VZCZCXRO5864
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHVN #0063/01 0400044
ZNR UUUUU ZZH
R 090044Z FEB 09
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 2396
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPCIM/CIMS NTDB WASHDC
RUCPDOC/USDOC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 33 VIENTIANE 000063 
 
SIPDIS 
 
STATE FOR EAP/MLS EMERY 
STATE FOR EEB/IFD/OIA 
STATE PASS USTR FOR BISBEE 
COMMERCE FOR HP PHO 
 
E.O. 12958: N/A 
TAGS: ECON EINV OPIC USTR KTDB LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS 
 
REF: 08 STATE 123909 
 
------------------------------ 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
¶1.   The Lao government is open to foreign investment as a matter of 
policy.  It allows 100% foreign ownership of investments.  The 
overall investment climate is poor but improving.  Laos rates very 
low in international indices of transparency and ease of doing 
business. 
 
¶2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated 
October 22, 2004, purport to promote foreign direct investment as a 
means of boosting development and economic growth.  Under the 2004 
Law on the Promotion of Foreign Investment, scheduled to be updated 
at the end of 2009, foreign investors may invest in all business 
sectors and zones of investment in the Lao People's Democratic 
Republic, except in business activities which are detrimental to 
national security, have a negative impact on the environment, or are 
regarded as detrimental to health or national traditions.  In recent 
years Laos has seen a significant increase in FDI, especially in 
mining, hydropower, and plantation agriculture.  Major foreign 
investors are Thailand, China, Vietnam and Australia. 
¶3. When bidding for the right to large contracts, companies 
frequently offer the government the "option" of purchasing part of 
the company at a later date, often with money borrowed from the 
investor or multilateral institutions.  The investment term of a 
foreign investment enterprise depends on the nature, size, and 
conditions of the business project but normally cannot exceed fifty 
years. Under special circumstances, foreign investment enterprises 
may be extended with the approval of the government. However, 
foreign enterprises that receive extension approval from the 
government may not exceed a total investment term of seventy-five 
years. 
¶4. Foreign investors seeking to establish operations in Laos must 
submit project proposals to the Department for Promotion and 
Management of Domestic and Foreign Investment (DDFI), Ministry for 
Planning and Investment (MPI).  The proposal is then screened by the 
relevant line ministries and adjudicated by the Prime Minister's 
Office.  Under Prime Minister Decree No 301, dated October 12, 2005, 
proposals for projects worth US$20 million or more require the 
approval of the Prime Minister.  The Minister of MPI can approve 
investments below $20 million USD while the vice Minister can 
approve investments of less than $10 million USD.  FDI equal to or 
less than $3 million USD can be approved at the provincial level by 
all provinces, and in four of the larger provinces - Vientiane 
Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for 
provincial level approval is $5 million. 
¶5. Foreign investors in a joint venture must contribute at least 
thirty percent (30%) of the venture's registered capital.  Capital 
contributed in foreign currency must be converted into kip based on 
the exchange rate of the Bank of the Lao People's Democratic 
Republic on the day of the capital contribution.  Wholly 
foreign-owned companies may either be a new company or a branch 
office of an existing foreign company. Throughout the period of 
operation of a foreign investment enterprise, the assets of the 
enterprise must not be less than its registered capital. The 
screening process at the Department for Promotion and Management of 
Domestic and Foreign Investment (DDFI) in the Ministry of Planning 
and Investment (MPI) takes into account the financial and technical 
feasibility of the project, input from relevant line ministries, and 
whether the proposed project conflicts with government policy.  Upon 
receipt of an application, the MPI must coordinate with relevant 
sectors and local authorities to consider and respond in writing to 
the foreign investor. Responses to projects, depending on project 
type, are supposed to be forthcoming within 15-45 working days. 
¶6. Foreign investors are required to obtain a foreign investment 
license, an enterprise registration certificate, and a tax 
registration certificate from the MPI office nearest the place where 
the foreign investors are licensed. Thereafter they shall be 
considered as enterprises established in conformity with the laws of 
the Lao People's Democratic Republic.  Within 90 days from the date 
of receipt of an investment license the foreign investment 
enterprise must commence business activities.  If the investors fail 
to do so, the foreign investment license is subject to termination. 
¶7. In addition to the investment license, foreign investors are 
required to obtain other permits.  These include a business 
registration which must be annually renewed from the Ministry of 
Industry and Commerce, a tax registration from the tax department in 
the Ministry of Finance, a business logo registration from the 
Ministry of Public Security, permits from each line ministry related 
to the investment (i.e., Ministry of Industry and Commerce for 
manufacturing; Ministry of Public Works and Transportation, etc.), 
 
VIENTIANE 00000063  002 OF 033 
 
 
appropriate permits from local authorities, and an import-export 
license, if needed.  Obtaining the necessary permits can pose a 
challenge to foreign investors, especially in areas outside the 
capital.  The recent creation of a "one-stop shop" for many permits 
within the Ministry of Planning and Investment should help ease 
permitting difficulties in the future. 
¶8. Lao law provides for sanctity of contracts.  The following link 
is for a translation of the Lao contract law. 
http://www.undplao.org/  whatwedo/bgresource/demogov/ 
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf 
 
However, since Laos is a communist one-party state, the sanctity of 
contracts is subject both to political interference and a number of 
socialist principles enshrined in the law.  For example, according 
to the contract law: 
A contract can be voided if it is disadvantageous to one party, and 
A voidable contract can be declared void by the disadvantaged 
party. 
¶9. Although a commercial court system exists, in practice most 
judges adjudicating commercial disputes have little training in 
commercial law.  Those considering doing business in Laos are 
strongly urged to contact a reputable law firm for additional advice 
on contracts. 
¶10. In 2006 the Lao government ceased imposing import restrictions 
on trading companies, whether foreign or domestic, in an effort to 
let the market respond to actual demand.  The Lao government no 
longer requires companies to file an annual import plan for approval 
by the Ministry of Commerce.  The main exception is the fuel 
industry, where individual companies are still required to file an 
annual import plan.  The government controls the retail price and 
profit margins of gasoline and diesel.  A large American oil company 
announced in late 2007 that it was leaving the Lao market to focus 
on more profitable countries within Asia. Government documents 
articulating the restrictions and explaining the policy are 
difficult to obtain.  Goods that are always prohibited for import 
and export range from explosives and weapons, to literature that 
presents a negative view of the Lao government, to certain forestry 
products and wildlife.  For a detailed list of import & export 
restrictions please visit http://www.moc.gov.la/default.asp 
 
¶11. Agriculture production and most manufacturing production is 
private.  State-owned enterprises (SOEs) currently account for only 
one percent of total employment.  Approximately 97 percent of 
manufacturing units are small (fewer than 10 employees). Foreign 
companies interested in acquiring SOEs should apply through the 
Department for 
 
-------------------------------- 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶12. In order to facilitate business transactions, foreign investors 
generally open commercial bank accounts in both local and foreign 
convertible currency at domestic and foreign banks in Laos. 
Australian, Vietnamese, Thai, Cambodian and Malaysian banks 
currently have a presence in Laos.  Bank accounts must be maintained 
in accordance with the Enterprise Accounting Law.  The law places no 
limitations on foreign investors transferring after-tax profits, 
income from technology transfer, initial capital, interest, wages 
and salaries, or other remittances to the company's home country or 
third countries so long as they request approval from the Lao 
government. These transactions are conducted at the official 
exchange rate on the day of execution, upon presentation of 
appropriate documentation.  Supply of foreign exchange has in the 
past been limited in Laos, which imposed a de facto limit on 
repatriation of capital.  Foreign currency inflows in recent years, 
however, have reportedly solved this problem and large 
multinationals in Laos report no problems with access to foreign 
exchange.  Foreign enterprises must report on their performance 
annually and submit annual financial statements to the Ministry of 
Planning and Investment (MPI). 
 
------------------------------ 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶13. Foreign assets and investments in Laos are protected by laws and 
regulations against seizure, confiscation, or nationalization except 
when this is deemed necessary for a public purpose, in which case 
foreign investors are to be compensated.  While there have been no 
expropriations, the Lao Government has revoked the foreign 
investment licenses of companies in a less than transparent process. 
 Revocation of an investment license cannot be appealed to an 
independent body, and companies whose licenses are revoked must then 
 
VIENTIANE 00000063  003 OF 033 
 
 
liquidate their assets relatively rapidly.  In addition, a company 
that fails to begin conducting business within ninety days of 
registering could be dissolved, if it does not have a reasonable 
explanation. 
------------------ 
DISPUTE SETTLEMENT 
------------------ 
 
¶14. According to the Foreign Investment Law, investors involved in 
investment disputes must seek arbitration before taking legal 
action.  If arbitration does not result in an amicable settlement, 
litigants may submit their claims to the economic arbitration 
authority of Laos, or that of the investor's country, or an 
international organization agreed on by both parties.  In practice, 
there are no adequate independent arbitration venues in Laos. 
Foreign investors are therefore generally advised to seek 
arbitration outside the country, since Laos' nascent domestic 
arbitration authority lacks enforcement powers.  Laos is not a 
member of the International Center for the Settlement of Investment 
Disputes.  It became a party to the New York Convention of 1958 on 
the Recognition and Enforcement of Foreign Arbitral Awards on 
September 15, 1998, but Laos has never been asked to enforce a 
foreign arbitral award.  Laos is a member of the United Nations 
Convention on International Trade Law. 
¶15. In disputes involving the Ministry of Planning and Investment, 
decisions can only be appealed back to the Ministry itself.  There 
is no separate independent body.  Thus a company which feels it is 
receiving unfair treatment from the government has no independent 
recourse.  In 2007, two U.S.-owned small companies were involved in 
disputes with the Lao government.  One company had its investment 
license revoked and the U.S. owners were given no option other than 
to liquidate their assets.  Another is still working with Lao 
authorities to resolve the issue.  The Lao government has cooperated 
with the Embassy in addressing the disputes. 
 
¶16. Laos' legal system is evolving, but remains incomplete in many 
regards.  Laws sometimes contradict each other and often lack 
implementing regulations.  For example, tax exemptions and low 
import duties guaranteed to foreign investors under the foreign 
investment law are not reflected in customs or tax law.  Supported 
by the Japan International Cooperation Agency (JICA), Singapore, and 
the United Nations Development Program (UNDP), some laws have been 
officially translated into English.  These include the business, 
tax, bankruptcy, customs, and secured transaction laws. 
Implementing regulations for the Foreign Investment Law, which are 
crucial to enforcement, were approved on October 10, 2005.  The 
reliability of unofficial translations varies considerably, which 
can create an environment of uncertainty and ambiguity among foreign 
investors.  Application of Lao law remains inconsistent and 
knowledge of the laws themselves is often limited (especially 
outside the capital).  The existence of a large number of government 
decrees, sometimes unpublished, further complicates the situation. 
While the trend under the current government is towards more 
openness and more accountability, investors are cautioned to 
recognize that economic and legal reform remain a work in progress. 
¶17.  Projects funded by the Australian government, the EU, the U.S., 
and the UN Development Program to assist Lao accession to the World 
Trade Organization (WTO) include components aimed at bringing Lao 
commercial law into conformity with WTO standards.  A commercial 
court was established during 2003, and began to hear cases in 2005. 
The Lao Bar Association was set-up in 2007. 
 
¶18.  Laos has no anti-trust statutes.  The bankruptcy law permits 
either the business or creditor the right to petition the court for 
a bankruptcy judgment, and allows businesses the right to request 
mediation.  There is no record of foreign-owned enterprises, whether 
as debtors or as creditors, petitioning the courts for a bankruptcy 
judgment. 
--------------------------------------- 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
¶19.  Laos does not impose performance requirements per se.  Foreign 
investors are encouraged to give priority to Lao citizens in 
recruiting and hiring. According to the foreign investment law, 
foreign personnel can be hired, although they may not exceed ten 
percent (10%) of the enterprise's total labor force.  In the case of 
skilled labor, or politically important projects, the Ministry of 
Planning and Investment has confirmed that enterprises can hire over 
10% foreign labor if necessary.  Before bringing in foreign labor, 
the enterprise must apply for work permits from the Ministry of 
Labor and Social Welfare.  A foreign personnel list must also be 
submitted to the Planning, Monitoring and Evaluation Division of the 
Department for Promotion and Management of Domestic and Foreign 
 
VIENTIANE 00000063  004 OF 033 
 
 
Investment (DDFI). 
¶20.  Incentives for Foreign Investment: Laos grants incentives for 
foreign investment depending on the sectors and zones of investment 
promotion. The government defines promoted activities under Article 
16 as follows: 
 
1) production for export; 
2) activities relating to agriculture or forestry, and agricultural, 
forestry and handicraft processing activities; 
3) activities relating to industrial processing, industrial 
activities using modern techniques and technology, research and 
development, and activities relating to the protection of the 
environment and biodiversity; 
4) human resource development, skills development and public health; 
 
5) construction of infrastructure; 
6) production of raw materials and equipment to be supplied to key 
industrial activities; and, 
7) development of the tourism industry and transit services. 
 
¶21.  The Law on the Promotion of Foreign Investment: 
 
http://www.undplao.org/whatwedo/bgresource/ 
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign% 
20Investment.pdf 
 
describes geographic and tax incentives in articles 17 and 18. 
 
¶22.  Foreigners employed in Laos, including foreign investors, must 
pay an income tax of 10 percent of their total income to the Lao 
Government, unless they are citizens of a country with which the Lao 
Government has signed a double taxation agreement.  The United 
States has no such agreement with Laos.  The turnover tax is 
scheduled to be replaced in 2009 with a Value Added Tax (VAT). 
¶23.  Foreign investors are not required to pay import duty on 
equipment, spare parts and other materials used in the operation of 
their enterprises.  Raw materials and intermediate goods imported 
for the purpose of processing and re-export are exempt from import 
duties.  Raw materials and intermediate goods imported for the 
purpose of import substitution are also eligible for import duty 
reductions on a case-by-case basis.  On an individual basis, foreign 
investors are also eligible for profit tax and import duty 
reductions or exemptions, if the investment is significantly large 
or determined to have a significant benefit to Laos' socio-economic 
development.  To date the Lao Government appears to have honored its 
incentives.  Annual business license renewal is contingent upon 
certification that corporate income taxes have been paid.  The tax 
code was streamlined and simplified in April 2005, but some 
investors still report significant difficulties in obtaining tax 
certifications in a timely manner. 
 
¶24.  The Foreign Investment Law stipulates that foreign investors 
and their families, including foreign professionals and foreign 
employees of an enterprise, shall be facilitated by issue of 
multiple entry visas and, if approved by the government, long term 
residence in the Lao PDR.  They also, in theory, have the right to 
apply for Lao nationality in accordance with the Law on Nationality. 
 
