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RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHVN #0067/01 0410756
ZNR UUUUU ZZH
R 100756Z FEB 09
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 2431
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 11 VIENTIANE 000067 
 
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.  According to Lao 
government figures, the five largest foreign investors 
are Thailand, China, Vietnam, France, and Japan. 
 
¶3.  Large FDI projects, especially in mining and 
hydropower, often either find it advantageous or are 
required to give the government partial ownership, 
frequently with money borrowed from the investor or 
multilateral institutions.  Perhaps the most well-known is 
the Nam Teun II dam, whose 25% government ownership stake 
was financed by a wide range of international financial 
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 MinisterQs Office.  Under 
Prime Minister Decree No 301, dated October 12, 2005, 
proposals for projects worth $20 million USD 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 Q 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 ventureQs registered 
capital.  Capital contributed in foreign currency must be 
converted into kip based on the exchange rate of the Bank 
of the Lao PeopleQs 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 15Q45 
working days. 
 
¶6.  Foreign investors are required to obtain a foreign 
 
VIENTIANE 00000067  002 OF 011 
 
 
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 PeopleQs 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 businesslogo 
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/de mogov/ 
Lao%20Translated%20Laws/First%20Volume/4.%20C ontracts.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. 
The Mekong Law Group, a well-known local law firm, has noted in 
its QLao Legal & Investment GuideQ that according to the contract 
law: 
 
   A contract can be voided if it is disadvantageous to one 
   party, and 
 
   A contract is void if it conflicts with State or public 
   interests. 
 
¶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.  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 forPromotion and 
Management of Domestic and Foreign Investment (DDFI) in the 
Ministry of Planning and Investment (MPI).  Equity in medium 
and large-sized SOEs can be obtained through a joint venture 
with the Lao government. 
 
-------------------------------- 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶12.  In order to facilitate business transactions, foreign 
investors generally open commercial bank accounts in both 
 
VIENTIANE 00000067  003 OF 011 
 
 
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 companyQs 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. 
The second company was unable to renew its operating license in 
2008 and is in the process of departing Laos.  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, 
 
VIENTIANE 00000067  004 OF 011 
 
 
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 enterpriseQs 
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.%20Forei gn% 
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 government began replacing the turnover tax with a Value 
Added Tax (VAT) in 2009. 
 
¶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 
 
VIENTIANE 00000067  005 OF 011 
 
 
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 LaosQ 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 FinanceQs 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 MinisterQs 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 MinisterQs 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 1998 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 
 
VIENTIANE 00000067  006 OF 011 
 
 
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 QLao Business Forum,Q 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$6).  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 
2008 data showing sufficient coverage for 5 months of imports 
and numbering $660 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 
 
VIENTIANE 00000067  007 OF 011 
 
 
Agriculture Promotion Bank; 
 
- three joint-venture banks: Joint Development Bank, 
the Lao-Viet Bank, and a joint venture between BRED Bank of 
France and BCEL, expected in June 2009; 
 
- 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 (4 foreign and one domestic): 
Malaysia - Public Bank (Berhad); ANZ Vientiane Commercial 
Bank Limited, the Association of Cambodia Local Economic 
Development Agencies (ACLEDA) Bank Lao Ltd, and the 
Indochina Bank.  Phongsavanh Bank is currently the sole 
private, domestic 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 IMF 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 LaosQ 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. 
 
¶37.  The Government of Laos is planning to open a stock exchange 
in 2010, with technical assistance provided from the South 
Korean government. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶38.  Laos is generally a peaceful and politically stable country. 
Visitors are advised to use caution when traveling in remote 
districts.  For current State Department information please see: 
http://travel.state.gov/travel/cis_pa_tw/cis/ cis_946.html 
 
 
---------- 
CORRUPTION 
---------- 
 
VIENTIANE 00000067  008 OF 011 
 
 
 
¶39.  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 ministryQs internal problems. 
 
¶40.  Laos is not a signatory to the OECD Convention on Combating 
Bribery.  Both giving and accepting bribes are criminal acts 
punishable by fine and/or imprisonment.  Besides bribes to 
low-level officials for the purpose of expediting time-sensitive 
applications, such as business licenses, importation of 
perishable items, customs, etc., anecdotal evidence of more 
pervasive corruption is growing.  Laos is rated 151 out of 180 
countries on Transparency InternationalQs corruption perception 
index (with one being the least corrupt).  Generally, the 
government tends to deal with serious corruption problems by 
forcing corrupt officials to retire or move to a new position. 
 
