Regions and Countries

	Table of Contents
p. 4 of 7 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program A. Progress in Poverty Reduction B. Progress in the Country Strategy and Program Focus Areas C. Highlights in Coordination of External Funding and Partnership Arrangements III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2006-2008: Lao People's Democratic Republic : II. Implementation of the Country Strategy and Program

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B. Progress in the Country Strategy and Program Focus Areas

12. Rural Development and Market Linkages. While agriculture’s share of GDP has gradually declined since the 1990s, the rural economy, which accounts for some 80% of the population, still accounted for 47.2% of GDP in 2004. A gradual transition from subsistence to commercial agriculture (including rubber plantations, coffee, tea, Job’s tears, cardamom, and ginger, as well as nontimber forest products) remains promising, as does greater interest in contract farming for rice, maize and higher-value agriculture products. The Asian Development Bank Institute, in conjunction with the Government and ADB’s Lao PDR Resident Mission, is currently supporting a study to assess the policy and economic implications of contract farming, while a smallholder project continues to address the transition to commercial agriculture production, including contract farming. Two loans totaling $27.7 million were approved in 2004. A roads for rural development project will complement the ongoing rural access roads project in enhancing market and social services access for rural agriculture producers, while the northern community-managed irrigation project will enhance agricultural productivity and ensure food security, thus improving the livelihood of farm families.

13. Human Resource Development. While social development in the Lao PDR continues to improve, more progress is needed. Although there have been increases in primary school enrollment (to 83% in 2001/2002) and a decline in the infant mortality rate (to 87 per 100,000 live births in 2002) over the past decade, current levels are still below regional averages. Attempts to improve secondary school enrollment (31% in 2002/2002) continue to lag behind targets and progress in other countries in the region. HIV/AIDS¹ prevalence remains low compared with that in other countries in the region, but careful monitoring is needed, particularly around the border areas, where many ethnic minority groups live. The GMS: communicable disease control project will assist in this area as will the HIV/AIDS awareness components of projects such as the GMS: northern economic corridor project. The Government’s NGPES identifies education, health and provision of clean water supplies as priorities for public investment in the social sector. ADB’s ongoing loans—including the basic education (girls) project, the second education quality improvement project, the primary healthcare expansion project, and water supply and sanitation project—and planned loans—for basic education development, health sector development, and the northern and central region water supply and sanitation sector—are helping the Government to meet its NGPES objectives and MDG commitments in these important areas.

14. Sustainable Environmental Management. Concerns have been raised by the National Assembly about illegal logging, logging that exceeds quotas, and lax mining concessions. In FY2004 the incidence of slash and burn cultivation was reduced by a further 22,030 hectares, leaving an estimated 65,115 hectares under slash and burn cultivation. The 2004 national opium survey indicated that opium poppy cultivation had been reduced by 75% over the last six years, and the government remains on target to eliminate production of opium by 2006. Progress has been made towards fulfilling the remaining second tranche release conditions of ADB’s environment and social program loan, including:

1. issuance of implementing regulations and technical guidelines by the Science, Technology and Environment Agency (STEA)
2. notification of the resettlement decree, implementing regulations, and technical guidelines by the Ministry of Industry and Handicraft (MIH), and Ministry of Communication, Transport, Post and Construction (MCTPC)

As a requirement of the third tranche release conditions, the Government has issued the national Lao environment fund decree, and the Lao Environment and Conservation Fund is to be established by September 2005. The Lao PDR has agreed to participate in ADB’s regional projects to promote renewable energy, energy efficiency, and greenhouse gas abatement.

15. Private Sector Development. Progress continues under ADB’s banking sector reform program, with the cabinet approving submission to the National Assembly of a proposed decree to lower entry barriers and improve market access for foreign and private banks. An external audit and review of the two major state-owned commercial banks (SOCBs)—Banque Pour Le Commerce Exterior Lao and Lao Development Bank—for 2003 indicates that the ratio of nonperforming loan stock remains high, but the quality of new lending has improved as a result of a stronger credit policy and capacity building efforts under ADB’s banking sector reform project. ADB has been discussing with the Government the requirements for timely SOCB audits, a recapitalization strategy and revisions to the SOCBs' governance agreements. An efficient rural finance system is essential for rural development, and ADB has discussed this issue with the Government in preparation for the proposed rural finance sector development program. Building on its experience from the Nam Theun 2 hydroelectric project, ADB’s Private Sector Operations Department (PSOD) will continue to explore possibilities for support to economic growth and poverty alleviation initiatives led by the private sector.