-------------------------------------------- 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶25.  The government recognizes the right of private enterprise 
ownership, and foreigners may transfer shares of a foreign-invested 
company without prior government approval.  However, the business 
law requires that all shareholders be listed in the articles of 
association, and changes in the articles of association of a 
foreign-invested company must be approved by DDFI-Ministry of 
Planning and Investment (MPI) , per the Enterprise Law 
http://www.moc.gov.la/default.asp.  Thus, transferring shares in a 
foreign-invested company registered in Laos does require the 
indirect approval of the government (DDFI-MPI). 
----------------------------- 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶26.  Foreign investors are not permitted to own land.  The 
government grants long-term leases, and allows the ownership of 
leases and the right to transfer and improve leasehold interests. 
Government approval is not required to transfer property interests, 
but the transfer must be registered and a registration fee paid. 
This includes mortgage leases. 
¶27.  Secured interests in property are inadequately covered by the 
Secured Transactions Law of 1994.  Because the law offers no 
 
VIENTIANE 00000063  005 OF 033 
 
 
instructions for the creditor to enforce security rights (the 
creditor, for example, can only request repayment from the debtor), 
the law favors the debtor.  Moreover, since the Ministry of 
Finance's registry system is not computerized, and cannot 
cross-reference records, it is difficult to determine if a piece of 
property is encumbered.  Enforcement of a mortgage is further 
complicated by the legal protection given mortgagees against 
forfeiture of their sole place of residence. 
¶28.  Laos issued a trademark decree in January 1995.  The National 
Science and Technology Organization (NSTO), part of the Prime 
Minister's Office, controls the issuance of trademarks on a 
first-come, first-register basis. Applicants do not have to 
demonstrate prior use.  There are currently over 18,109 trademarks 
registered in Laos. 
¶29.  Laos became a member of the ASEAN Common Filing System on 
patents in 2000 but lacks adequate personnel qualified to serve as 
patent examiners.  A draft decree on patents was sent to the Prime 
Minister in February 2000 for approval and in 2002 the Prime 
Minister's Office issued patent regulations.  Since Thailand and 
Laos have a bilateral Intellectual Property Rights (IPR) agreement, 
in principle a patent issued in Thailand would also be recognized in 
Laos. 
¶30.  Currently, no system exists to issue copyrights in Laos.  Laos 
became a member of the World Intellectual Property Organization 
(WIPO) Convention in January 1995 and the Paris Convention on the 
Protection of Industrial Property in October 1998; it has not yet 
joined the Bern Convention on Copyrights, however.  Although WIPO 
began to assist Laos in drafting an intellectual property law in 
1996, a WTO-compliant law has not yet been implemented.  In December 
2007 the National Assembly approved a law the Lao government claims 
will cover its U.S. Bilateral Trade Agreement (BTA) 
responsibilities, as well as be WTO compliant.  An English 
translation sponsored by the U.S. Government is currently being 
finalized.   Overall, there is currently little protection for 
intellectual property rights in Laos, although the authorities have 
taken steps to crack down on some pirated goods. 
------------------------------------- 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶31.  The principal laws, regulations, decrees and guidelines 
governing international trade and investment, as well as the current 
protection of intellectual property, are available to the public, 
although not all have been officially translated into English.  Laws 
and their schedules for implementation are customarily published in 
Lao daily newspapers, and relevant line ministries are beginning to 
put laws and regulations on websites.  The website for UNDP Laos 
maintains a partial list of translated Lao laws: 
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php 
 
Laws can also be found via the following websites.  Laws on the 
National Assembly website represent the officially approved English 
translations: 
http://www.na.gov.la/index.php (look under legislation on the left 
side); 
http://www.poweringprogress.org/ index.php?option=com_ 
content&view= 
 index.php?option=com _content&view=article&id= 242&Itemid=109 
http://www.moc.gov.la/gioithieuAP.asp 
In addition, implementation of the budget law commenced with the 
restructuring of the Ministry of Finance (MoF) via Prime Ministerial 
Decree Number 80 of February 28, 2007.  In September 2007, the Prime 
Minister issued Order No 35 instructing the MoF to move ahead with 
centralization of customs, tax and treasury departments.  In January 
2009 the Government introduced a Value-Added Tax (VAT).  Full 
implementation of the tax is likely to take a number of years. 
¶32.  A lack of transparency in a centralized decision-making 
process, as well as the difficulty encountered in obtaining 
information, augment the perception of the regulatory framework as 
arbitrary and inscrutable.  There have been reports that the 
government has recently begun discussing some proposed laws and 
regulations with the business community, and acted upon the advice 
given, before making final decisions.  The Lao Tourist Association 
has repeatedly urged the Lao government at the "Lao Business Forum," 
a business-government meeting sponsored by the Lao government and 
the International Finance Corporation (IFC), to discuss proposed 
laws with industry prior to implementation. 
--------------------------------------------- ----- 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶33.  Laos does not have a developed capital market.  Three-month 
treasury bills are occasionally offered for sale when there is a 
need to absorb excess liquidity in the economy.  The largest 
 
VIENTIANE 00000063  006 OF 033 
 
 
denomination of currency is 50,000 kip (about US$5).  Credit is not 
available on the local market for large capital investments, 
although letters of credit for export can sometimes be obtained 
locally.  International reserves fluctuate, with the latest 
available 2007 data showing sufficient coverage for 5 months of 
imports and numbering $485 million. 
¶34.  The banking system is under the supervision of the Bank of Lao 
PDR, and includes: 
* three state-owned commercial banks: Banque pour Le Commerce 
Exterior Lao (BCEL), Lao Development Bank and Agriculture Promotion 
Bank; 
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank; 
 
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai 
Military and Ayoudhiya Banks whose activities are mainly limited to 
providing services to local Thai businesses; 
* one Vietnamese bank: Sacombank 
* five private banks (3 foreign and two domestic): Malaysia - Public 
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the 
Association of Cambodia Local Economic Development Agencies (ACLEDA) 
Bank Lao Ltd .  Domestic banks include Phongsavanh Bankand and Kolao 
Bank 
one representative office: Standard Chartered Bank. 
 
¶35.  A new banking law passed in 2006 allows private foreign banks 
to establish branches in all provinces of Laos.  (Previously, 
foreign banks were permitted to establish branches only in 
Vientiane.)  The Commercial Bank Law is available on the Bank of Lao 
PDR (BOL) website: http://www.bol.gov.la/index1.php.  BCEL has 
correspondence arrangements with the following banks (US dollars): 
 
JP Morgan Chase Bank, New York 
Citibank, New York 
Wachovia Bank, New York 
American Express Bank, Ltd., New York 
HSBC Bank, New York 
Standard Chartered Bank, New York 
Barclays Bank Plc., London 
Credit Suisse First Boston, Zurich 
Bank of Tokyo-Mitsubishi, Ltd, Tokyo 
Natexis Banque Populaires, Singapore 
Standard Chartered Bank, Singapore 
Bank for Foreign Trade of Vietnam, Hanoi 
TMB, Bank Public Co, Ltd, Bangkok 
Bank Thai Public Co. Ltd. Bangkok 
Calyon, Bangkok 
Sumitomo Mitsui Banking Corporation, Tokyo 
 
¶36.  The Lao banking sector is in flux, with new private and foreign 
banks opening to provide modern banking options to Lao and foreign 
businesses.  While continuing to receive outside assistance, central 
bank supervision of the sector remains somewhat weak.  Although 
non-performing loans have decreased significantly since 2003, 
through work-outs, write-offs, and transfers off balance sheets, the 
three state-owned commercial banks (SCBs) remain, according to 
official estimates, insolvent.  For detailed information see the IMF 
Article IV report: 
http://www.imf.org/external/pubs  /ft/scr/2008/cr08350.pdf 
The Asian Development Bank has provided both program loans and 
technical assistance to Laos' financial sector, as have the World 
Bank and the IMF.  These programs have led to some reforms but 
overall capacity within the governance structure remains weak and 
the banks face many challenges. 
The Government of Laos is planning to open a stock exchange in 2010, 
with technical assistance provided from the South Korean 
government. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶37.  Laos is generally a peaceful and politically stable country. 
The remnants of an insurgency occasionally carry out small-scale 
attacks on government personnel and civilians.  Foreign persons are 
not deliberately targeted, but visitors are advised to use caution 
when traveling in remote districts. 
 
---------- 
CORRUPTION 
---------- 
 
¶38.  The Prime Minister's Office has made combating corruption a 
priority, including issuance of an anticorruption decree in November 
1999, but corruption remains a problem.  Although the 1999 decree 
 
VIENTIANE 00000063  007 OF 033 
 
 
specifically notes the responsibility of the state-owned mass media 
in publicizing corruption cases, there has been no reporting on this 
issue.  In 2005, an anti-corruption law was passed by the National 
Assembly.  According to the State Inspection Authority, the Lao 
Government has prosecuted some individuals for corruption but it 
cannot publicize the information.  The State Inspection Authority, 
located in the Prime Minister's Office, is charged with analyzing 
corruption at the national level and serves as a central office for 
gathering details and evidence of suspected corruption. 
Additionally, the State Inspection Department in each Ministry is 
responsible for a ministry's internal problems. 
 
¶39.  Laos is not a signatory to the OECD Convention on Combating 
UNCLASSIFIED 
PROG 02/06/09 
AMB: RRHUSO 
ECON: JCARCHIBALD 
DCM: PMHAYMOND 
POL PDS 
 
AMEMBASSY VIENTIANE 
SECSTATE WASHDC 
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS 
CIMS NTDB WASHDC 
USDOC WASHDC 
US DEPARTMENT OF COMMERCE WASHDC 
US DEPARTMENT OF TREASURY WASH DC 
 
SIPDIS 
 
STATE FOR EAP/MLS EMERY 
STATE FOR EEB/IFD/OIA 
STATE PASS USTR FOR BISBEE 
COMMERCE FOR HP PHO 
 
E.O. 12958: N/A 
TAGS: ECON EINV OPIC USTR KTDB LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS 
 
REF: 08 STATE 123909 
 
------------------------------ 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
¶1.   The Lao government is open to foreign investment as a matter of 
policy.  It allows 100% foreign ownership of investments.  The 
overall investment climate is poor but improving.  Laos rates very 
low in international indices of transparency and ease of doing 
business. 
 
¶2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated 
October 22, 2004, purport to promote foreign direct investment as a 
means of boosting development and economic growth.  Under the 2004 
Law on the Promotion of Foreign Investment, scheduled to be updated 
at the end of 2009, foreign investors may invest in all business 
sectors and zones of investment in the Lao People's Democratic 
Republic, except in business activities which are detrimental to 
national security, have a negative impact on the environment, or are 
regarded as detrimental to health or national traditions.  In recent 
years Laos has seen a significant increase in FDI, especially in 
mining, hydropower, and plantation agriculture.  Major foreign 
investors are Thailand, China, Vietnam and Australia. 
¶3. When bidding for the right to large contracts, companies 
frequently offer the government the "option" of purchasing part of 
the company at a later date, often with money borrowed from the 
investor or multilateral institutions.  The investment term of a 
foreign investment enterprise depends on the nature, size, and 
conditions of the business project but normally cannot exceed fifty 
years. Under special circumstances, foreign investment enterprises 
may be extended with the approval of the government. However, 
foreign enterprises that receive extension approval from the 
government may not exceed a total investment term of seventy-five 
years. 
¶4. Foreign investors seeking to establish operations in Laos must 
submit project proposals to the Department for Promotion and 
Management of Domestic and Foreign Investment (DDFI), Ministry for 
Planning and Investment (MPI).  The proposal is then screened by the 
relevant line ministries and adjudicated by the Prime Minister's 
Office.  Under Prime Minister Decree No 301, dated October 12, 2005, 
proposals for projects worth US$20 million or more require the 
approval of the Prime Minister.  The Minister of MPI can approve 
investments below $20 million USD while the vice Minister can 
approve investments of less than $10 million USD.  FDI equal to or 
 
VIENTIANE 00000063  008 OF 033 
 
 
less than $3 million USD can be approved at the provincial level by 
all provinces, and in four of the larger provinces - Vientiane 
Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for 
provincial level approval is $5 million. 
¶5. Foreign investors in a joint venture must contribute at least 
thirty percent (30%) of the venture's registered capital.  Capital 
contributed in foreign currency must be converted into kip based on 
the exchange rate of the Bank of the Lao People's Democratic 
Republic on the day of the capital contribution.  Wholly 
foreign-owned companies may either be a new company or a branch 
office of an existing foreign company. Throughout the period of 
operation of a foreign investment enterprise, the assets of the 
enterprise must not be less than its registered capital. The 
screening process at the Department for Promotion and Management of 
Domestic and Foreign Investment (DDFI) in the Ministry of Planning 
and Investment (MPI) takes into account the financial and technical 
feasibility of the project, input from relevant line ministries, and 
whether the proposed project conflicts with government policy.  Upon 
receipt of an application, the MPI must coordinate with relevant 
sectors and local authorities to consider and respond in writing to 
the foreign investor. Responses to projects, depending on project 
type, are supposed to be forthcoming within 15-45 working days. 
¶6. Foreign investors are required to obtain a foreign investment 
license, an enterprise registration certificate, and a tax 
registration certificate from the MPI office nearest the place where 
the foreign investors are licensed. Thereafter they shall be 
considered as enterprises established in conformity with the laws of 
the Lao People's Democratic Republic.  Within 90 days from the date 
of receipt of an investment license the foreign investment 
enterprise must commence business activities.  If the investors fail 
to do so, the foreign investment license is subject to termination. 
¶7. In addition to the investment license, foreign investors are 
required to obtain other permits.  These include a business 
registration which must be annually renewed from the Ministry of 
Industry and Commerce, a tax registration from the tax department in 
the Ministry of Finance, a business logo registration from the 
Ministry of Public Security, permits from each line ministry related 
to the investment (i.e., Ministry of Industry and Commerce for 
manufacturing; Ministry of Public Works and Transportation, etc.), 
appropriate permits from local authorities, and an import-export 
license, if needed.  Obtaining the necessary permits can pose a 
challenge to foreign investors, especially in areas outside the 
capital.  The recent creation of a "one-stop shop" for many permits 
within the Ministry of Planning and Investment should help ease 
permitting difficulties in the future. 
¶8. Lao law provides for sanctity of contracts.  The following link 
is for a translation of the Lao contract law. 
http://www.undplao.org/  whatwedo/bgresource/demogov/ 
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf 
 
However, since Laos is a communist one-party state, the sanctity of 
contracts is subject both to political interference and a number of 
socialist principles enshrined in the law.  For example, according 
to the contract law: 
A contract can be voided if it is disadvantageous to one party, and 
A voidable contract can be declared void by the disadvantaged 
party. 
¶9. Although a commercial court system exists, in practice most 
judges adjudicating commercial disputes have little training in 
commercial law.  Those considering doing business in Laos are 
strongly urged to contact a reputable law firm for additional advice 
on contracts. 
¶10. In 2006 the Lao government ceased imposing import restrictions 
on trading companies, whether foreign or domestic, in an effort to 
let the market respond to actual demand.  The Lao government no 
longer requires companies to file an annual import plan for approval 
by the Ministry of Commerce.  The main exception is the fuel 
industry, where individual companies are still required to file an 
annual import plan.  The government controls the retail price and 
profit margins of gasoline and diesel.  A large American oil company 
announced in late 2007 that it was leaving the Lao market to focus 
on more profitable countries within Asia. Government documents 
articulating the restrictions and explaining the policy are 
difficult to obtain.  Goods that are always prohibited for import 
and export range from explosives and weapons, to literature that 
presents a negative view of the Lao government, to certain forestry 
products and wildlife.  For a detailed list of import & export 
restrictions please visit http://www.moc.gov.la/default.asp 
 
¶11. Agriculture production and most manufacturing production is 
private.  State-owned enterprises (SOEs) currently account for only 
one percent of total employment.  Approximately 97 percent of 
manufacturing units are small (fewer than 10 employees). Foreign 
companies interested in acquiring SOEs should apply through the 
 
VIENTIANE 00000063  009 OF 033 
 
 
Department for 
 
-------------------------------- 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶12. In order to facilitate business transactions, foreign investors 
generally open commercial bank accounts in both local and foreign 
convertible currency at domestic and foreign banks in Laos. 
Australian, Vietnamese, Thai, Cambodian and Malaysian banks 
currently have a presence in Laos.  Bank accounts must be maintained 
in accordance with the Enterprise Accounting Law.  The law places no 
limitations on foreign investors transferring after-tax profits, 
income from technology transfer, initial capital, interest, wages 
and salaries, or other remittances to the company's home country or 
third countries so long as they request approval from the Lao 
government. These transactions are conducted at the official 
exchange rate on the day of execution, upon presentation of 
appropriate documentation.  Supply of foreign exchange has in the 
past been limited in Laos, which imposed a de facto limit on 
repatriation of capital.  Foreign currency inflows in recent years, 
however, have reportedly solved this problem and large 
multinationals in Laos report no problems with access to foreign 
exchange.  Foreign enterprises must report on their performance 
annually and submit annual financial statements to the Ministry of 
Planning and Investment (MPI). 
 
