current prime minister, Thongloun Sisoulith, to bow out next year.

Is that a good thing? In a column for The Diplomat, I queried in April 2017 whether Thongloun was a reformist leader (see: Is Laos’ New Leader Really a Reformer?). Looking back, maybe I was naïve. But, at the time, Thongloun appeared to be a new kind of apparatchik. He spoke more openly and casually in media interviews; he rushed into office with new rules to curb corruption and bring the party closer to ordinary people, and spoke honestly about the need to reform the economy.

But his pro-market reforms, namely to cut fiscal deficits, have largely failed, while not much progress has been made in jettisoning the wasteful state-owned enterprises (SOEs). The announcement last year that Laos would sell off weak-performing state-owned enterprises into joint public-private ventures seems good on paper – but, as Vietnam has found, trying to sell off your weakest assets (those which you publicly acknowledge to be struggling) doesn’t always attract investors. Like much of Thongloun’s reign, the move showed an intention toward reform without any substance. Thongloun’s early promises to get serious on corruption have also largely been a disappointment. And his government’s biggest embarrassment was its woeful handling of the collapse of the Xe-Pian Xe-Namnoy dam in southern Laos in 2018.

Hope was fading even before the COVID-19 pandemic struck, hitting Laos hard. In the worst-case scenario, which might actually be overly optimistic, Laos’ economy is set to contract by 1.8 percent this year, compared to positive 7 percent growth rates in recent years, according to the World Bank. Reports suggest that unemployment has climbed to around 25 percent, compared to less than 1 percent throughout most of the last two decades. Because of the dearth of on-the-ground reporting from Laos, the actual cost isn’t well understood just yet.

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As always, the question of debt hanging over the country takes center stage during a crisis. In May, Fitch Ratings downgraded the national debt from “stable” to “negative,” while its report noted that the state must make $900 million in external debt payments this year. This is thought to include a $250 million payment on a low-interest loan to China. That’s the first tranche of a considerable debt Laos has taken on from China, partly to fund a high-speed train line between Vientiane and Kunming in China, which may turn out to be a white elephant. (For an overview of that debate, look at Nick Freeman’s piece for the South China Morning Post from last December.) The Laos government is thought to have guaranteed a third of the costs of the $6 billion high-speed train line.

On top of that, Laos will face at least a $1 billion obligation for debt servicing payments each year until 2023. The Nikkei Asian Review recently noted that “Laos has limited room to maneuver,” given that its foreign exchange reserves were only thought to be worth $1 billion as of the end of March. To date, tax receipts only account for 12 percent of GDP, and much of that is from taxes on mining, which is near exhaustion. As I point out regularly, Laos has not even attempted to create an export sector similar to ones in Vietnam and Cambodia, which would provide it with some well-needed foreign capital.

Now, as a result of the COVID-19 pandemic, the World Bank, the aforementioned NAR report informs us, also expects the state fiscal deficit this year to run between 7.5 percent and 8.8 percent of gross domestic product, up from 5.1 percent in 2019. Debt levels, it reported, “are expected to increase between 65% and 68% of GDP in 2020, from 59% of GDP in 2019.” From what I can tell, 2021 doesn’t look like a fantastic year for economic growth either, so expect the national debt to continue growing.

As the National Congress looms, this might be a time for change. But, in many ways, it appears that the Lao People’s Revolutionary Party has become despondent, lacking in self-belief, and aware of its own powerlessness. In other words, the Party is lacking any courage or conviction to admit mistakes and change course from its high-debt, infrastructure-led development program, much of it copied (and funded) by China. Geoffrey C. Gunn, in his article on Laos for the ISEAS-Yusof Ishak Institute’s Southeast Asian Affairs 2020 collection, wrote of a communist regime “hell-bent on prioritizing major projects… whatever the social and ecological consequences locally and downstream.”

Last year, Thongloun told the Nikkei Asian Review that “if we don’t borrow… Laos, as a least developed country, won’t develop further.” Such a comment warrants attention. Here, Thongloun isn’t saying that more and more debt is a good thing in itself; he’s saying that this is the only option for Laos.

Compared to its socialist cousins in Vietnam and China, Laos’ communist party hasn’t tried to embrace even the slightest change; it has failed to insert even a thin layer of technocrats within the system, and it will not allow the Lao people a crevice to air their honest opinions (whereas Vietnam’s Communist Party wants to know what the people think, but is more than happy to repress complaints when they get too damning.)

Not even wanting to know the thoughts of ordinary people, Laos’ communist government has grown increasingly introverted, a king in its castle shut-off from reality. This toxic combination of despondence about its own effectiveness and ability to change course, and its unwillingness to hear even the slightest of criticism, means it is now contented just to plod on with the status quo – regardless of the consequences. Indeed, the Party has put itself in a straitjacket it now doesn’t have the imagination, competency, or will to try getting out of.

Partly, though, this is also the fault of Beijing. Reports suggest that more than half of all Laos’ public debt is held by China. Personally, though, I have been wary of “debt trap” narratives; I don’t believe Chinese foreign policy is as competent and meticulous to have intentionally, years ago, designed a system to ensnare other countries. Instead, it seems more persuasive that Beijing seriously believes (mistakenly) that it can export its “development-led” model to countries that have few of the characteristics that made it a success in China. Put differently, Beijing believes that other countries can replicate its own high-debt, infrastructure-led, rocket-fast development program. And poorer countries like Laos have also bought the lie that all they have to do is follow China’s history and they, too, can become wealthy.

This is, of course, wrong. What worked in China – thanks in large part to its enormous workforce, the uniqueness of the time it began developing, and its geography – cannot be replicated in a country like Laos. But it’s easier for Vientiane to believe the lie and go along with it – especially as it shows little creativity or competence for alternative thinking – than to turn around and try an alternative model of development that may be more sustainable and achievable. Brian Eyler has explained that the famous rail link from Vientiane to Kunming serves “to create channels to bring natural resources and commercial inputs back to China so that China’s economy can keep growing.” Philip Alston, a UN special rapporteur on human rights and extreme poverty, gave a startling honest account last year after visiting Laos, noting that the government’s “single-minded focus on large infrastructure projects… has created all too few jobs for Lao people, generated very large debt repayment obligations, and disproportionally benefited wealthy elites.” Ordinary people, he added, “have seen very few of the benefits of the economic boom.”

Even if the Party wanted to, though, it’s too late to turn back. Like an addict taking on new debt to pay off previous gambles, it would be almost an existential crisis to admit mistakes and seek an alternative way out of the problem. But this isn’t an exact analogy. The communist party isn’t elected, so its apparatchiks are gambling not with their own money but the money of ordinary Laotians, especially the young, who will inherit this ever-growing national debt for decades to come.

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