Asia Times: Changing of the Laos guard signals economic debate



	August 11, 1999	atimes.com

Southeast Asia

Changing of the Laos guard signals economic debate
By Ron Corben

BANGKOK - President Khamtay Siphandone of Laos has stood down his finance minister, Khampoui Keoboualapha, who was also a deputy prime minister, and the central bank governor, Cheuang Somboonkhanh, triggering speculation of infighting within the Communist Party over economic policy.

Khamtay signed an order removing the two officials on August 6. The changes were subsequently published in the Communist Party's daily paper, Paxaxon.

Khampoui is seen by foreign observers as one of the few within the Lao communist government with key economic credentials, and may have fallen out with more conservative Politburo members. But the Lao Ambassador to Thailand, Hiem Phomachanh, told Thai media that Khamphoui, 68, had repeatedly requested to resign because of his age and health.

For his part, the 54-year-old central bank governor, Cheuang Somboonkhanh, is being transferred to an unspecified post.

Khampoui's portfolios were taken over by deputy prime minister with domestic affairs responsibilities, Boungnang Vorachith. The central bank duties are being taken up by the Bo Keo provincial governor, Soukhanh Maharaj.

Laos has only recently been able to put a halt to the slide of its battered currency, the kip, now valued at 9,300 to the US dollar. It had sunk from 4,900 earlier this year. The kip's slide slowed in late June when it reached around 9,100 to the dollar.

Other fundamental concerns are a continuing large fiscal deficit of up to 12.8 percent of GDP in 1998, liquidity shortages, and dependence on imports for the most basic of manufactured items. Consumer prices in Laos have soared, jumping from a 19.3 percent annual increase in 1997 to 90 percent in 1998. Economists expect an easing of this trend in 1999.

Laos has also felt the effects of the Asian crisis. Some 84 percent of its imports come from neighboring Thailand, which was hit hard by the recession. Thailand and Malaysia, Laos' main sources of investment, were both hobbled by financial difficulties.

''Foreign investment in the country fell to just $45 million in 1998, from $142 million in 1997,'' the Manila-based Asian Development Bank (ADB) said in a recent assessment. While the government has moved to increase state employees' salaries, inflation in the capital, Vientiane, has risen more than twice as fast. ''Inflation is threatening social safety nets and pensions,'' the ADB said.

Khampoui's departure is the second occasion he has left office in recent years, only to return later because of his economic management skills. David Oldfield of the Bangkok-based Mekong River regional consultancy, The Brooker Group Ltd., said Khamphoui's resignation raised questions over whether the finance minister had posed a threat to the existing party leadership.

Oldfield said Khampoui had been forced to resign in 1996 when he was viewed as becoming ''too influential, and too close to Thai business interests.'' He returned to office in 1998. At the same time, he had been viewed as the ''most skilled economic person within the political party''. ''You should always keep in mind possible factional disputes within the party, rather than just the economic justification,'' he said.

The internal politics of Laos's Communist Party are rarely seen by the international community, which opens to speculation any changes in the leadership.

Since the late 1980s, the party, after enthusiastically embracing reforms to open the economy, has shifted toward closer links with Vietnam and China. Politically, both China and Vietnam are viewed as more reliable partners. ''[Southeast Asia] does not offer the benefits anticipated earlier on,'' a Vientiane diplomatic source said recently. At least in the short term, the Lao government is set to ''focus more on Vietnam and China than previously,'' she said.

Divisions between the economic liberal Khampoui and pro-China/Vietnam conservatives could be at the root of the reasons for his resignation. There is also the possibility that Khampoui had failed to see ''eye to eye'' with the older guard and harder-line members of the Politburo, Oldfield said.

All these changes do not bode well for the Lao economy. ''No one else in the Politburo has that economic capability. The generals lack those skills,'' Oldenfield noted. ''If the Lao government is looking to attract foreign investment, this is not a good thing. It will shake confidence even more in Laos,'' he added.

(Inter Press Service)

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