------------------------------ 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶13. Foreign assets and investments in Laos are protected by laws and 
regulations against seizure, confiscation, or nationalization except 
when this is deemed necessary for a public purpose, in which case 
foreign investors are to be compensated.  While there have been no 
expropriations, the Lao Government has revoked the foreign 
investment licenses of companies in a less than transparent process. 
 Revocation of an investment license cannot be appealed to an 
independent body, and companies whose licenses are revoked must then 
liquidate their assets relatively rapidly.  In addition, a company 
that fails to begin conducting business within ninety days of 
registering could be dissolved, if it does not have a reasonable 
explanation. 
------------------ 
DISPUTE SETTLEMENT 
------------------ 
 
¶14. According to the Foreign Investment Law, investors involved in 
investment disputes must seek arbitration before taking legal 
action.  If arbitration does not result in an amicable settlement, 
litigants may submit their claims to the economic arbitration 
authority of Laos, or that of the investor's country, or an 
international organization agreed on by both parties.  In practice, 
there are no adequate independent arbitration venues in Laos. 
Foreign investors are therefore generally advised to seek 
arbitration outside the country, since Laos' nascent domestic 
arbitration authority lacks enforcement powers.  Laos is not a 
member of the International Center for the Settlement of Investment 
Disputes.  It became a party to the New York Convention of 1958 on 
the Recognition and Enforcement of Foreign Arbitral Awards on 
September 15, 1998, but Laos has never been asked to enforce a 
foreign arbitral award.  Laos is a member of the United Nations 
Convention on International Trade Law. 
¶15. In disputes involving the Ministry of Planning and Investment, 
decisions can only be appealed back to the Ministry itself.  There 
is no separate independent body.  Thus a company which feels it is 
receiving unfair treatment from the government has no independent 
recourse.  In 2007, two U.S.-owned small companies were involved in 
disputes with the Lao government.  One company had its investment 
license revoked and the U.S. owners were given no option other than 
to liquidate their assets.  Another is still working with Lao 
authorities to resolve the issue.  The Lao government has cooperated 
with the Embassy in addressing the disputes. 
 
¶16. Laos' legal system is evolving, but remains incomplete in many 
regards.  Laws sometimes contradict each other and often lack 
implementing regulations.  For example, tax exemptions and low 
import duties guaranteed to foreign investors under the foreign 
investment law are not reflected in customs or tax law.  Supported 
by the Japan International Cooperation Agency (JICA), Singapore, and 
the United Nations Development Program (UNDP), some laws have been 
officially translated into English.  These include the business, 
tax, bankruptcy, customs, and secured transaction laws. 
Implementing regulations for the Foreign Investment Law, which are 
 
VIENTIANE 00000063  010 OF 033 
 
 
crucial to enforcement, were approved on October 10, 2005.  The 
reliability of unofficial translations varies considerably, which 
can create an environment of uncertainty and ambiguity among foreign 
investors.  Application of Lao law remains inconsistent and 
knowledge of the laws themselves is often limited (especially 
outside the capital).  The existence of a large number of government 
decrees, sometimes unpublished, further complicates the situation. 
While the trend under the current government is towards more 
openness and more accountability, investors are cautioned to 
recognize that economic and legal reform remain a work in progress. 
¶17.  Projects funded by the Australian government, the EU, the U.S., 
and the UN Development Program to assist Lao accession to the World 
Trade Organization (WTO) include components aimed at bringing Lao 
commercial law into conformity with WTO standards.  A commercial 
court was established during 2003, and began to hear cases in 2005. 
The Lao Bar Association was set-up in 2007. 
 
¶18.  Laos has no anti-trust statutes.  The bankruptcy law permits 
either the business or creditor the right to petition the court for 
a bankruptcy judgment, and allows businesses the right to request 
mediation.  There is no record of foreign-owned enterprises, whether 
as debtors or as creditors, petitioning the courts for a bankruptcy 
judgment. 
--------------------------------------- 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
¶19.  Laos does not impose performance requirements per se.  Foreign 
investors are encouraged to give priority to Lao citizens in 
recruiting and hiring. According to the foreign investment law, 
foreign personnel can be hired, although they may not exceed ten 
percent (10%) of the enterprise's total labor force.  In the case of 
skilled labor, or politically important projects, the Ministry of 
Planning and Investment has confirmed that enterprises can hire over 
10% foreign labor if necessary.  Before bringing in foreign labor, 
the enterprise must apply for work permits from the Ministry of 
Labor and Social Welfare.  A foreign personnel list must also be 
submitted to the Planning, Monitoring and Evaluation Division of the 
Department for Promotion and Management of Domestic and Foreign 
Investment (DDFI). 
¶20.  Incentives for Foreign Investment: Laos grants incentives for 
foreign investment depending on the sectors and zones of investment 
promotion. The government defines promoted activities under Article 
16 as follows: 
 
1) production for export; 
2) activities relating to agriculture or forestry, and agricultural, 
forestry and handicraft processing activities; 
3) activities relating to industrial processing, industrial 
activities using modern techniques and technology, research and 
development, and activities relating to the protection of the 
environment and biodiversity; 
4) human resource development, skills development and public health; 
 
5) construction of infrastructure; 
6) production of raw materials and equipment to be supplied to key 
industrial activities; and, 
7) development of the tourism industry and transit services. 
 
¶21.  The Law on the Promotion of Foreign Investment: 
 
http://www.undplao.org/whatwedo/bgresource/ 
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign% 
20Investment.pdf 
 
describes geographic and tax incentives in articles 17 and 18. 
 
¶22.  Foreigners employed in Laos, including foreign investors, must 
pay an income tax of 10 percent of their total income to the Lao 
Government, unless they are citizens of a country with which the Lao 
Government has signed a double taxation agreement.  The United 
States has no such agreement with Laos.  The turnover tax is 
scheduled to be replaced in 2009 with a Value Added Tax (VAT). 
¶23.  Foreign investors are not required to pay import duty on 
equipment, spare parts and other materials used in the operation of 
their enterprises.  Raw materials and intermediate goods imported 
for the purpose of processing and re-export are exempt from import 
duties.  Raw materials and intermediate goods imported for the 
purpose of import substitution are also eligible for import duty 
reductions on a case-by-case basis.  On an individual basis, foreign 
investors are also eligible for profit tax and import duty 
reductions or exemptions, if the investment is significantly large 
or determined to have a significant benefit to Laos' socio-economic 
development.  To date the Lao Government appears to have honored its 
 
VIENTIANE 00000063  011 OF 033 
 
 
incentives.  Annual business license renewal is contingent upon 
certification that corporate income taxes have been paid.  The tax 
code was streamlined and simplified in April 2005, but some 
investors still report significant difficulties in obtaining tax 
certifications in a timely manner. 
 
¶24.  The Foreign Investment Law stipulates that foreign investors 
and their families, including foreign professionals and foreign 
employees of an enterprise, shall be facilitated by issue of 
multiple entry visas and, if approved by the government, long term 
residence in the Lao PDR.  They also, in theory, have the right to 
apply for Lao nationality in accordance with the Law on Nationality. 
 
-------------------------------------------- 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶25.  The government recognizes the right of private enterprise 
ownership, and foreigners may transfer shares of a foreign-invested 
company without prior government approval.  However, the business 
law requires that all shareholders be listed in the articles of 
association, and changes in the articles of association of a 
foreign-invested company must be approved by DDFI-Ministry of 
Planning and Investment (MPI) , per the Enterprise Law 
http://www.moc.gov.la/default.asp.  Thus, transferring shares in a 
foreign-invested company registered in Laos does require the 
indirect approval of the government (DDFI-MPI). 
----------------------------- 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶26.  Foreign investors are not permitted to own land.  The 
government grants long-term leases, and allows the ownership of 
leases and the right to transfer and improve leasehold interests. 
Government approval is not required to transfer property interests, 
but the transfer must be registered and a registration fee paid. 
This includes mortgage leases. 
¶27.  Secured interests in property are inadequately covered by the 
Secured Transactions Law of 1994.  Because the law offers no 
instructions for the creditor to enforce security rights (the 
creditor, for example, can only request repayment from the debtor), 
the law favors the debtor.  Moreover, since the Ministry of 
Finance's registry system is not computerized, and cannot 
cross-reference records, it is difficult to determine if a piece of 
property is encumbered.  Enforcement of a mortgage is further 
complicated by the legal protection given mortgagees against 
forfeiture of their sole place of residence. 
¶28.  Laos issued a trademark decree in January 1995.  The National 
Science and Technology Organization (NSTO), part of the Prime 
Minister's Office, controls the issuance of trademarks on a 
first-come, first-register basis. Applicants do not have to 
demonstrate prior use.  There are currently over 18,109 trademarks 
registered in Laos. 
¶29.  Laos became a member of the ASEAN Common Filing System on 
patents in 2000 but lacks adequate personnel qualified to serve as 
patent examiners.  A draft decree on patents was sent to the Prime 
Minister in February 2000 for approval and in 2002 the Prime 
Minister's Office issued patent regulations.  Since Thailand and 
Laos have a bilateral Intellectual Property Rights (IPR) agreement, 
in principle a patent issued in Thailand would also be recognized in 
Laos. 
¶30.  Currently, no system exists to issue copyrights in Laos.  Laos 
became a member of the World Intellectual Property Organization 
(WIPO) Convention in January 1995 and the Paris Convention on the 
Protection of Industrial Property in October 1998; it has not yet 
joined the Bern Convention on Copyrights, however.  Although WIPO 
began to assist Laos in drafting an intellectual property law in 
1996, a WTO-compliant law has not yet been implemented.  In December 
2007 the National Assembly approved a law the Lao government claims 
will cover its U.S. Bilateral Trade Agreement (BTA) 
responsibilities, as well as be WTO compliant.  An English 
translation sponsored by the U.S. Government is currently being 
finalized.   Overall, there is currently little protection for 
intellectual property rights in Laos, although the authorities have 
taken steps to crack down on some pirated goods. 
------------------------------------- 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶31.  The principal laws, regulations, decrees and guidelines 
governing international trade and investment, as well as the current 
protection of intellectual property, are available to the public, 
although not all have been officially translated into English.  Laws 
and their schedules for implementation are customarily published in 
 
VIENTIANE 00000063  012 OF 033 
 
 
Lao daily newspapers, and relevant line ministries are beginning to 
put laws and regulations on websites.  The website for UNDP Laos 
maintains a partial list of translated Lao laws: 
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php 
 
Laws can also be found via the following websites.  Laws on the 
National Assembly website represent the officially approved English 
translations: 
http://www.na.gov.la/index.php (look under legislation on the left 
side); 
http://www.poweringprogress.org/ index.php?option=com_ 
content&view= 
 index.php?option=com _content&view=article&id= 242&Itemid=109 
http://www.moc.gov.la/gioithieuAP.asp 
In addition, implementation of the budget law commenced with the 
restructuring of the Ministry of Finance (MoF) via Prime Ministerial 
Decree Number 80 of February 28, 2007.  In September 2007, the Prime 
Minister issued Order No 35 instructing the MoF to move ahead with 
centralization of customs, tax and treasury departments.  In January 
2009 the Government introduced a Value-Added Tax (VAT).  Full 
implementation of the tax is likely to take a number of years. 
¶32.  A lack of transparency in a centralized decision-making 
process, as well as the difficulty encountered in obtaining 
information, augment the perception of the regulatory framework as 
arbitrary and inscrutable.  There have been reports that the 
government has recently begun discussing some proposed laws and 
regulations with the business community, and acted upon the advice 
given, before making final decisions.  The Lao Tourist Association 
has repeatedly urged the Lao government at the "Lao Business Forum," 
a business-government meeting sponsored by the Lao government and 
the International Finance Corporation (IFC), to discuss proposed 
laws with industry prior to implementation. 
--------------------------------------------- ----- 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶33.  Laos does not have a developed capital market.  Three-month 
treasury bills are occasionally offered for sale when there is a 
need to absorb excess liquidity in the economy.  The largest 
denomination of currency is 50,000 kip (about US$5).  Credit is not 
available on the local market for large capital investments, 
although letters of credit for export can sometimes be obtained 
locally.  International reserves fluctuate, with the latest 
available 2007 data showing sufficient coverage for 5 months of 
imports and numbering $485 million. 
¶34.  The banking system is under the supervision of the Bank of Lao 
PDR, and includes: 
* three state-owned commercial banks: Banque pour Le Commerce 
Exterior Lao (BCEL), Lao Development Bank and Agriculture Promotion 
Bank; 
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank; 
 
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai 
Military and Ayoudhiya Banks whose activities are mainly limited to 
providing services to local Thai businesses; 
* one Vietnamese bank: Sacombank 
* five private banks (3 foreign and two domestic): Malaysia - Public 
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the 
Association of Cambodia Local Economic Development Agencies (ACLEDA) 
Bank Lao Ltd .  Domestic banks include Phongsavanh Bankand and Kolao 
Bank 
one representative office: Standard Chartered Bank. 
 