------------------------------- 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
¶41.  Laos has bilateral investment agreements with the 
following countries: 
 
Country        Date Signed      Date Entered       Duration 
                                 Into force        (in years) 
Australia       4/6/94            4/8/95             10 
Cambodia        11/24/08            -                10 
China           1/31/93           6/01/93            10 
Cuba            4/28/97           6/10/98            10 
Denmark         9/28/98           5/9/99             10 
DPRK            8/20/97           8/22/98            10 
France          12/12/89          3/8/91             10 
Germany         8/9/96            3/24/99            10 
Holland         5/23/03             -                10 
India           11/09/00          1/6/03             10 
Indonesia       10/18/94          10/14/95           10 
Japan           16/01/08          8/04/08            10 
Kuweit          8/5/08               -               30 
Malaysia        12/8/92           3/25/93            10 
Mongolia        3/3/94            10/29/94           10 
Myanmar         5/5/03            8/28/07             - 
Netherlands     5/16/03              -                - 
Pakistan        4/23/04           3/19/07             - 
Philippines     6/8/07               -               10 
Rep of Korea    5/15/96           6/14/96            15 
Russia          12/6/96           22/03/06           15 
Singapore       3/24/97           3/25/98            10 
Sweden          8/29/96           1/1/97             20 
Switzerland     12/4/96           12/4/96            10 
Thailand        12/08/90          07/12/90           10 
United Kingdom  6/1/95            6/1/95             10 
USA             3/8/96              -                 - 
Vietnam         1/14/96          6/22/96             10 
 
On February 1, 2005 a Bilateral Trade Agreement (BTA) came 
into force between the U.S. and the Government of Laos. 
Laos and the United States do not have a bilateral taxation 
treaty. 
 
------------------------------------------- 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
¶42.  The United States and Laos signed an Overseas Private 
Investment Cooperation (OPIC) agreement in March 1996. 
In 1998 Laos signed an agreement with the Multilateral 
Investment Guarantee Agency (MIGA).  EXIMBANK does not 
currently operate in Laos. 
 
¶43.  The kip, while not an internationally traded currency, 
has been appreciating against the U.S. dollar over the past 
 
VIENTIANE 00000067  009 OF 011 
 
 
year, thanks in part to being pegged to the Thai baht. 
As large amounts of dollars continue to enter Laos, it is 
unlikely the kip will depreciate against the dollar barring 
a significant economic downturn. 
 
----- 
LABOR 
----- 
 
¶44.  Over 70 percent of Laos' work force of 2.7 million is 
engaged in subsistence agriculture.  The Lao government 
estimated the total non-agricultural work force in 2007 to 
number 483,560 people, roughly 25,000 of whom were 
employed in garment manufacturing.  The total labor force 
is expected to increase by more than 30 percent over the 
next ten years. 
 
¶45.  The Labor Law passed in 1994 provides for the formation 
of trade unions; specifies working hours and compensation 
standards; allows for maternity leave and benefits; workers' 
compensation and retirement benefits; and establishes 
procedures for labor dispute resolution.  The Lao government 
raised the official minimum wage to 405,000 kip per month 
(about $48 USD) in 2008.  Wages for unskilled labor at 
garment factories, including bonuses and lunch, now run 
about 290,000 kip or about US $34 monthly. Labor unions can 
be formed in private enterprises, but they must operate 
within the framework of the Lao Federation of Trade Unions 
(LFTU), which is controlled by the Lao PeopleQs Revolutionary 
Party.  In 2008, membership in the LFTU numbered 122,111. 
Strikes are not prohibited by law, but a government ban on 
subversive activities or destabilizing demonstrations makes 
them unlikely. 
 
¶46.  Laos has significant human resource deficiencies 
in virtually all sectors. English is not widely spoken. 
In 2008, about 23 percent of the population age 15 and 
above remained illiterate.  The shortage of skilled labor 
is particularly acute in high-tech sectors.  The country has 
a few technical colleges, one scientific research facility--the 
National Institute of Hygiene and Epidemiology--and almost 
no effective post-graduate degree programs.  The Lao Government 
has dedicated very few of its own resources to improve the 
countryQs education system and tends to rely heavily on 
international donors for support; there are a few state 
training programs and some foreign-funded programs.  Potential 
investors should note the need to dedicate substantial 
resources, both human and capital, to train employees.  It is 
not unusual for foreign investors to bring in Thai managers 
due to a lack of skilled local personnel. 
 
--------------------------------------------- ------- 
FOREIGN TRADE ZONES/FREE PORTS 
--------------------------------------------- ------- 
 
¶47.  The Foreign Investment Law allows for the establishment 
of free trade zones as an investment incentive.  A zone in 
southern Savannakhet province, which borders both Vietnam 
and Thailand, is such a Special Economic Zone.  Lao laws 
pertaining to trade are supposedly applied uniformly across 
the entire customs territory of Laos, including all sub-central 
authorities, special economic zones and border trade regions. 
In reality, however, customs practices vary widely at ports of 
entry in the provinces.  The recent centralization of customs 
collection with the central government could lead to more 
uniform practices and increase the flow of customs revenue 
to the central government by an estimated fifty to seventy 
percent. 
 
