April 5, 2006
Laos, Asia’s second poorest country, is relying more than ever on foreign aid, but some donors are getting fed up with corruption and waste in the isolated communist nation.
Three decades after taking power, the secretive and army-dominated regime seems largely impervious to outside pressure, despite receiving foreign loans and aid equal to
about 80 per cent of its state budget.
The Buddhist country, once a French colonial backwater, heavily relied on American support until the revolutionary Pathet Lao took over in 1975, when the flow of greenbacks
was replaced with rubles from the former Soviet bloc. Since the fall of the Iron Curtain, when Laos gradually started to adopt free market reforms in the 1990s, international donors have made up the shortfall and more.
Tourism, logging and mining have earned some foreign revenue, and a major dam promises to bring more cash through power sales to Thailand, but for now foreign donors are key to keeping afloat the 2.4 billion-dollar-a-year economy.
The four-wheel drive vehicles of UN agencies, Western countries and their major charity groups are a highly visible presence on the dusty streets of Vientiane, possibly Asia’s
most laid-back capital city.
But grindingly slow bureaucracy, opaque decision making and ubiquitous graft have frustrated some foreign development agencies.
When the Lao People’s Revolutionary Party (LPRP) met two weeks ago behind closed doors for its party congress, it approved a five-year socio-economic plan that factors in 500 million dollars per year in foreign aid.
The plan seems ambitious as annual aid to Laos in recent years has dropped off from 400 million a few years ago to less than 350 million, largely due to Japanese cutbacks.
“The budget assumes a rise of annual aid to 500 million dollars,” said one foreign diplomat, voicing quiet annoyance. “It’s not going to happen.
There is no credibility to the budget process whatsoever.” Many Westerners feel Laos’ attitude towards developed countries aims mainly at obtaining funds. “Laos’ foreign policy is about balancing Thailand, Vietnam and China and attracting foreign aid,” the diplomat said.
The International Monetary Fund, World Bank and other backers have long urged the Lao regime to become more self-sufficient, in part by reforming the tax system.
Very little revenue is collected in a country where income tax is virtually non-existent, corporate tax laws are poorly enforced and rampant smuggling cuts into import and sales taxes.
“The donors may accept to increase aid if the government also increases its share,” said UN representative Finn Reske-Nielsen. “But if the government’s contribution over the years is flat, the aid is unlikely to grow.”
Some critics have charged that it is the aid cushion that is allowing Laos’ communist rulers to avoid serious reform.
“There has always been debate between those who want to stop aid to make things
change and those who say it’s better to help Laos to make them change,” said anthropologist Olivier Evrard of the Institute of Research for Development, a French research institute.
In a country with a long cultural tradition of personal patronage and tribute payments to local rulers, a significant part of the money aimed at fighting poverty disappears before it reaches its intended recipients.
Evrard pointed to the northwestern Luang Nam Tha province, which has received millions of dollars of assistance in recent years.
“The relationship between the foreign aid and the concrete achievements in rural development seems relatively unbalanced,” he told AFP.
Yet underpaid civil servants who dip into state funds and foreign aid have little to fear. “Local officials who enrich themselves get a rap over the knuckles but little else,” said a long-time Lao watcher, asking not to be named.
In Vientiane, aid workers have long ago learned to grit their teeth and work within the system, where some observers say three quarters of development projects are marred by irregularities.
“I think it’s assumed and accepted that 20 percent of the funds for every project
will disappear,” said one of them. “At 400 million dollars’ aid per year, that’s a lot of money going into people’s pockets.”
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