¶35.  A new banking law passed in 2006 allows private foreign banks 
to establish branches in all provinces of Laos.  (Previously, 
foreign banks were permitted to establish branches only in 
Vientiane.)  The Commercial Bank Law is available on the Bank of Lao 
PDR (BOL) website: http://www.bol.gov.la/index1.php.  BCEL has 
correspondence arrangements with the following banks (US dollars): 
 
JP Morgan Chase Bank, New York 
Citibank, New York 
Wachovia Bank, New York 
American Express Bank, Ltd., New York 
HSBC Bank, New York 
Standard Chartered Bank, New York 
Barclays Bank Plc., London 
Credit Suisse First Boston, Zurich 
Bank of Tokyo-Mitsubishi, Ltd, Tokyo 
Natexis Banque Populaires, Singapore 
Standard Chartered Bank, Singapore 
Bank for Foreign Trade of Vietnam, Hanoi 
TMB, Bank Public Co, Ltd, Bangkok 
Bank Thai Public Co. Ltd. Bangkok 
 
VIENTIANE 00000063  013 OF 033 
 
 
Calyon, Bangkok 
Sumitomo Mitsui Banking Corporation, Tokyo 
 
¶36.  The Lao banking sector is in flux, with new private and foreign 
banks opening to provide modern banking options to Lao and foreign 
businesses.  While continuing to receive outside assistance, central 
bank supervision of the sector remains somewhat weak.  Although 
non-performing loans have decreased significantly since 2003, 
through work-outs, write-offs, and transfers off balance sheets, the 
three state-owned commercial banks (SCBs) remain, according to 
official estimates, insolvent.  For detailed information see the IMF 
Article IV report: 
http://www.imf.org/external/pubs  /ft/scr/2008/cr08350.pdf 
The Asian Development Bank has provided both program loans and 
technical assistance to Laos' financial sector, as have the World 
Bank and the IMF.  These programs have led to some reforms but 
overall capacity within the governance structure remains weak and 
the banks face many challenges. 
The Government of Laos is planning to open a stock exchange in 2010, 
with technical assistance provided from the South Korean 
government. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶37.  Laos is generally a peaceful and politically stable country. 
The remnants of an insurgency occasionally carry out small-scale 
attacks on government personnel and civilians.  Foreign persons are 
not deliberately targeted, but visitors are advised to use caution 
when traveling in remote districts. 
 
---------- 
CORRUPTION 
---------- 
 
¶38.  The Prime Minister's Office has made combating corruption a 
priority, including issuance of an anticorruption decree in November 
1999, but corruption remains a problem.  Although the 1999 decree 
specifically notes the responsibility of the state-owned mass media 
in publicizing corruption cases, there has been no reporting on this 
issue.  In 2005, an anti-corruption law was passed by the National 
Assembly.  According to the State Inspection Authority, the Lao 
Government has prosecuted some individuals for corruption but it 
cannot publicize the information.  The State Inspection Authority, 
located in the Prime Minister's Office, is charged with analyzing 
corruption at the national level and serves as a central office for 
gathering details and evidence of suspected corruption. 
Additionally, the State Inspection Department in each Ministry is 
responsible for a ministry's internal problems. 
 
¶39.  Laos is not a signatory to the OECD Convention on Combating 
UNCLASSIFIED 
PROG 02/06/09 
AMB: RRHUSO 
ECON: JCARCHIBALD 
DCM: PMHAYMOND 
POL PDS 
 
AMEMBASSY VIENTIANE 
SECSTATE WASHDC 
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS 
CIMS NTDB WASHDC 
USDOC WASHDC 
US DEPARTMENT OF COMMERCE WASHDC 
US DEPARTMENT OF TREASURY WASH DC 
 
SIPDIS 
 
STATE FOR EAP/MLS EMERY 
STATE FOR EEB/IFD/OIA 
STATE PASS USTR FOR BISBEE 
COMMERCE FOR HP PHO 
 
E.O. 12958: N/A 
TAGS: ECON EINV OPIC USTR KTDB LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS 
 
REF: 08 STATE 123909 
 
------------------------------ 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
 
VIENTIANE 00000063  014 OF 033 
 
 
¶1.   The Lao government is open to foreign investment as a matter of 
policy.  It allows 100% foreign ownership of investments.  The 
overall investment climate is poor but improving.  Laos rates very 
low in international indices of transparency and ease of doing 
business. 
 
¶2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated 
October 22, 2004, purport to promote foreign direct investment as a 
means of boosting development and economic growth.  Under the 2004 
Law on the Promotion of Foreign Investment, scheduled to be updated 
at the end of 2009, foreign investors may invest in all business 
sectors and zones of investment in the Lao People's Democratic 
Republic, except in business activities which are detrimental to 
national security, have a negative impact on the environment, or are 
regarded as detrimental to health or national traditions.  In recent 
years Laos has seen a significant increase in FDI, especially in 
mining, hydropower, and plantation agriculture.  Major foreign 
investors are Thailand, China, Vietnam and Australia. 
¶3. When bidding for the right to large contracts, companies 
frequently offer the government the "option" of purchasing part of 
the company at a later date, often with money borrowed from the 
investor or multilateral institutions.  The investment term of a 
foreign investment enterprise depends on the nature, size, and 
conditions of the business project but normally cannot exceed fifty 
years. Under special circumstances, foreign investment enterprises 
may be extended with the approval of the government. However, 
foreign enterprises that receive extension approval from the 
government may not exceed a total investment term of seventy-five 
years. 
¶4. Foreign investors seeking to establish operations in Laos must 
submit project proposals to the Department for Promotion and 
Management of Domestic and Foreign Investment (DDFI), Ministry for 
Planning and Investment (MPI).  The proposal is then screened by the 
relevant line ministries and adjudicated by the Prime Minister's 
Office.  Under Prime Minister Decree No 301, dated October 12, 2005, 
proposals for projects worth US$20 million or more require the 
approval of the Prime Minister.  The Minister of MPI can approve 
investments below $20 million USD while the vice Minister can 
approve investments of less than $10 million USD.  FDI equal to or 
less than $3 million USD can be approved at the provincial level by 
all provinces, and in four of the larger provinces - Vientiane 
Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for 
provincial level approval is $5 million. 
¶5. Foreign investors in a joint venture must contribute at least 
thirty percent (30%) of the venture's registered capital.  Capital 
contributed in foreign currency must be converted into kip based on 
the exchange rate of the Bank of the Lao People's Democratic 
Republic on the day of the capital contribution.  Wholly 
foreign-owned companies may either be a new company or a branch 
office of an existing foreign company. Throughout the period of 
operation of a foreign investment enterprise, the assets of the 
enterprise must not be less than its registered capital. The 
screening process at the Department for Promotion and Management of 
Domestic and Foreign Investment (DDFI) in the Ministry of Planning 
and Investment (MPI) takes into account the financial and technical 
feasibility of the project, input from relevant line ministries, and 
whether the proposed project conflicts with government policy.  Upon 
receipt of an application, the MPI must coordinate with relevant 
sectors and local authorities to consider and respond in writing to 
the foreign investor. Responses to projects, depending on project 
type, are supposed to be forthcoming within 15-45 working days. 
¶6. Foreign investors are required to obtain a foreign investment 
license, an enterprise registration certificate, and a tax 
registration certificate from the MPI office nearest the place where 
the foreign investors are licensed. Thereafter they shall be 
considered as enterprises established in conformity with the laws of 
the Lao People's Democratic Republic.  Within 90 days from the date 
of receipt of an investment license the foreign investment 
enterprise must commence business activities.  If the investors fail 
to do so, the foreign investment license is subject to termination. 
¶7. In addition to the investment license, foreign investors are 
required to obtain other permits.  These include a business 
registration which must be annually renewed from the Ministry of 
Industry and Commerce, a tax registration from the tax department in 
the Ministry of Finance, a business logo registration from the 
Ministry of Public Security, permits from each line ministry related 
to the investment (i.e., Ministry of Industry and Commerce for 
manufacturing; Ministry of Public Works and Transportation, etc.), 
appropriate permits from local authorities, and an import-export 
license, if needed.  Obtaining the necessary permits can pose a 
challenge to foreign investors, especially in areas outside the 
capital.  The recent creation of a "one-stop shop" for many permits 
within the Ministry of Planning and Investment should help ease 
permitting difficulties in the future. 
 
VIENTIANE 00000063  015 OF 033 
 
 
¶8. Lao law provides for sanctity of contracts.  The following link 
is for a translation of the Lao contract law. 
http://www.undplao.org/  whatwedo/bgresource/demogov/ 
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf 
 
However, since Laos is a communist one-party state, the sanctity of 
contracts is subject both to political interference and a number of 
socialist principles enshrined in the law.  For example, according 
to the contract law: 
A contract can be voided if it is disadvantageous to one party, and 
A voidable contract can be declared void by the disadvantaged 
party. 
¶9. Although a commercial court system exists, in practice most 
judges adjudicating commercial disputes have little training in 
commercial law.  Those considering doing business in Laos are 
strongly urged to contact a reputable law firm for additional advice 
on contracts. 
¶10. In 2006 the Lao government ceased imposing import restrictions 
on trading companies, whether foreign or domestic, in an effort to 
let the market respond to actual demand.  The Lao government no 
longer requires companies to file an annual import plan for approval 
by the Ministry of Commerce.  The main exception is the fuel 
industry, where individual companies are still required to file an 
annual import plan.  The government controls the retail price and 
profit margins of gasoline and diesel.  A large American oil company 
announced in late 2007 that it was leaving the Lao market to focus 
on more profitable countries within Asia. Government documents 
articulating the restrictions and explaining the policy are 
difficult to obtain.  Goods that are always prohibited for import 
and export range from explosives and weapons, to literature that 
presents a negative view of the Lao government, to certain forestry 
products and wildlife.  For a detailed list of import & export 
restrictions please visit http://www.moc.gov.la/default.asp 
 
¶11. Agriculture production and most manufacturing production is 
private.  State-owned enterprises (SOEs) currently account for only 
one percent of total employment.  Approximately 97 percent of 
manufacturing units are small (fewer than 10 employees). Foreign 
companies interested in acquiring SOEs should apply through the 
Department for 
 
-------------------------------- 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶12. In order to facilitate business transactions, foreign investors 
generally open commercial bank accounts in both local and foreign 
convertible currency at domestic and foreign banks in Laos. 
Australian, Vietnamese, Thai, Cambodian and Malaysian banks 
currently have a presence in Laos.  Bank accounts must be maintained 
in accordance with the Enterprise Accounting Law.  The law places no 
limitations on foreign investors transferring after-tax profits, 
income from technology transfer, initial capital, interest, wages 
and salaries, or other remittances to the company's home country or 
third countries so long as they request approval from the Lao 
government. These transactions are conducted at the official 
exchange rate on the day of execution, upon presentation of 
appropriate documentation.  Supply of foreign exchange has in the 
past been limited in Laos, which imposed a de facto limit on 
repatriation of capital.  Foreign currency inflows in recent years, 
however, have reportedly solved this problem and large 
multinationals in Laos report no problems with access to foreign 
exchange.  Foreign enterprises must report on their performance 
annually and submit annual financial statements to the Ministry of 
Planning and Investment (MPI). 
 
------------------------------ 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶13. Foreign assets and investments in Laos are protected by laws and 
regulations against seizure, confiscation, or nationalization except 
when this is deemed necessary for a public purpose, in which case 
foreign investors are to be compensated.  While there have been no 
expropriations, the Lao Government has revoked the foreign 
investment licenses of companies in a less than transparent process. 
 Revocation of an investment license cannot be appealed to an 
independent body, and companies whose licenses are revoked must then 
liquidate their assets relatively rapidly.  In addition, a company 
that fails to begin conducting business within ninety days of 
registering could be dissolved, if it does not have a reasonable 
explanation. 
------------------ 
DISPUTE SETTLEMENT 
 
VIENTIANE 00000063  016 OF 033 
 
 
------------------ 
 
¶14. According to the Foreign Investment Law, investors involved in 
investment disputes must seek arbitration before taking legal 
action.  If arbitration does not result in an amicable settlement, 
litigants may submit their claims to the economic arbitration 
authority of Laos, or that of the investor's country, or an 
international organization agreed on by both parties.  In practice, 
there are no adequate independent arbitration venues in Laos. 
Foreign investors are therefore generally advised to seek 
arbitration outside the country, since Laos' nascent domestic 
arbitration authority lacks enforcement powers.  Laos is not a 
member of the International Center for the Settlement of Investment 
Disputes.  It became a party to the New York Convention of 1958 on 
the Recognition and Enforcement of Foreign Arbitral Awards on 
September 15, 1998, but Laos has never been asked to enforce a 
foreign arbitral award.  Laos is a member of the United Nations 
Convention on International Trade Law. 
¶15. In disputes involving the Ministry of Planning and Investment, 
decisions can only be appealed back to the Ministry itself.  There 
is no separate independent body.  Thus a company which feels it is 
receiving unfair treatment from the government has no independent 
recourse.  In 2007, two U.S.-owned small companies were involved in 
disputes with the Lao government.  One company had its investment 
license revoked and the U.S. owners were given no option other than 
to liquidate their assets.  Another is still working with Lao 
authorities to resolve the issue.  The Lao government has cooperated 
with the Embassy in addressing the disputes. 
 
¶16. Laos' legal system is evolving, but remains incomplete in many 
regards.  Laws sometimes contradict each other and often lack 
implementing regulations.  For example, tax exemptions and low 
import duties guaranteed to foreign investors under the foreign 
investment law are not reflected in customs or tax law.  Supported 
by the Japan International Cooperation Agency (JICA), Singapore, and 
the United Nations Development Program (UNDP), some laws have been 
officially translated into English.  These include the business, 
tax, bankruptcy, customs, and secured transaction laws. 
Implementing regulations for the Foreign Investment Law, which are 
crucial to enforcement, were approved on October 10, 2005.  The 
reliability of unofficial translations varies considerably, which 
can create an environment of uncertainty and ambiguity among foreign 
investors.  Application of Lao law remains inconsistent and 
knowledge of the laws themselves is often limited (especially 
outside the capital).  The existence of a large number of government 
decrees, sometimes unpublished, further complicates the situation. 
While the trend under the current government is towards more 
openness and more accountability, investors are cautioned to 
recognize that economic and legal reform remain a work in progress. 
¶17.  Projects funded by the Australian government, the EU, the U.S., 
and the UN Development Program to assist Lao accession to the World 
Trade Organization (WTO) include components aimed at bringing Lao 
commercial law into conformity with WTO standards.  A commercial 
court was established during 2003, and began to hear cases in 2005. 
The Lao Bar Association was set-up in 2007. 
 