16. The Government’s commitment to strengthening the business environment is explicitly stated in the NGPES, and ADB has been providing assistance through advisory technical assistance (ADTA) for small and medium-sized enterprises and agribusiness promotion, as well as a project preparatory technical assistance (PPTA) for a future loan to support the private sector development program. ADB also assisted a government review of business-related legislation, and the drafting of new legislation, including the Secured Transactions Law, which was approved by the National Assembly in May 2005. Amendments to domestic and foreign investment laws were also adopted to equalize tax incentives for foreign and domestic investors and to streamline the investment process. To achieve sustained private-sector-led growth, further improvements to business registration processes and transparency of regulations are needed. Progress continued on the restructuring of debt-burdened state-owned enterprises. Potential areas of increased commercial investments by the private sector include hydropower, mining, agriculture and forestry, financial markets, and tourism.

17. Governance and Capacity Building. In the area of public financial management and governance, the Public Expenditure Management Strengthening Program (PEMSP) has been developed by the Government with assistance from ADB and the World Bank. It aims to improve consistency, efficiency, transparency and accountability in public expenditure management towards appropriate international financial management standards. The PEMSP encompasses improvements in expenditure planning and budgeting, budget execution, accounting, and reporting at both central and provincial levels. The proposed PEMSP provides an excellent opportunity to strengthen the public expenditure management system before Nam Theun 2 revenue starts to flow in late 2009 and its monitoring framework will enable the Government to verify that funds are being allocated to eligible poverty reduction and environmental conservation programs. ADB has been providing ADTA to enhance government accounting regulations and procedures, and the institutional capacity of the National Audit Office. In November 2004, a governance round table meeting was held between the Government and donors in Vientiane, to review and exchange views on legal and institutional developments, and progress in public administration reform.

18. In 2004, the Lao PDR adopted laws on postal services, enforcement of court decisions, the military commanders of the Lao People’s Army, the National Assembly’s monitoring and inspection function, and the development and protection of women. The National Assembly also approved amendments to criminal and civil laws, and laws on domestic investment and foreign and domestic investment promotion. In April–May 2005, the National Assembly adopted laws on civil aviation, commercial arbitration and anti-corruption measures and amendments to laws on taxation and customs and secured transactions.

19. Geographical Focus. Development of the northern provinces is a strategic priority of the CSP for the Lao PDR. In line with the CSP’s geographic focus, ADB has been assisting the Government in formulating an area-based development strategy for the northern region. The strategy was completed in February 2005 and will be sent to the National Assembly for approval. ADB is currently implementing small-scale technical assistance to implement the Northern Region Development Strategy (NRDS) under the NGPES framework and to explore the investment potential for GMS infrastructure connections in northern Lao PDR. In early 2005, workshops were organized with ADB’s support to disseminate the NRDS among stakeholders of the nine northern provinces—Bokeo, Huaphanh, Luang Namtha, Luang Prabang, Phongsaly, Saysomboun Special Zone, Udomxay, Xayabury, and Xiengkhuang.

20. Subregional Cooperation. The 13th GMS ministerial meeting was held in Vientiane in December 2004 and it laid the foundation for the Second GMS Leaders Summit in Kunming, PRC, in July 2005. At the ministerial meeting, annexes and protocols of the Cross-Border Transport Agreement (CBTA) and a memorandum of understanding (MOU) between the Lao PDR and Viet Nam on implementation of the CBTA were signed. The Lao PDR supports early implementation of trade and transport facilitation measures within the GMS, which will be key to transforming transport corridors into economic corridors. Implementation of the CBTA began at the Dansavanh–Lao Bao border crossing points between the Lao PDR and Viet Nam along the east–west economic corridor on 30 June 2005. At the Second GMS Leaders Summit held in Kunming on 4-5 July 2005, the GMS leaders issued the Kunming Declaration to underpin the development and implementation of strengthened subregional infrastructure linkages—including the multimodal transport infrastructure and the CBTA, the GMS information super highway, the subregional power trade operating agreement, conducive and competitive environment for trade, investment and private sector development, biodiversity conservation corridors initiative and cooperation in the agricultural sector, increasing human and institutional development, and the pro-poor and environment-friendly tourism development in the GMS. At the Summit, three annexes and one protocol under the CBTA were signed. An MOU between Lao PDR and Thailand to implement the CBTA at the Savannakhet-Mukdahan Crossing Point was also signed, in addition to MOUs on the basic principles for initiating the implementation of stage one of regional power trade operating agreement, planning and construction of the GMS information super highway, and prevention and control of animal epidemics in the GMS.

21. The Lao PDR is landlocked, so regional cooperation is critical. The Lao PDR has participated in the GMS since it began in 1992, and has been involved in a number of priority projects, including development of key economic corridors (Route 3 in the north–south economic corridor and Route 9 in the east–west economic corridor), hydropower generation projects for exports of electricity to neighboring GMS countries (Theun Hinboun and Nam Theun 2 hydroelectric projects), infrastructure projects to support joint tourism development in the subregion, formulation of a strategic environment framework, preventing the spread of HIV/AIDs among mobile populations, promotion of the GMS as a single tourism destination, and control of transboundary animal diseases. More detailed information on progress in the GMS program is reported in the regional cooperation strategy and program update, 2006–2008.

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