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 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.

Bibliographic Details

Main Authors:	Asian Development Bank, World Bank
Language:	English en_US
Published:	World Bank, Washington, DC 2002-07-15
Subjects:	ACCOUNTING, ACCOUNTING FRAMEWORK, ACCOUNTING STANDARDS, AMOUNT OF LOANS, ASSET CLASSIFICATION, AUCTIONS, BALANCE SHEET, BALANCE SHEETS, BANK FINANCING, BANK RATE, BANK SUPERVISION, BANKING ASSETS, BANKING INSTITUTIONS, BANKING MARKET, BANKING SECTOR, BANKING SECTOR DEVELOPMENT, BANKING SYSTEM, BANKING SYSTEMS, BANKRUPTCY, BANKRUPTCY LAW, BIDS, BONDS, BROAD MONEY, BUDGET DEFICIT, BUDGET DEFICITS, BUSINESS PLANNING, CAPITAL ACCOUNT, CAPITAL ACCOUNT TRANSACTIONS, CAPITAL ADEQUACY, CAPITAL ALLOCATION, CAPITAL MARKETS, CENTRAL BANK, CENTRAL BANK BILLS, CENTRAL BANK INDEPENDENCE, CERTIFICATE OF DEPOSITS, CERTIFICATES OF DEPOSITS, COMMERCIAL BANK, COMMERCIAL BANK CREDIT, COMMERCIAL BANKING, COMMERCIAL BANKS, CONTINGENT LIABILITIES, CREDIT AVAILABILITY, CREDIT PROGRAMS, CREDIT RISK, CREDIT RISKS, CRISIS COUNTRIES, CURRENCY, CURRENCY BOARD, DEBT OBLIGATIONS, DEBTS, DEFICIT FINANCING, DEPOSIT, DEPOSIT INSURANCE, DEPOSIT MOBILIZATION, DEPOSITS, DEVELOPING COUNTRIES, DEVELOPMENT BANK, DIRECTED CREDIT, DISBURSEMENTS, DISCLOSURE REQUIREMENTS, DOMESTIC CREDIT, DOMESTIC DEBT, ECONOMIC DEVELOPMENT, ECONOMIC EFFICIENCY, ECONOMIC LIBERALIZATION, ECONOMIC TRANSACTIONS, EXCESS LIQUIDITY, EXCHANGE RATE, EXCHANGE RATES, EXPENDITURE, EXPENDITURES, FINANCES, FINANCIAL ASSETS, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL HEALTH, FINANCIAL INSTITUTION, FINANCIAL INSTITUTIONS, FINANCIAL INSTRUMENTS, FINANCIAL SECTOR DEVELOPMENT, FINANCIAL STABILITY, FINANCIAL STATEMENTS, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FISCAL CONSTRAINTS, FISCAL DEFICIT, FISCAL DEFICITS, FISCAL DISCIPLINE, FISCAL POLICIES, FISCAL POLICY, FIXED ASSETS, FLOATING EXCHANGE RATE, FOREIGN CAPITAL, FOREIGN CURRENCIES, FOREIGN CURRENCY, FOREIGN DIRECT INVESTMENT, FOREIGN DIRECT INVESTMENTS, FOREIGN EXCHANGE, FOREIGN EXCHANGE MARKET, FOREIGN INVESTMENT, FOREIGN INVESTORS, GOVERNMENT ACCOUNTING SYSTEM, GOVERNMENT BUDGET, GOVERNMENT DEFICITS, GOVERNMENT SECURITIES, GOVERNMENT SECURITY, GROSS DOMESTIC PRODUCT, HOLDING, HOLDINGS, INFLATION, INFLATION RATE, INFLATIONARY PRESSURES, INFORMAL LENDERS, INFORMATION ASYMMETRY, INFORMATIONAL ASYMMETRY, INSTRUMENT, INSURANCE COMPANY, INSURANCE INDUSTRY, INTEREST BURDEN, INTEREST COSTS, INTERNAL AUDIT, INTERNATIONAL DEVELOPMENT, INTERNATIONAL FINANCIAL INSTITUTIONS, INTERNATIONAL SETTLEMENTS, ISSUANCE, JUDICIAL ENFORCEMENT, JUDICIAL PROCESS, LACK OF TRANSPARENCY, LEGAL FRAMEWORK, LEGAL SYSTEM, LENDER, LENDER OF LAST RESORT, LENDING DECISIONS, LENDING INTEREST RATES, LEVEL OF INFLATION, LIABILITY, LIFE INSURANCE, LIQUIDITY, LOAN, LOAN PORTFOLIOS, LOCAL BUSINESS, LONG TERM ASSETS, LOSS STATEMENTS, MACROECONOMIC ENVIRONMENT, MACROECONOMIC INSTABILITY, MACROECONOMIC MANAGEMENT, MACROECONOMIC POLICIES, MACROECONOMIC POLICY, MACROECONOMIC STABILITY, MARK TO MARKET, MARKET ECONOMY, MARKET INFRASTRUCTURE, MARKET INSTRUMENT, MARKET MECHANISM, MARKET SHARE, MATURITY, MICROFINANCE, MONETARY AUTHORITIES, MONETARY CONTROL, MONETARY FUND, MONETARY POLICIES, MONETARY POLICY, NATIONAL SAVING, NON-PERFORMING LOANS, OUTSTANDING LOAN, PAYMENT SYSTEM, POLITICAL STABILITY, PRICE STABILITY, PRIVATE BANKS, PRIVATE INVESTMENTS, PRODUCTIVE INVESTMENTS, PROPERTY RIGHTS, PRUDENTIAL REGULATIONS, PUBLIC BANKS, PUBLIC FINANCE, PUBLIC INVESTMENT, PUBLIC INVESTMENTS, REAL INTEREST, REAL INTEREST RATES, REGULATORY FRAMEWORK, RESERVE, RESERVES, RETURN, RETURNS, REVOLVING FUNDS, RISK MANAGEMENT, SAVINGS DEPOSITS, SAVINGS RATE, SAVINGS RATES, SECONDARY TRADING, SHARE OF CREDIT, SHAREHOLDER, SOLVENCY, STATE BANK, STOCK EXCHANGE, STOCK MARKET, STOCK MARKETS, T-BILLS, TAX, TAX DEDUCTION, TAX SYSTEM, TRADE LIBERALIZATION, TRADING, TRANSACTION, TRANSACTION COSTS, TREASURY, TREASURY BILL, TREASURY BILL AUCTIONS, TREASURY BILLS, TURNOVER, UNDERLYING ASSET, VALUATION,
Online Access:	http://documents.worldbank.org/curated/en/2002/07/23851589/banking-financial-sector-lao-pdr-financial-sector-note https://hdl.handle.net/10986/21556
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