¶18.  Laos has no anti-trust statutes.  The bankruptcy law permits 
either the business or creditor the right to petition the court for 
a bankruptcy judgment, and allows businesses the right to request 
mediation.  There is no record of foreign-owned enterprises, whether 
as debtors or as creditors, petitioning the courts for a bankruptcy 
judgment. 
--------------------------------------- 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
¶19.  Laos does not impose performance requirements per se.  Foreign 
investors are encouraged to give priority to Lao citizens in 
recruiting and hiring. According to the foreign investment law, 
foreign personnel can be hired, although they may not exceed ten 
percent (10%) of the enterprise's total labor force.  In the case of 
skilled labor, or politically important projects, the Ministry of 
Planning and Investment has confirmed that enterprises can hire over 
10% foreign labor if necessary.  Before bringing in foreign labor, 
the enterprise must apply for work permits from the Ministry of 
Labor and Social Welfare.  A foreign personnel list must also be 
submitted to the Planning, Monitoring and Evaluation Division of the 
Department for Promotion and Management of Domestic and Foreign 
Investment (DDFI). 
¶20.  Incentives for Foreign Investment: Laos grants incentives for 
foreign investment depending on the sectors and zones of investment 
promotion. The government defines promoted activities under Article 
16 as follows: 
 
 
VIENTIANE 00000063  017 OF 033 
 
 
1) production for export; 
2) activities relating to agriculture or forestry, and agricultural, 
forestry and handicraft processing activities; 
3) activities relating to industrial processing, industrial 
activities using modern techniques and technology, research and 
development, and activities relating to the protection of the 
environment and biodiversity; 
4) human resource development, skills development and public health; 
 
5) construction of infrastructure; 
6) production of raw materials and equipment to be supplied to key 
industrial activities; and, 
7) development of the tourism industry and transit services. 
 
¶21.  The Law on the Promotion of Foreign Investment: 
 
http://www.undplao.org/whatwedo/bgresource/ 
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign% 
20Investment.pdf 
 
describes geographic and tax incentives in articles 17 and 18. 
 
¶22.  Foreigners employed in Laos, including foreign investors, must 
pay an income tax of 10 percent of their total income to the Lao 
Government, unless they are citizens of a country with which the Lao 
Government has signed a double taxation agreement.  The United 
States has no such agreement with Laos.  The turnover tax is 
scheduled to be replaced in 2009 with a Value Added Tax (VAT). 
¶23.  Foreign investors are not required to pay import duty on 
equipment, spare parts and other materials used in the operation of 
their enterprises.  Raw materials and intermediate goods imported 
for the purpose of processing and re-export are exempt from import 
duties.  Raw materials and intermediate goods imported for the 
purpose of import substitution are also eligible for import duty 
reductions on a case-by-case basis.  On an individual basis, foreign 
investors are also eligible for profit tax and import duty 
reductions or exemptions, if the investment is significantly large 
or determined to have a significant benefit to Laos' socio-economic 
development.  To date the Lao Government appears to have honored its 
incentives.  Annual business license renewal is contingent upon 
certification that corporate income taxes have been paid.  The tax 
code was streamlined and simplified in April 2005, but some 
investors still report significant difficulties in obtaining tax 
certifications in a timely manner. 
 
¶24.  The Foreign Investment Law stipulates that foreign investors 
and their families, including foreign professionals and foreign 
employees of an enterprise, shall be facilitated by issue of 
multiple entry visas and, if approved by the government, long term 
residence in the Lao PDR.  They also, in theory, have the right to 
apply for Lao nationality in accordance with the Law on Nationality. 
 
-------------------------------------------- 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶25.  The government recognizes the right of private enterprise 
ownership, and foreigners may transfer shares of a foreign-invested 
company without prior government approval.  However, the business 
law requires that all shareholders be listed in the articles of 
association, and changes in the articles of association of a 
foreign-invested company must be approved by DDFI-Ministry of 
Planning and Investment (MPI) , per the Enterprise Law 
http://www.moc.gov.la/default.asp.  Thus, transferring shares in a 
foreign-invested company registered in Laos does require the 
indirect approval of the government (DDFI-MPI). 
----------------------------- 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶26.  Foreign investors are not permitted to own land.  The 
government grants long-term leases, and allows the ownership of 
leases and the right to transfer and improve leasehold interests. 
Government approval is not required to transfer property interests, 
but the transfer must be registered and a registration fee paid. 
This includes mortgage leases. 
¶27.  Secured interests in property are inadequately covered by the 
Secured Transactions Law of 1994.  Because the law offers no 
instructions for the creditor to enforce security rights (the 
creditor, for example, can only request repayment from the debtor), 
the law favors the debtor.  Moreover, since the Ministry of 
Finance's registry system is not computerized, and cannot 
cross-reference records, it is difficult to determine if a piece of 
property is encumbered.  Enforcement of a mortgage is further 
 
VIENTIANE 00000063  018 OF 033 
 
 
complicated by the legal protection given mortgagees against 
forfeiture of their sole place of residence. 
¶28.  Laos issued a trademark decree in January 1995.  The National 
Science and Technology Organization (NSTO), part of the Prime 
Minister's Office, controls the issuance of trademarks on a 
first-come, first-register basis. Applicants do not have to 
demonstrate prior use.  There are currently over 18,109 trademarks 
registered in Laos. 
¶29.  Laos became a member of the ASEAN Common Filing System on 
patents in 2000 but lacks adequate personnel qualified to serve as 
patent examiners.  A draft decree on patents was sent to the Prime 
Minister in February 2000 for approval and in 2002 the Prime 
Minister's Office issued patent regulations.  Since Thailand and 
Laos have a bilateral Intellectual Property Rights (IPR) agreement, 
in principle a patent issued in Thailand would also be recognized in 
Laos. 
¶30.  Currently, no system exists to issue copyrights in Laos.  Laos 
became a member of the World Intellectual Property Organization 
(WIPO) Convention in January 1995 and the Paris Convention on the 
Protection of Industrial Property in October 1998; it has not yet 
joined the Bern Convention on Copyrights, however.  Although WIPO 
began to assist Laos in drafting an intellectual property law in 
1996, a WTO-compliant law has not yet been implemented.  In December 
2007 the National Assembly approved a law the Lao government claims 
will cover its U.S. Bilateral Trade Agreement (BTA) 
responsibilities, as well as be WTO compliant.  An English 
translation sponsored by the U.S. Government is currently being 
finalized.   Overall, there is currently little protection for 
intellectual property rights in Laos, although the authorities have 
taken steps to crack down on some pirated goods. 
------------------------------------- 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶31.  The principal laws, regulations, decrees and guidelines 
governing international trade and investment, as well as the current 
protection of intellectual property, are available to the public, 
although not all have been officially translated into English.  Laws 
and their schedules for implementation are customarily published in 
Lao daily newspapers, and relevant line ministries are beginning to 
put laws and regulations on websites.  The website for UNDP Laos 
maintains a partial list of translated Lao laws: 
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php 
 
Laws can also be found via the following websites.  Laws on the 
National Assembly website represent the officially approved English 
translations: 
http://www.na.gov.la/index.php (look under legislation on the left 
side); 
http://www.poweringprogress.org/ index.php?option=com_ 
content&view= 
 index.php?option=com _content&view=article&id= 242&Itemid=109 
http://www.moc.gov.la/gioithieuAP.asp 
In addition, implementation of the budget law commenced with the 
restructuring of the Ministry of Finance (MoF) via Prime Ministerial 
Decree Number 80 of February 28, 2007.  In September 2007, the Prime 
Minister issued Order No 35 instructing the MoF to move ahead with 
centralization of customs, tax and treasury departments.  In January 
2009 the Government introduced a Value-Added Tax (VAT).  Full 
implementation of the tax is likely to take a number of years. 
¶32.  A lack of transparency in a centralized decision-making 
process, as well as the difficulty encountered in obtaining 
information, augment the perception of the regulatory framework as 
arbitrary and inscrutable.  There have been reports that the 
government has recently begun discussing some proposed laws and 
regulations with the business community, and acted upon the advice 
given, before making final decisions.  The Lao Tourist Association 
has repeatedly urged the Lao government at the "Lao Business Forum," 
a business-government meeting sponsored by the Lao government and 
the International Finance Corporation (IFC), to discuss proposed 
laws with industry prior to implementation. 
--------------------------------------------- ----- 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶33.  Laos does not have a developed capital market.  Three-month 
treasury bills are occasionally offered for sale when there is a 
need to absorb excess liquidity in the economy.  The largest 
denomination of currency is 50,000 kip (about US$5).  Credit is not 
available on the local market for large capital investments, 
although letters of credit for export can sometimes be obtained 
locally.  International reserves fluctuate, with the latest 
available 2007 data showing sufficient coverage for 5 months of 
imports and numbering $485 million. 
 
VIENTIANE 00000063  019 OF 033 
 
 
¶34.  The banking system is under the supervision of the Bank of Lao 
PDR, and includes: 
* three state-owned commercial banks: Banque pour Le Commerce 
Exterior Lao (BCEL), Lao Development Bank and Agriculture Promotion 
Bank; 
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank; 
 
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai 
Military and Ayoudhiya Banks whose activities are mainly limited to 
providing services to local Thai businesses; 
* one Vietnamese bank: Sacombank 
* five private banks (3 foreign and two domestic): Malaysia - Public 
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the 
Association of Cambodia Local Economic Development Agencies (ACLEDA) 
Bank Lao Ltd .  Domestic banks include Phongsavanh Bankand and Kolao 
Bank 
one representative office: Standard Chartered Bank. 
 
¶35.  A new banking law passed in 2006 allows private foreign banks 
to establish branches in all provinces of Laos.  (Previously, 
foreign banks were permitted to establish branches only in 
Vientiane.)  The Commercial Bank Law is available on the Bank of Lao 
PDR (BOL) website: http://www.bol.gov.la/index1.php.  BCEL has 
correspondence arrangements with the following banks (US dollars): 
 
JP Morgan Chase Bank, New York 
Citibank, New York 
Wachovia Bank, New York 
American Express Bank, Ltd., New York 
HSBC Bank, New York 
Standard Chartered Bank, New York 
Barclays Bank Plc., London 
Credit Suisse First Boston, Zurich 
Bank of Tokyo-Mitsubishi, Ltd, Tokyo 
Natexis Banque Populaires, Singapore 
Standard Chartered Bank, Singapore 
Bank for Foreign Trade of Vietnam, Hanoi 
TMB, Bank Public Co, Ltd, Bangkok 
Bank Thai Public Co. Ltd. Bangkok 
Calyon, Bangkok 
Sumitomo Mitsui Banking Corporation, Tokyo 
 
¶36.  The Lao banking sector is in flux, with new private and foreign 
banks opening to provide modern banking options to Lao and foreign 
businesses.  While continuing to receive outside assistance, central 
bank supervision of the sector remains somewhat weak.  Although 
non-performing loans have decreased significantly since 2003, 
through work-outs, write-offs, and transfers off balance sheets, the 
three state-owned commercial banks (SCBs) remain, according to 
official estimates, insolvent.  For detailed information see the IMF 
Article IV report: 
http://www.imf.org/external/pubs  /ft/scr/2008/cr08350.pdf 
The Asian Development Bank has provided both program loans and 
technical assistance to Laos' financial sector, as have the World 
Bank and the IMF.  These programs have led to some reforms but 
overall capacity within the governance structure remains weak and 
the banks face many challenges. 
The Government of Laos is planning to open a stock exchange in 2010, 
with technical assistance provided from the South Korean 
government. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶37.  Laos is generally a peaceful and politically stable country. 
The remnants of an insurgency occasionally carry out small-scale 
attacks on government personnel and civilians.  Foreign persons are 
not deliberately targeted, but visitors are advised to use caution 
when traveling in remote districts. 
 
---------- 
CORRUPTION 
---------- 
 
¶38.  The Prime Minister's Office has made combating corruption a 
priority, including issuance of an anticorruption decree in November 
1999, but corruption remains a problem.  Although the 1999 decree 
specifically notes the responsibility of the state-owned mass media 
in publicizing corruption cases, there has been no reporting on this 
issue.  In 2005, an anti-corruption law was passed by the National 
Assembly.  According to the State Inspection Authority, the Lao 
Government has prosecuted some individuals for corruption but it 
cannot publicize the information.  The State Inspection Authority, 
 
VIENTIANE 00000063  020 OF 033 
 
 
located in the Prime Minister's Office, is charged with analyzing 
corruption at the national level and serves as a central office for 
gathering details and evidence of suspected corruption. 
Additionally, the State Inspection Department in each Ministry is 
responsible for a ministry's internal problems. 
 
¶39.  Laos is not a signatory to the OECD Convention on Combating 
UNCLASSIFIED 
PROG 02/06/09 
AMB: RRHUSO 
ECON: JCARCHIBALD 
DCM: PMHAYMOND 
POL PDS 
 
AMEMBASSY VIENTIANE 
SECSTATE WASHDC 
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS 
CIMS NTDB WASHDC 
USDOC WASHDC 
US DEPARTMENT OF COMMERCE WASHDC 
US DEPARTMENT OF TREASURY WASH DC 
 
SIPDIS 
 
STATE FOR EAP/MLS EMERY 
STATE FOR EEB/IFD/OIA 
STATE PASS USTR FOR BISBEE 
COMMERCE FOR HP PHO 
 
E.O. 12958: N/A 
TAGS: ECON EINV OPIC USTR KTDB LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS 
 
REF: 08 STATE 123909 
 
------------------------------ 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
¶1.   The Lao government is open to foreign investment as a matter of 
policy.  It allows 100% foreign ownership of investments.  The 
overall investment climate is poor but improving.  Laos rates very 
low in international indices of transparency and ease of doing 
business. 
 