------------------------------------ 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
¶48.  GOL investment figures significantly overstate 
actual investment, as they include all approved projects 
regardless of whether the investment actually takes place. 
Both the World Bank and the IMF have lower estimates than 
Lao government figures.  During 2008, the GOL approved 
$659.2 million worth of foreign investment projects. 
Hydropower schemes account for about 6.06 percent of that 
amount.  Foreign investment figures fluctuate widely from 
year to year due to the prevalence of large-scale 
investments in the hydropower and mining sectors. Foreign 
direct investment figures from the Bank of Lao PDR for 
 
VIENTIANE 00000067  010 OF 011 
 
 
recent years follows below: 
 
Real FDI inflow through Bank of Lao PDR (in Millions of US$) 
 
2000    2001   2002   2003   2004   2005   2006   2007 
33.9    23.9   4.5    19.5   16.9   27.7   187.3  323.51 
 
 
FDI approved (in Millions of US$) 
 
2000   2001   2002   2003   2004   2005   2006    2007    2008 
20.4     42     49    3.8    550    533  1,245  2,699.7  1,136 
659.19 
¶49.  In 2008, DDFI approved approximately $659.2 million in 
investment projects.  According to DDFI figures, 26 U.S. 
projects were approved between 2000 and 2008, including 3 
projects worth a total of $2.3 million in 2008.  Foreign 
investment now comes primarily from other Asian countries, 
particularly Thailand (traditionally Laos' largest trade 
and investment partner), China, Vietnam, France, Japan, Korea, 
India, Australia, Malaysia, and Singapore. 
 
¶50.  Foreign Investment Licensed in the Lao PDR by countries 
of origin, from 2000 through September 2008, in U.S. Dollars. 
(Source: Department for Promotion and Management of Domestic 
and Foreign Investment (DDFI), Ministry of Planning and 
Investment (MPI). 
 
Rank   Country        No. Projects        Capital 
1      Thailand           200          1,535,046,728 
2      China              279          1,313,055,653 
3      Vietnam            155            723,475,301 
4      France              60            442,141,179 
5      Japan               36            421,604,403 
6      Korea              118            360,858,515 
7      India                3            350,330,000 
8      Australia           30            333,787,528 
9      Malaysia            35            140,243,392 
10     Singapore           27            103,259,000 
11     Canada              11             54,633,750 
12     Russia              11             50,325,310 
13     Switzerland          6             41,050,000 
14     USA                 26             22,950,226 
15     England             14             17,829,700 
16     Taiwan              10             16,720,000 
17     Sweden               4             13,935,135 
18     Norway               2             12,920,000 
19     Poland               1              5,000,000 
20     Germany             14              4,681,508 
21     Italy                3              3,600,000 
22     Peru                 1              3,000,000 
23     Cambodia             4              2,069,500 
24     Panama               1              1,750,000 
25     Holland              2              1,300,000 
26     Myanmar              4              1,180,000 
27     Island               2              1,100,000 
28     Israel               1              1,020,000 
29     Indonesia            1              1,000,000 
30     Belgium              4                900,000 
31     Sri Lanka            1                200,000 
32     Cuba                 1                185,000 
33     Portugal             1                100,000 
34     Turkey               1                100,000 
35     Nepal                1                100,000 
36     Philippines          1                100,000 
37     Spain                1                 28,125 
 
¶51.  Foreign Investment Licensed in Lao PDR by Sector, from 
2000 through September 2008, in US Dollars. (Source: Department 
for Promotion and Management of Domestic and Foreign Investment 
(DDFI, Ministry of Planning and Investment.) 
 
Rank   Sector            No. Projects       Capital 
1      Electricity            42        3,334,791,585 
2      Agriculture           181          865,830,875 
3      Mining                157          725,019,864 
4      Industry & Handicraft 211          597,897,047 
5      Service               192          354,778,528 
6      Trading               110          281,729,554 
7      Construction           33          275,486,874 
8      Hotel & Restaurant     66          189,811,245 
9      Wood Industry          48          106,106,334 
10     Banking                14           83,096,000 
11     Telecom                 4           72,390,980 
 
VIENTIANE 00000067  011 OF 011 
 
 
12     Garment                38           29,274,920 
13     Consultancies          38           11,153,252 
Total                       1134        6,927,367,058 
 
¶52.  In 2008, the effects of the global financial crisis led 
foreign investment in Lao PDR to decrease sharply.  Actual 
FDI is expected to decrease by about 40 percent, from roughly 
$1,137 million in 2007 to about $659 million in 2008.  Past FDI 
growth has been driven by large investments in industry, 
especially hydropower, agriculture and mining. 
 
HUSO