Street market in Luang Prabang


After many years of warfare, peace finally came to Laos in 1975 along with the other Indochinese neighbors: Vietnam and Cambodia. The Lao government took total control of the country in 1975 when the economy was in a bankrupt state. Between 1975 – 1979, the Lao government implemented accelerated socialization policy which nationalized all important economic sectors and collectivized agriculture. The country took a change for the worse: crumbling public infrastructure, lack of food and consumer goods, higher rate in infant mortality and shorter life expectancy. The worsening conditions pushed the Lao government to stop accelerating the socialization policy and turned to consolidating existing state-owned businesses while stopping the expansion of socialization and collectivization. Also in 1979, the Lao government implemented a new policy changes which allow a free-floating currency and free commodity pricing which helped to bring the economy gradually to a more stable state.

In 1986, Lao government pushed further the shift toward market economy by reducing restrictions on privately-owned businesses. The state started to make laws to attract foreign investment and to recognize privately-owned land. Some families who had properties nationalized during the period between 1975 – 1979 were able to reclaim them back. All the efforts by the Lao government, by the Lao private businesses, by foreign-owned businesses and with the help from international donors and credit organizations, Lao economy grew at a stable rate of over 6% from 1989 to 1995.  In 1995, the US Congress rescinded the ban on aids to Laos further helped the country more access to foreign aids and foreign investments.

In 1997, Laos was struck by the South East Asian Financial Crisis caused by close trade tie with Thailand. Many projects, especially those involved in infrastructure were Thai-financed were  infinitely delayed or just stopped. Still the full impact didn't happen to the Lao economy thanks to the influx of foreign aids to the country.

In late 2004, Laos got Normal Trade Relations status with the US which helped Laos-based producers to benefit from lower tariffs on exports and to expand the export markets for Laos-produced goods.

From 2001 to 2004, Lao economy has been growing at a rate of 6.5 per annum. In 2005, Lao GDP reached 7% and 7.2% in 2006. The number of poor households fell from 46% in 1992-1993 to 33% in 2002-2003, and to 31% in 2005. External debt dropped from 83 percent of GDP in 2004 to 77% in 2005.

There are also great potentials for Laos to develop its economy. The country is rich  natural resources including tin, gypsum, coal, oil, iron ore...and there are huge forest areas which  brings important income. The road system in Laos is under construction, when it is finished transportation between Laos and its neighboring countries will be convenient. Many hydro-power plants, of which some are operational and some are being built, are bringing cash to the country selling electricity to its neighbors. The many rivers and lakes in Laos provides huge amount of fish to the local diet. Tourism in Laos is developing with a fast pace with the arrivals of international tourists increasing at a stable pace annually, which has brought an important income to the country. There are still many potentials for developing the travel industry in Laos ranging from adventure travel to eco-tourism and culture tours which promise to bring further income to the country in the near future.

Even though enormous progress has been made, but Lao economy remains far from catching up with its neighboring countries. And there are still many challenges to the country's economy in the coming years. Laos doesn't have a rail system and the road system still remains primitive. The telecommunication system is still in its infancy. Agriculture accounts for 80% of its population and most of which involves subsistence farming and some of which involves swidden agriculture. Laos is rich in natural resources but have not used them efficiently. The over-exploitation of the natural resources such as mining and logging are raising huge environmental concerns. The educational system in Laos seems not adequate enough to train a highly-skilled workforce in any near future. The manufacturing of Laos remains far from being competitive to those of neighboring countries and most of the consumer goods in Laos are imported from its neighbors. Lacking good infrastructure also means the economic disparity among regions in the country is becoming more and more problematic. Lacking a good banking system and right financial policies are also making Laos lag behind its vigorous neighbors.