¶2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated 
October 22, 2004, purport to promote foreign direct investment as a 
means of boosting development and economic growth.  Under the 2004 
Law on the Promotion of Foreign Investment, scheduled to be updated 
at the end of 2009, foreign investors may invest in all business 
sectors and zones of investment in the Lao People's Democratic 
Republic, except in business activities which are detrimental to 
national security, have a negative impact on the environment, or are 
regarded as detrimental to health or national traditions.  In recent 
years Laos has seen a significant increase in FDI, especially in 
mining, hydropower, and plantation agriculture.  Major foreign 
investors are Thailand, China, Vietnam and Australia. 
¶3. When bidding for the right to large contracts, companies 
frequently offer the government the "option" of purchasing part of 
the company at a later date, often with money borrowed from the 
investor or multilateral institutions.  The investment term of a 
foreign investment enterprise depends on the nature, size, and 
conditions of the business project but normally cannot exceed fifty 
years. Under special circumstances, foreign investment enterprises 
may be extended with the approval of the government. However, 
foreign enterprises that receive extension approval from the 
government may not exceed a total investment term of seventy-five 
years. 
¶4. Foreign investors seeking to establish operations in Laos must 
submit project proposals to the Department for Promotion and 
Management of Domestic and Foreign Investment (DDFI), Ministry for 
Planning and Investment (MPI).  The proposal is then screened by the 
relevant line ministries and adjudicated by the Prime Minister's 
Office.  Under Prime Minister Decree No 301, dated October 12, 2005, 
proposals for projects worth US$20 million or more require the 
approval of the Prime Minister.  The Minister of MPI can approve 
investments below $20 million USD while the vice Minister can 
approve investments of less than $10 million USD.  FDI equal to or 
less than $3 million USD can be approved at the provincial level by 
all provinces, and in four of the larger provinces - Vientiane 
Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for 
provincial level approval is $5 million. 
¶5. Foreign investors in a joint venture must contribute at least 
thirty percent (30%) of the venture's registered capital.  Capital 
 
VIENTIANE 00000063  021 OF 033 
 
 
contributed in foreign currency must be converted into kip based on 
the exchange rate of the Bank of the Lao People's Democratic 
Republic on the day of the capital contribution.  Wholly 
foreign-owned companies may either be a new company or a branch 
office of an existing foreign company. Throughout the period of 
operation of a foreign investment enterprise, the assets of the 
enterprise must not be less than its registered capital. The 
screening process at the Department for Promotion and Management of 
Domestic and Foreign Investment (DDFI) in the Ministry of Planning 
and Investment (MPI) takes into account the financial and technical 
feasibility of the project, input from relevant line ministries, and 
whether the proposed project conflicts with government policy.  Upon 
receipt of an application, the MPI must coordinate with relevant 
sectors and local authorities to consider and respond in writing to 
the foreign investor. Responses to projects, depending on project 
type, are supposed to be forthcoming within 15-45 working days. 
¶6. Foreign investors are required to obtain a foreign investment 
license, an enterprise registration certificate, and a tax 
registration certificate from the MPI office nearest the place where 
the foreign investors are licensed. Thereafter they shall be 
considered as enterprises established in conformity with the laws of 
the Lao People's Democratic Republic.  Within 90 days from the date 
of receipt of an investment license the foreign investment 
enterprise must commence business activities.  If the investors fail 
to do so, the foreign investment license is subject to termination. 
¶7. In addition to the investment license, foreign investors are 
required to obtain other permits.  These include a business 
registration which must be annually renewed from the Ministry of 
Industry and Commerce, a tax registration from the tax department in 
the Ministry of Finance, a business logo registration from the 
Ministry of Public Security, permits from each line ministry related 
to the investment (i.e., Ministry of Industry and Commerce for 
manufacturing; Ministry of Public Works and Transportation, etc.), 
appropriate permits from local authorities, and an import-export 
license, if needed.  Obtaining the necessary permits can pose a 
challenge to foreign investors, especially in areas outside the 
capital.  The recent creation of a "one-stop shop" for many permits 
within the Ministry of Planning and Investment should help ease 
permitting difficulties in the future. 
¶8. Lao law provides for sanctity of contracts.  The following link 
is for a translation of the Lao contract law. 
http://www.undplao.org/  whatwedo/bgresource/demogov/ 
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf 
 
However, since Laos is a communist one-party state, the sanctity of 
contracts is subject both to political interference and a number of 
socialist principles enshrined in the law.  For example, according 
to the contract law: 
A contract can be voided if it is disadvantageous to one party, and 
A voidable contract can be declared void by the disadvantaged 
party. 
¶9. Although a commercial court system exists, in practice most 
judges adjudicating commercial disputes have little training in 
commercial law.  Those considering doing business in Laos are 
strongly urged to contact a reputable law firm for additional advice 
on contracts. 
¶10. In 2006 the Lao government ceased imposing import restrictions 
on trading companies, whether foreign or domestic, in an effort to 
let the market respond to actual demand.  The Lao government no 
longer requires companies to file an annual import plan for approval 
by the Ministry of Commerce.  The main exception is the fuel 
industry, where individual companies are still required to file an 
annual import plan.  The government controls the retail price and 
profit margins of gasoline and diesel.  A large American oil company 
announced in late 2007 that it was leaving the Lao market to focus 
on more profitable countries within Asia. Government documents 
articulating the restrictions and explaining the policy are 
difficult to obtain.  Goods that are always prohibited for import 
and export range from explosives and weapons, to literature that 
presents a negative view of the Lao government, to certain forestry 
products and wildlife.  For a detailed list of import & export 
restrictions please visit http://www.moc.gov.la/default.asp 
 
¶11. Agriculture production and most manufacturing production is 
private.  State-owned enterprises (SOEs) currently account for only 
one percent of total employment.  Approximately 97 percent of 
manufacturing units are small (fewer than 10 employees). Foreign 
companies interested in acquiring SOEs should apply through the 
Department for 
 
-------------------------------- 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
 
VIENTIANE 00000063  022 OF 033 
 
 
¶12. In order to facilitate business transactions, foreign investors 
generally open commercial bank accounts in both local and foreign 
convertible currency at domestic and foreign banks in Laos. 
Australian, Vietnamese, Thai, Cambodian and Malaysian banks 
currently have a presence in Laos.  Bank accounts must be maintained 
in accordance with the Enterprise Accounting Law.  The law places no 
limitations on foreign investors transferring after-tax profits, 
income from technology transfer, initial capital, interest, wages 
and salaries, or other remittances to the company's home country or 
third countries so long as they request approval from the Lao 
government. These transactions are conducted at the official 
exchange rate on the day of execution, upon presentation of 
appropriate documentation.  Supply of foreign exchange has in the 
past been limited in Laos, which imposed a de facto limit on 
repatriation of capital.  Foreign currency inflows in recent years, 
however, have reportedly solved this problem and large 
multinationals in Laos report no problems with access to foreign 
exchange.  Foreign enterprises must report on their performance 
annually and submit annual financial statements to the Ministry of 
Planning and Investment (MPI). 
 
------------------------------ 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶13. Foreign assets and investments in Laos are protected by laws and 
regulations against seizure, confiscation, or nationalization except 
when this is deemed necessary for a public purpose, in which case 
foreign investors are to be compensated.  While there have been no 
expropriations, the Lao Government has revoked the foreign 
investment licenses of companies in a less than transparent process. 
 Revocation of an investment license cannot be appealed to an 
independent body, and companies whose licenses are revoked must then 
liquidate their assets relatively rapidly.  In addition, a company 
that fails to begin conducting business within ninety days of 
registering could be dissolved, if it does not have a reasonable 
explanation. 
------------------ 
DISPUTE SETTLEMENT 
------------------ 
 
¶14. According to the Foreign Investment Law, investors involved in 
investment disputes must seek arbitration before taking legal 
action.  If arbitration does not result in an amicable settlement, 
litigants may submit their claims to the economic arbitration 
authority of Laos, or that of the investor's country, or an 
international organization agreed on by both parties.  In practice, 
there are no adequate independent arbitration venues in Laos. 
Foreign investors are therefore generally advised to seek 
arbitration outside the country, since Laos' nascent domestic 
arbitration authority lacks enforcement powers.  Laos is not a 
member of the International Center for the Settlement of Investment 
Disputes.  It became a party to the New York Convention of 1958 on 
the Recognition and Enforcement of Foreign Arbitral Awards on 
September 15, 1998, but Laos has never been asked to enforce a 
foreign arbitral award.  Laos is a member of the United Nations 
Convention on International Trade Law. 
¶15. In disputes involving the Ministry of Planning and Investment, 
decisions can only be appealed back to the Ministry itself.  There 
is no separate independent body.  Thus a company which feels it is 
receiving unfair treatment from the government has no independent 
recourse.  In 2007, two U.S.-owned small companies were involved in 
disputes with the Lao government.  One company had its investment 
license revoked and the U.S. owners were given no option other than 
to liquidate their assets.  Another is still working with Lao 
authorities to resolve the issue.  The Lao government has cooperated 
with the Embassy in addressing the disputes. 
 
¶16. Laos' legal system is evolving, but remains incomplete in many 
regards.  Laws sometimes contradict each other and often lack 
implementing regulations.  For example, tax exemptions and low 
import duties guaranteed to foreign investors under the foreign 
investment law are not reflected in customs or tax law.  Supported 
by the Japan International Cooperation Agency (JICA), Singapore, and 
the United Nations Development Program (UNDP), some laws have been 
officially translated into English.  These include the business, 
tax, bankruptcy, customs, and secured transaction laws. 
Implementing regulations for the Foreign Investment Law, which are 
crucial to enforcement, were approved on October 10, 2005.  The 
reliability of unofficial translations varies considerably, which 
can create an environment of uncertainty and ambiguity among foreign 
investors.  Application of Lao law remains inconsistent and 
knowledge of the laws themselves is often limited (especially 
outside the capital).  The existence of a large number of government 
 
VIENTIANE 00000063  023 OF 033 
 
 
decrees, sometimes unpublished, further complicates the situation. 
While the trend under the current government is towards more 
openness and more accountability, investors are cautioned to 
recognize that economic and legal reform remain a work in progress. 
¶17.  Projects funded by the Australian government, the EU, the U.S., 
and the UN Development Program to assist Lao accession to the World 
Trade Organization (WTO) include components aimed at bringing Lao 
commercial law into conformity with WTO standards.  A commercial 
court was established during 2003, and began to hear cases in 2005. 
The Lao Bar Association was set-up in 2007. 
 
¶18.  Laos has no anti-trust statutes.  The bankruptcy law permits 
either the business or creditor the right to petition the court for 
a bankruptcy judgment, and allows businesses the right to request 
mediation.  There is no record of foreign-owned enterprises, whether 
as debtors or as creditors, petitioning the courts for a bankruptcy 
judgment. 
--------------------------------------- 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
¶19.  Laos does not impose performance requirements per se.  Foreign 
investors are encouraged to give priority to Lao citizens in 
recruiting and hiring. According to the foreign investment law, 
foreign personnel can be hired, although they may not exceed ten 
percent (10%) of the enterprise's total labor force.  In the case of 
skilled labor, or politically important projects, the Ministry of 
Planning and Investment has confirmed that enterprises can hire over 
10% foreign labor if necessary.  Before bringing in foreign labor, 
the enterprise must apply for work permits from the Ministry of 
Labor and Social Welfare.  A foreign personnel list must also be 
submitted to the Planning, Monitoring and Evaluation Division of the 
Department for Promotion and Management of Domestic and Foreign 
Investment (DDFI). 
¶20.  Incentives for Foreign Investment: Laos grants incentives for 
foreign investment depending on the sectors and zones of investment 
promotion. The government defines promoted activities under Article 
16 as follows: 
 
1) production for export; 
2) activities relating to agriculture or forestry, and agricultural, 
forestry and handicraft processing activities; 
3) activities relating to industrial processing, industrial 
activities using modern techniques and technology, research and 
development, and activities relating to the protection of the 
environment and biodiversity; 
4) human resource development, skills development and public health; 
 
5) construction of infrastructure; 
6) production of raw materials and equipment to be supplied to key 
industrial activities; and, 
7) development of the tourism industry and transit services. 
 
¶21.  The Law on the Promotion of Foreign Investment: 
 
http://www.undplao.org/whatwedo/bgresource/ 
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign% 
20Investment.pdf 
 
describes geographic and tax incentives in articles 17 and 18. 
 
¶22.  Foreigners employed in Laos, including foreign investors, must 
pay an income tax of 10 percent of their total income to the Lao 
Government, unless they are citizens of a country with which the Lao 
Government has signed a double taxation agreement.  The United 
States has no such agreement with Laos.  The turnover tax is 
scheduled to be replaced in 2009 with a Value Added Tax (VAT). 
¶23.  Foreign investors are not required to pay import duty on 
equipment, spare parts and other materials used in the operation of 
their enterprises.  Raw materials and intermediate goods imported 
for the purpose of processing and re-export are exempt from import 
duties.  Raw materials and intermediate goods imported for the 
purpose of import substitution are also eligible for import duty 
reductions on a case-by-case basis.  On an individual basis, foreign 
investors are also eligible for profit tax and import duty 
reductions or exemptions, if the investment is significantly large 
or determined to have a significant benefit to Laos' socio-economic 
development.  To date the Lao Government appears to have honored its 
incentives.  Annual business license renewal is contingent upon 
certification that corporate income taxes have been paid.  The tax 
code was streamlined and simplified in April 2005, but some 
investors still report significant difficulties in obtaining tax 
certifications in a timely manner. 
 
 
VIENTIANE 00000063  024 OF 033 
 
 
¶24.  The Foreign Investment Law stipulates that foreign investors 
and their families, including foreign professionals and foreign 
employees of an enterprise, shall be facilitated by issue of 
multiple entry visas and, if approved by the government, long term 
residence in the Lao PDR.  They also, in theory, have the right to 
apply for Lao nationality in accordance with the Law on Nationality. 
 
-------------------------------------------- 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶25.  The government recognizes the right of private enterprise 
ownership, and foreigners may transfer shares of a foreign-invested 
company without prior government approval.  However, the business 
law requires that all shareholders be listed in the articles of 
association, and changeQin the articles of association of a 
foreign-invested company must be approved by DDFI-Ministry of 
Planning and Investment (MPI) , per the Enterprise Law 
http://www.moc.gov.la/default.asp.  Thus, transferring shares in a 
foreign-invested company registered in Laos does require the 
indirect approval of the government (DDFI-MPI). 
----------------------------- 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶26.  Foreign investors are not permitted to own land.  The 
government grants long-term leases, and allows the ownership of 
leases and the right to transfer and improve leasehold interests. 
Government approval is not required to transfer property interests, 
but the transfer must be registered and a registration fee paid. 
This includes mortgage leases. 
¶27.  Secured interests in property are inadequately covered by the 
Secured Transactions Law of 1994.  Because the law offers no 
instructions for the creditor to enforce security rights (the 
creditor, for example, can only request repayment from the debtor), 
the law favors the debtor.  Moreover, since the Ministry of 
Finance's registry system is not computerized, and cannot 
cross-reference records, it is difficult to determine if a piece of 
property is encumbered.  Enforcement of a mortgage is further 
complicated by the legal protection given mortgagees against 
forfeiture of their sole place of residence. 
¶28.  Laos issued a trademark decree in January 1995.  The National 
Science and Technology Organization (NSTO), part of the Prime 
Minister's Office, controls the issuance of trademarks on a 
first-come, first-register basis. Applicants do not have to 
demonstrate prior use.  There are currently over 18,109 trademarks 
registered in Laos. 
¶29.  Laos became a member of the ASEAN Common Filing System on 
patents in 2000 but lacks adequate personnel qualified to serve as 
patent examiners.  A draft decree on patents was sent to the Prime 
Minister in February 2000 for approval and in 2002 the Prime 
Minister's Office issued patent regulations.  Since Thailand and 
Laos have a bilateral Intellectual Property Rights (IPR) agreement, 
in principle a patent issued in Thailand would also be recognized in 
Laos. 
¶30.  Currently, no system exists to issue copyrights in Laos.  Laos 
became a member of the World Intellectual Property Organization 
(WIPO) Convention in January 1995 and the Paris Convention on the 
Protection of Industrial Property in October 1998; it has not yet 
joined the Bern Convention on Copyrights, however.  Although WIPO 
began to assist Laos in drafting an intellectual property law in 
1996, a WTO-compliant law has not yet been implemented.  In December 
2007 the National Assembly approved a law the Lao government claims 
will cover its U.S. Bilateral Trade Agreement (BTA) 
responsibilities, as well as be WTO compliant.  An English 
translation sponsored by the U.S. Government is currently being 
finalized.   Overall, there is currently little protection for 
intellectual property rights in Laos, although the authorities have 
taken steps to crack down on some pirated goods. 
------------------------------------- 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶31.  The principal laws, regulations, decrees and guidelines 
governing international trade and investment, as well as the current 
protection of intellectual property, are available to the public, 
although not all have been officially translated into English.  Laws 
and their schedules for implementation are customarily published in 
Lao daily newspapers, and relevant line ministries are beginning to 
put laws and regulations on websites.  The website for UNDP Laos 
maintains a partial list of translated Lao laws: 
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php 
 
