Maxed Out

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A UNICEF official recently toured Laos to see the devastation wrought by extreme floods.

“Classrooms filled with mud, books and learning materials irreparably damaged, computers and furniture ruined. The dormitories, once a haven for students, were no longer habitable,” the United Nations children’s agency official wrote. “Many children not only lost their places of learning but also their homes, (which were) either partially or completely destroyed.”

In this dire situation, Laos needs help that often comes in the form of loans. The borrowed money helps the country rebuild, a process that helps people start over while jumpstarting the economy and creating productive infrastructure.

But Laotians are already seeing their purchasing power fade as their country labors under soaring inflation – 31 percent last year – a weak currency, and high debt burdens – particularly those owed to China, according to Nikkei Asia. Unprecedented protests against the one-party rule of the left-wing Lao People’s Party last year were the result, noted World Politics Review.

Laos’ debt amounts to $13.8 billion, or 108 percent of gross domestic product, with China owning half of the $10.5 billion debt owed to external creditors, reported Bloomberg.

The irony is that the debt was supposed to have paid for infrastructure that would fast-track the Southeast Asian country’s development, the Australian Broadcasting Corporation explained. Critics argued that spending big on hydroelectric dams rather than taking a more balanced approach to their investments – on poverty alleviation, for example – would have averted much of the trouble that the country is facing today.

Such kinds of infrastructure were often featured in China’s global Belt and Road Initiative, a massive spending campaign designed to create highways, rail lines, ports, and other nodes that could carry African and Middle Eastern commodities to China and Chinese goods to Europe and elsewhere, Deutsche Welle added.

It was also a program designed to leave countries deeply indebted to China in order to give the Asian power a diplomatic advantage over the US and other Western countries.

Regardless, now the Laotian government has few options. The state has cut back on workers to curb spending, seemingly a good idea until it results in state-owned industries and sectors working at far less than full capacity for the economy, the Diplomat noted. The business community appears reluctant to help, too. They don’t keep their reserves in the local currency, the kip, preferring the Thai baht or the US dollar instead.

Laotian leaders and others have floated the idea of debt cancellation, but that approach carries pitfalls, argued the East Asia Forum. Instead, it advocates for international organizations to help Laos structure its debts and fiscal policy so that it can pay back the funds while growing and increasing the capacity of the state to act in the interests of the people.

That’s easier said than done, of course.

As a result, hundreds of thousands of Laotians have emigrated to Thailand, China and other Asian countries. One 19-year-old, recent high school graduate from Luang Prabang city told VOA he could make about $560 a month in South Korea, more than twice what he could make in Laos. He said his brothers, all with bachelor’s degrees, are barely making $375 a month and had advised him to skip college and find a job abroad.

The government, recognizing the importance of the $426 million in remittances annually accrued from these workers abroad, has stepped up efforts to further enable this emigration – despite labor shortages at home.

In July, Lao Prime Minister Sonexay Siphandone announced plans to promote employment opportunities internationally by decentralizing job placement centers, modernizing job search services – especially for foreign jobs – and promoting self-employment.

Meanwhile, the Laos’ Ministry of Energy and Mines said earlier this year that almost half of the state-owned mining companies have failed to meet industry standards or their contractual obligations, wrote Radio Free Asia. It added that would need to hire at least another 700 people by next year just to be functional. But the state can’t afford it.