Laws can also be found via the following websites.  Laws on the 
 
VIENTIANE 00000063  025 OF 033 
 
 
National Assembly website represent the officially approved English 
translations: 
http://www.na.gov.la/index.php (look under legislation on the left 
side); 
http://www.poweringprogress.org/ index.php?option=com_ 
content&view= 
 index.php?option=com _content&view=article&id= 242&Itemid=109 
http://www.moc.gov.la/gioithieuAP.asp 
In addition, implementation of the budget law commenced with the 
restructuring of the Ministry of Finance (MoF) via Prime Ministerial 
Decree Number 80 of February 28, 2007.  In September 2007, the Prime 
Minister issued Order No 35 instructing the MoF to move ahead with 
centralization of customs, tax and treasury departments.  In January 
2009 the Government introduced a Value-Added Tax (VAT).  Full 
implementation of the tax is likely to take a number of years. 
¶32.  A lack of transparency in a centralized decision-making 
process, as well as the difficulty encountered in obtaining 
information, augment the perception of the regulatory framework as 
arbitrary and inscrutable.  There have been reports that the 
government has recently begun discussing some proposed laws and 
regulations with the business community, and acted upon the advice 
given, before making final decisions.  The Lao Tourist Association 
has repeatedly urged the Lao government at the "Lao Business Forum," 
a business-government meeting sponsored by the Lao government and 
the International Finance Corporation (IFC), to discuss proposed 
laws with industry prior to implementation. 
--------------------------------------------- ----- 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶33.  Laos does not have a developed capital market.  Three-month 
treasury bills are occasionally offered for sale when there is a 
need to absorb excess liquidity in the economy.  The largest 
denomination of currency is 50,000 kip (about US$5).  Credit is not 
available on the local market for large capital investments, 
although letters of credit for export can sometimes be obtained 
locally.  International reserves fluctuate, with the latest 
available 2007 data showing sufficient coverage for 5 months of 
imports and numbering $485 million. 
¶34.  The banking system is under the supervision of the Bank of Lao 
PDR, and includes: 
* three state-owned commercial banks: Banque pour Le Commerce 
Exterior Lao (BCEL), Lao Development Bank and Agriculture Promotion 
Bank; 
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank; 
 
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai 
Military and Ayoudhiya Banks whose activities are mainly limited to 
providing services to local Thai businesses; 
* one Vietnamese bank: Sacombank 
* five private banks (3 foreign and two domestic): Malaysia - Public 
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the 
Association of Cambodia Local Economic Development Agencies (ACLEDA) 
Bank Lao Ltd .  Domestic banks include Phongsavanh Bankand and Kolao 
Bank 
one representative office: Standard Chartered Bank. 
 
¶35.  A new banking law passed in 2006 allows private foreign banks 
to establish branches in all provinces of Laos.  (Previously, 
foreign banks were permitted to establish branches only in 
Vientiane.)  The Commercial Bank Law is available on the Bank of Lao 
PDR (BOL) website: http://www.bol.gov.la/index1.php.  BCEL has 
correspondence arrangements with the following banks (US dollars): 
 
JP Morgan Chase Bank, New York 
Citibank, New York 
Wachovia Bank, New York 
American Express Bank, Ltd., New York 
HSBC Bank, New York 
Standard Chartered Bank, New York 
Barclays Bank Plc., London 
Credit Suisse First Boston, Zurich 
Bank of Tokyo-Mitsubishi, Ltd, Tokyo 
Natexis Banque Populaires, Singapore 
Standard Chartered Bank, Singapore 
Bank for Foreign Trade of Vietnam, Hanoi 
TMB, Bank Public Co, Ltd, Bangkok 
Bank Thai Public Co. Ltd. Bangkok 
Calyon, Bangkok 
Sumitomo Mitsui Banking Corporation, Tokyo 
 
¶36.  The Lao banking sector is in flux, with new private and foreign 
banks opening to provide modern banking options to Lao and foreign 
businesses.  While continuing to receive outside assistance, central 
 
VIENTIANE 00000063  026 OF 033 
 
 
bank supervision of the sector remains somewhat weak.  Although 
non-performing loans have decreased significantly since 2003, 
through work-outs, write-offs, and transfers off balance sheets, the 
three state-owned commercial banks (SCBs) remain, according to 
official estimates, insolvent.  For detailed information see the IMF 
Article IV report: 
http://www.imf.org/external/pubs  /ft/scr/2008/cr08350.pdf 
The Asian Development Bank has provided both program loans and 
technical assistance to Laos' financial sector, as have the World 
Bank and the IMF.  These programs have led to some reforms but 
overall capacity within the governance structure remains weak and 
the banks face many challenges. 
The Government of Laos is planning to open a stock exchange in 2010, 
with technical assistance provided from the South Korean 
government. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶37.  Laos is generally a peaceful and politically stable country. 
The remnants of an insurgency occasionally carry out small-scale 
attacks on government personnel and civilians.  Foreign persons are 
not deliberately targeted, but visitors are advised to use caution 
when traveling in remote districts. 
 
---------- 
CORRUPTION 
---------- 
 
¶38.  The Prime Minister's Office has made combating corruption a 
priority, including issuance of an anticorruption decree in November 
1999, but corruption remains a problem.  Although the 1999 decree 
specifically notes the responsibility of the state-owned mass media 
in publicizing corruption cases, there has been no reporting on this 
issue.  In 2005, an anti-corruption law was passed by the National 
Assembly.  According to the State Inspection Authority, the Lao 
Government has prosecuted some individuals for corruption but it 
cannot publicize the information.  The State Inspection Authority, 
located in the Prime Minister's Office, is charged with analyzing 
corruption at the national level and serves as a central office for 
gathering details and evidence of suspected corruption. 
Additionally, the State Inspection Department in each Ministry is 
responsible for a ministry's internal problems. 
 
¶39.  Laos is not a signatory to the OECD Convention on Combating 
UNCLASSIFIED 
PROG 02/06/09 
AMB: RRHUSO 
ECON: JCARCHIBALD 
DCM: PMHAYMOND 
POL PDS 
 
AMEMBASSY VIENTIANE 
SECSTATE WASHDC 
INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS 
CIMS NTDB WASHDC 
USDOC WASHDC 
US DEPARTMENT OF COMMERCE WASHDC 
US DEPARTMENT OF TREASURY WASH DC 
 
SIPDIS 
 
STATE FOR EAP/MLS EMERY 
STATE FOR EEB/IFD/OIA 
STATE PASS USTR FOR BISBEE 
COMMERCE FOR HP PHO 
 
E.O. 12958: N/A 
TAGS: ECON EINV OPIC USTR KTDB LA
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS 
 
REF: 08 STATE 123909 
 
------------------------------ 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
¶1.   The Lao government is open to foreign investment as a matter of 
policy.  It allows 100% foreign ownership of investments.  The 
overall investment climate is poor but improving.  Laos rates very 
low in international indices of transparency and ease of doing 
business. 
 
 
VIENTIANE 00000063  027 OF 033 
 
 
¶2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated 
October 22, 2004, purport to promote foreign direct investment as a 
means of boosting development and economic growth.  Under the 2004 
Law on the Promotion of Foreign Investment, scheduled to be updated 
at the end of 2009, foreign investors may invest in all business 
sectors and zones of investment in the Lao People's Democratic 
Republic, except in business activities which are detrimental to 
national security, have a negative impact on the environment, or are 
regarded as detrimental to health or national traditions.  In recent 
years Laos has seen a significant increase in FDI, especially in 
mining, hydropower, and plantation agriculture.  Major foreign 
investors are Thailand, China, Vietnam and Australia. 
¶3. When bidding for the right to large contracts, companies 
frequently offer the government the "option" of purchasing part of 
the company at a later date, often with money borrowed from the 
investor or multilateral institutions.  The investment term of a 
foreign investment enterprise depends on the nature, size, and 
conditions of the business project but normally cannot exceed fifty 
years. Under special circumstances, foreign investment enterprises 
may be extended with the approval of the government. However, 
foreign enterprises that receive extension approval from the 
government may not exceed a total investment term of seventy-five 
years. 
¶4. Foreign investors seeking to establish operations in Laos must 
submit project proposals to the Department for Promotion and 
Management of Domestic and Foreign Investment (DDFI), Ministry for 
Planning and Investment (MPI).  The proposal is then screened by the 
relevant line ministries and adjudicated by the Prime Minister's 
Office.  Under Prime Minister Decree No 301, dated October 12, 2005, 
proposals for projects worth US$20 million or more require the 
approval of the Prime Minister.  The Minister of MPI can approve 
investments below $20 million USD while the vice Minister can 
approve investments of less than $10 million USD.  FDI equal to or 
less than $3 million USD can be approved at the provincial level by 
all provinces, and in four of the larger provinces - Vientiane 
Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for 
provincial level approval is $5 million. 
¶5. Foreign investors in a joint venture must contribute at least 
thirty percent (30%) of the venture's registered capital.  Capital 
contributed in foreign currency must be converted into kip based on 
the exchange rate of the Bank of the Lao People's Democratic 
Republic on the day of the capital contribution.  Wholly 
foreign-owned companies may either be a new company or a branch 
office of an existing foreign company. Throughout the period of 
operation of a foreign investment enterprise, the assets of the 
enterprise must not be less than its registered capital. The 
screening process at the Department for Promotion and Management of 
Domestic and Foreign Investment (DDFI) in the Ministry of Planning 
and Investment (MPI) takes into account the financial and technical 
feasibility of the project, input from relevant line ministries, and 
whether the proposed project conflicts with government policy.  Upon 
receipt of an application, the MPI must coordinate with relevant 
sectors and local authorities to consider and respond in writing to 
the foreign investor. Responses to projects, depending on project 
type, are supposed to be forthcoming within 15-45 working days. 
¶6. Foreign investors are required to obtain a foreign investment 
license, an enterprise registration certificate, and a tax 
registration certificate from the MPI office nearest the place where 
the foreign investors are licensed. Thereafter they shall be 
considered as enterprises established in conformity with the laws of 
the Lao People's Democratic Republic.  Within 90 days from the date 
of receipt of an investment license the foreign investment 
enterprise must commence business activities.  If the investors fail 
to do so, the foreign investment license is subject to termination. 
¶7. In addition to the investment license, foreign investors are 
required to obtain other permits.  These include a business 
registration which must be annually renewed from the Ministry of 
Industry and Commerce, a tax registration from the tax department in 
the Ministry of Finance, a business logo registration from the 
Ministry of Public Security, permits from each line ministry related 
to the investment (i.e., Ministry of Industry and Commerce for 
manufacturing; Ministry of Public Works and Transportation, etc.), 
appropriate permits from local authorities, and an import-export 
license, if needed.  Obtaining the necessary permits can pose a 
challenge to foreign investors, especially in areas outside the 
capital.  The recent creation of a "one-stop shop" for many permits 
within the Ministry of Planning and Investment should help ease 
permitting difficulties in the future. 
¶8. Lao law provides for sanctity of contracts.  The following link 
is for a translation of the Lao contract law. 
http://www.undplao.org/  whatwedo/bgresource/demogov/ 
Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf 
 
However, since Laos is a communist one-party state, the sanctity of 
 
VIENTIANE 00000063  028 OF 033 
 
 
contracts is subject both to political interference and a number of 
socialist principles enshrined in the law.  For example, according 
to the contract law: 
A contract can be voided if it is disadvantageous to one party, and 
A voidable contract can be declared void by the disadvantaged 
party. 
¶9. Although a commercial court system exists, in practice most 
judges adjudicating commercial disputes have little training in 
commercial law.  Those considering doing business in Laos are 
strongly urged to contact a reputable law firm for additional advice 
on contracts. 
¶10. In 2006 the Lao government ceased imposing import restrictions 
on trading companies, whether foreign or domestic, in an effort to 
let the market respond to actual demand.  The Lao government no 
longer requires companies to file an annual import plan for approval 
by the Ministry of Commerce.  The main exception is the fuel 
industry, where individual companies are still required to file an 
annual import plan.  The government controls the retail price and 
profit margins of gasoline and diesel.  A large American oil company 
announced in late 2007 that it was leaving the Lao market to focus 
on more profitable countries within Asia. Government documents 
articulating the restrictions and explaining the policy are 
difficult to obtain.  Goods that are always prohibited for import 
and export range from explosives and weapons, to literature that 
presents a negative view of the Lao government, to certain forestry 
products and wildlife.  For a detailed list of import & export 
restrictions please visit http://www.moc.gov.la/default.asp 
 
¶11. Agriculture production and most manufacturing production is 
private.  State-owned enterprises (SOEs) currently account for only 
one percent of total employment.  Approximately 97 percent of 
manufacturing units are small (fewer than 10 employees). Foreign 
companies interested in acquiring SOEs should apply through the 
Department for 
 
-------------------------------- 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶12. In order to facilitate business transactions, foreign investors 
generally open commercial bank accounts in both local and foreign 
convertible currency at domestic and foreign banks in Laos. 
Australian, Vietnamese, Thai, Cambodian and Malaysian banks 
currently have a presence in Laos.  Bank accounts must be maintained 
in accordance with the Enterprise Accounting Law.  The law places no 
limitations on foreign investors transferring after-tax profits, 
income from technology transfer, initial capital, interest, wages 
and salaries, or other remittances to the company's home country or 
third countries so long as they request approval from the Lao 
government. These transactions are conducted at the official 
exchange rate on the day of execution, upon presentation of 
appropriate documentation.  Supply of foreign exchange has in the 
past been limited in Laos, which imposed a de facto limit on 
repatriation of capital.  Foreign currency inflows in recent years, 
however, have reportedly solved this problem and large 
multinationals in Laos report no problems with access to foreign 
exchange.  Foreign enterprises must report on their performance 
annually and submit annual financial statements to the Ministry of 
Planning and Investment (MPI). 
 
------------------------------ 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶13. Foreign assets and investments in Laos are protected by laws and 
regulations against seizure, confiscation, or nationalization except 
when this is deemed necessary for a public purpose, in which case 
foreign investors are to be compensated.  While there have been no 
expropriations, the Lao Government has revoked the foreign 
investment licenses of companies in a less than transparent process. 
 Revocation of an investment license cannot be appealed to an 
independent body, and companies whose licenses are revoked must then 
liquidate their assets relatively rapidly.  In addition, a company 
that fails to begin conducting business within ninety days of 
registering could be dissolved, if it does not have a reasonable 
explanation. 
------------------ 
DISPUTE SETTLEMENT 
------------------ 
 
¶14. According to the Foreign Investment Law, investors involved in 
investment disputes must seek arbitration before taking legal 
action.  If arbitration does not result in an amicable settlement, 
litigants may submit their claims to the economic arbitration 
 
VIENTIANE 00000063  029 OF 033 
 
 
authority of Laos, or that of the investor's country, or an 
international organization agreed on by both parties.  In practice, 
there are no adequate independent arbitration venues in Laos. 
Foreign investors are therefore generally advised to seek 
arbitration outside the country, since Laos' nascent domestic 
arbitration authority lacks enforcement powers.  Laos is not a 
member of the International Center for the Settlement of Investment 
Disputes.  It became a party to the New York Convention of 1958 on 
the Recognition and Enforcement of Foreign Arbitral Awards on 
September 15, 1998, but Laos has never been asked to enforce a 
foreign arbitral award.  Laos is a member of the United Nations 
Convention on International Trade Law. 
¶15. In disputes involving the Ministry of Planning and Investment, 
decisions can only be appealed back to the Ministry itself.  There 
is no separate independent body.  Thus a company which feels it is 
receiving unfair treatment from the government has no independent 
recourse.  In 2007, two U.S.-owned small companies were involved in 
disputes with the Lao government.  One company had its investment 
license revoked and the U.S. owners were given no option other than 
to liquidate their assets.  Another is still working with Lao 
authorities to resolve the issue.  The Lao government has cooperated 
with the Embassy in addressing the disputes. 
 
¶16. Laos' legal system is evolving, but remains incomplete in many 
regards.  Laws sometimes contradict each other and often lack 
implementing regulations.  For example, tax exemptions and low 
import duties guaranteed to foreign investors under the foreign 
investment law are not reflected in customs or tax law.  Supported 
by the Japan International Cooperation Agency (JICA), Singapore, and 
the United Nations Development Program (UNDP), some laws have been 
officially translated into English.  These include the business, 
tax, bankruptcy, customs, and secured transaction laws. 
Implementing regulations for the Foreign Investment Law, which are 
crucial to enforcement, were approved on October 10, 2005.  The 
reliability of unofficial translations varies considerably, which 
can create an environment of uncertainty and ambiguity among foreign 
investors.  Application of Lao law remains inconsistent and 
knowledge of the laws themselves is often limited (especially 
outside the capital).  The existence of a large number of government 
decrees, sometimes unpublished, further complicates the situation. 
While the trend under the current government is towards more 
openness and more accountability, investors are cautioned to 
recognize that economic and legal reform remain a work in progress. 
¶17.  Projects funded by the Australian government, the EU, the U.S., 
and the UN Development Program to assist Lao accession to the World 
Trade Organization (WTO) include components aimed at bringing Lao 
commercial law into conformity with WTO standards.  A commercial 
court was established during 2003, and began to hear cases in 2005. 
The Lao Bar Association was set-up in 2007. 
 
¶18.  Laos has no anti-trust statutes.  The bankruptcy law permits 
either the business or creditor the right to petition the court for 
a bankruptcy judgment, and allows businesses the right to request 
mediation.  There is no record of foreign-owned enterprises, whether 
as debtors or as creditors, petitioning the courts for a bankruptcy 
judgment. 
--------------------------------------- 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
¶19.  Laos does not impose performance requirements per se.  Foreign 
investors are encouraged to give priority to Lao citizens in 
recruiting and hiring. According to the foreign investment law, 
foreign personnel can be hired, although they may not exceed ten 
percent (10%) of the enterprise's total labor force.  In the case of 
skilled labor, or politically important projects, the Ministry of 
Planning and Investment has confirmed that enterprises can hire over 
10% foreign labor if necessary.  Before bringing in foreign labor, 
the enterprise must apply for work permits from the Ministry of 
Labor and Social Welfare.  A foreign personnel list must also be 
submitted to the Planning, Monitoring and Evaluation Division of the 
Department for Promotion and Management of Domestic and Foreign 
Investment (DDFI). 
¶20.  Incentives for Foreign Investment: Laos grants incentives for 
foreign investment depending on the sectors and zones of investment 
promotion. The government defines promoted activities under Article 
16 as follows: 
 
1) production for export; 
2) activities relating to agriculture or forestry, and agricultural, 
forestry and handicraft processing activities; 
3) activities relating to industrial processing, industrial 
activities using modern techniques and technology, research and 
development, and activities relating to the protection of the 
 
VIENTIANE 00000063  030 OF 033 
 
 
environment and biodiversity; 
4) human resource development, skills development and public health; 
 
5) construction of infrastructure; 
6) production of raw materials and equipment to be supplied to key 
industrial activities; and, 
7) development of the tourism industry and transit services. 
 
¶21.  The Law on the Promotion of Foreign Investment: 
 
http://www.undplao.org/whatwedo/bgresource/ 
demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign% 
20Investment.pdf 
 
describes geographic and tax incentives in articles 17 and 18. 
 
¶22.  Foreigners employed in Laos, including foreign investors, must 
pay an income tax of 10 percent of their total income to the Lao 
Government, unless they are citizens of a country with which the Lao 
Government has signed a double taxation agreement.  The United 
States has no such agreement with Laos.  The turnover tax is 
scheduled to be replaced in 2009 with a Value Added Tax (VAT). 
¶23.  Foreign investors are not required to pay import duty on 
equipment, spare parts and other materials used in the operation of 
their enterprises.  Raw materials and intermediate goods imported 
for the purpose of processing and re-export are exempt from import 
duties.  Raw materials and intermediate goods imported for the 
purpose of import substitution are also eligible for import duty 
reductions on a case-by-case basis.  On an individual basis, foreign 
investors are also eligible for profit tax and import duty 
reductions or exemptions, if the investment is significantly large 
or determined to have a significant benefit to Laos' socio-economic 
development.  To date the Lao Government appears to have honored its 
incentives.  Annual business license renewal is contingent upon 
certification that corporate income taxes have been paid.  The tax 
code was streamlined and simplified in April 2005, but some 
investors still report significant difficulties in obtaining tax 
certifications in a timely manner. 
 
¶24.  The Foreign Investment Law stipulates that foreign investors 
and their families, including foreign professionals and foreign 
employees of an enterprise, shall be facilitated by issue of 
multiple entry visas and, if approved by the government, long term 
residence in the Lao PDR.  They also, in theory, have the right to 
apply for Lao nationality in accordance with the Law on Nationality. 
 
-------------------------------------------- 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶25.  The government recognizes the right of private enterprise 
ownership, and foreigners may transfer shares of a foreign-invested 
company without prior government approval.  However, the business 
law requires that all shareholders be listed in the articles of 
association, and changes in the articles of association of a 
foreign-invested company must be approved by DDFI-Ministry of 
Planning and Investment (MPI) , per the Enterprise Law 
http://www.moc.gov.la/default.asp.  Thus, transferring shares in a 
foreign-invested company registered in Laos does require the 
indirect approval of the government (DDFI-MPI). 
----------------------------- 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶26.  Foreign investors are not permitted to own land.  The 
government grants long-term leases, and allows the ownership of 
leases and the right to transfer and improve leasehold interests. 
Government approval is not required to transfer property interests, 
but the transfer must be registered and a registration fee paid. 
This includes mortgage leases. 
¶27.  Secured interests in property are inadequately covered by the 
Secured Transactions Law of 1994.  Because the law offers no 
instructions for the creditor to enforce security rights (the 
creditor, for example, can only request repayment from the debtor), 
the law favors the debtor.  Moreover, since the Ministry of 
Finance's registry system is not computerized, and cannot 
cross-reference records, it is difficult to determine if a piece of 
property is encumbered.  Enforcement of a mortgage is further 
complicated by the legal protection given mortgagees against 
forfeiture of their sole place of residence. 
¶28.  Laos issued a trademark decree in January 1995.  The National 
Science and Technology Organization (NSTO), part of the Prime 
Minister's Office, controls the issuance of trademarks on a 
first-come, first-register basis. Applicants do not have to 
 
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demonstrate prior use.  There are currently over 18,109 trademarks 
registered in Laos. 
¶29.  Laos became a member of the ASEAN Common Filing System on 
patents in 2000 but lacks adequate personnel qualified to serve as 
patent examiners.  A draft decree on patents was sent to the Prime 
Minister in February 2000 for approval and in 2002 the Prime 
Minister's Office issued patent regulations.  Since Thailand and 
Laos have a bilateral Intellectual Property Rights (IPR) agreement, 
in principle a patent issued in Thailand would also be recognized in 
Laos. 
¶30.  Currently, no system exists to issue copyrights in Laos.  Laos 
became a member of the World Intellectual Property Organization 
(WIPO) Convention in January 1995 and the Paris Convention on the 
Protection of Industrial Property in October 1998; it has not yet 
joined the Bern Convention on Copyrights, however.  Although WIPO 
began to assist Laos in drafting an intellectual property law in 
1996, a WTO-compliant law has not yet been implemented.  In December 
2007 the National Assembly approved a law the Lao government claims 
will cover its U.S. Bilateral Trade Agreement (BTA) 
responsibilities, as well as be WTO compliant.  An English 
translation sponsored by the U.S. Government is currently being 
finalized.   Overall, there is currently little protection for 
intellectual property rights in Laos, although the authorities have 
taken steps to crack down on some pirated goods. 
------------------------------------- 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶31.  The principal laws, regulations, decrees and guidelines 
governing international trade and investment, as well as the current 
protection of intellectual property, are available to the public, 
although not all have been officially translated into English.  Laws 
and their schedules for implementation are customarily published in 
Lao daily newspapers, and relevant line ministries are beginning to 
put laws and regulations on websites.  The website for UNDP Laos 
maintains a partial list of translated Lao laws: 
http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php 
 
Laws can also be found via the following websites.  Laws on the 
National Assembly website represent the officially approved English 
translations: 
http://www.na.gov.la/index.php (look under legislation on the left 
side); 
http://www.poweringprogress.org/ index.php?option=com_ 
content&view= 
 index.php?option=com _content&view=article&id= 242&Itemid=109 
http://www.moc.gov.la/gioithieuAP.asp 
In addition, implementation of the budget law commenced with the 
restructuring of the Ministry of Finance (MoF) via Prime Ministerial 
Decree Number 80 of February 28, 2007.  In September 2007, the Prime 
Minister issued Order No 35 instructing the MoF to move ahead with 
centralization of customs, tax and treasury departments.  In January 
2009 the Government introduced a Value-Added Tax (VAT).  Full 
implementation of the tax is likely to take a number of years. 
¶32.  A lack of transparency in a centralized decision-making 
process, as well as the difficulty encountered in obtaining 
information, augment the perception of the regulatory framework as 
arbitrary and inscrutable.  There have been reports that the 
government has recently begun discussing some proposed laws and 
regulations with the business community, and acted upon the advice 
given, before making final decisions.  The Lao Tourist Association 
has repeatedly urged the Lao government at the "Lao Business Forum," 
a business-government meeting sponsored by the Lao government and 
the International Finance Corporation (IFC), to discuss proposed 
laws with industry prior to implementation. 
--------------------------------------------- ----- 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶33.  Laos does not have a developed capital market.  Three-month 
treasury bills are occasionally offered for sale when there is a 
need to absorb excess liquidity in the economy.  The largest 
denomination of currency is 50,000 kip (about US$5).  Credit is not 
available on the local market for large capital investments, 
although letters of credit for export can sometimes be obtained 
locally.  International reserves fluctuate, with the latest 
available 2007 data showing sufficient coverage for 5 months of 
imports and numbering $485 million. 
¶34.  The banking system is under the supervision of the Bank of Lao 
PDR, and includes: 
* three state-owned commercial banks: Banque pour Le Commerce 
Exterior Lao (BCEL), Lao Development Bank and Agriculture Promotion 
Bank; 
* two joint-venture banks: Joint Development Bank and Lao-Viet Bank; 
 
VIENTIANE 00000063  032 OF 033 
 
 
 
* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai 
Military and Ayoudhiya Banks whose activities are mainly limited to 
providing services to local Thai businesses; 
* one Vietnamese bank: Sacombank 
* five private banks (3 foreign and two domestic): Malaysia - Public 
Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the 
Association of Cambodia Local Economic Development Agencies (ACLEDA) 
Bank Lao Ltd .  Domestic banks include Phongsavanh Bankand and Kolao 
Bank 
one representative office: Standard Chartered Bank. 
 
¶35.  A new banking law passed in 2006 allows private foreign banks 
to establish branches in all provinces of Laos.  (Previously, 
foreign banks were permitted to establish branches only in 
Vientiane.)  The Commercial Bank Law is available on the Bank of Lao 
PDR (BOL) website: http://www.bol.gov.la/index1.php.  BCEL has 
correspondence arrangements with the following banks (US dollars): 
 
JP Morgan Chase Bank, New York 
Citibank, New York 
Wachovia Bank, New York 
American Express Bank, Ltd., New York 
HSBC Bank, New York 
Standard Chartered Bank, New York 
Barclays Bank Plc., London 
Credit Suisse First Boston, Zurich 
Bank of Tokyo-Mitsubishi, Ltd, Tokyo 
Natexis Banque Populaires, Singapore 
Standard Chartered Bank, Singapore 
Bank for Foreign Trade of Vietnam, Hanoi 
TMB, Bank Public Co, Ltd, Bangkok 
Bank Thai Public Co. Ltd. Bangkok 
Calyon, Bangkok 
Sumitomo Mitsui Banking Corporation, Tokyo 
 
¶36.  The Lao banking sector is in flux, with new private and foreign 
banks opening to provide modern banking options to Lao and foreign 
businesses.  While continuing to receive outside assistance, central 
bank supervision of the sector remains somewhat weak.  Although 
non-performing loans have decreased significantly since 2003, 
through work-outs, write-offs, and transfers off balance sheets, the 
three state-owned commercial banks (SCBs) remain, according to 
official estimates, insolvent.  For detailed information see the IMF 
Article IV report: 
http://www.imf.org/external/pubs  /ft/scr/2008/cr08350.pdf 
The Asian Development Bank has provided both program loans and 
technical assistance to Laos' financial sector, as have the World 
Bank and the IMF.  These programs have led to some reforms but 
overall capacity within the governance structure remains weak and 
the banks face many challenges. 
The Government of Laos is planning to open a stock exchange in 2010, 
with technical assistance provided from the South Korean 
government. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶37.  Laos is generally a peaceful and politically stable country. 
The remnants of an insurgency occasionally carry out small-scale 
attacks on government personnel and civilians.  Foreign persons are 
not deliberately targeted, but visitors are advised to use caution 
when traveling in remote districts. 
 
---------- 
CORRUPTION 
---------- 
 
¶38.  The Prime Minister's Office has made combating corruption a 
priority, including issuance of an anticorruption decree in November 
1999, but corruption remains a problem.  Although the 1999 decree 
specifically notes the responsibility of the state-owned mass media 
in publicizing corruption cases, there has been no reporting on this 
issue.  In 2005, an anti-corruption law was passed by the National 
Assembly.  According to the State Inspection Authority, the Lao 
Government has prosecuted some individuals for corruption but it 
cannot publicize the information.  The State Inspection Authority, 
located in the Prime Minister's Office, is charged with analyzing 
corruption at the national level and serves as a central office for 
gathering details and evidence of suspected corruption. 
Additionally, the State Inspection Department in each Ministry is 
responsible for a ministry's internal problems. 
 
 
VIENTIANE 00000063  033 OF 033 
 
 
¶39.  Laos is not a signatory to the OECD Convention on Combating