Laos

[My Penis is hungry]

And coldest morning on record in Queensland Oz

[Coss]

https://www.cnbc.com/2023/11/09/laos-is-spiraling-toward-a-debt-crisis-as-china-looms-large.html

good read

[bust]

China has a bit of a habit of doing this. Loans to developing countries with full knowledge of the inability to pay it back so they step in to take ownership in sorts.

Done it in Cambodia and watched it happening in PNG when I was working there. They are now sniffing aroun the pacific island however the collapse of Evergrande may make things interesting.

[Coss]

My long term view of Laos, having some bits of it, is that eventually (20yrs) the current direness, will improve enough to make me landed gentry. But, the way things are going, I'll be long gone and MLG will benefit.

Bugger donating to OXFAM or Save the Children, or other businesses selling virtuous  philanthropy,  find a lovely person and improve the lot of her and her family...

[Mekong]

59 minutes ago, Coss said:

Bugger donating to OXFAM or Save the Children, or other businesses selling virtuous  philanthropy,  find a lovely person and improve the lot of her and her family..

So your marriage is an act of Charity then?

Talk about “White Knight Syndrome” in action

[bust]

1 hour ago, Coss said:

Bugger donating to OXFAM or Save the Children, or other businesses selling virtuous  philanthropy

Save the Children! More like save their extravagant lifestyles first. One of the more corrupt ones along with Christian Children's Fund now the Child Fund International and World Vision

[Coss]

2 hours ago, Mekong said:

So your marriage is an act of Charity then?

Talk about “White Knight Syndrome” in action

Nope - when I was first in Laos I was considering doing something with one or other of the "charities", but the more I saw the less I liked the idea. MLG and family are certainly better for my involvement but that's not a motive, I was suggesting that Farangs can do more good by not entertaining the charity businesses.

2 hours ago, bust said:

Save the Children! More like save their extravagant lifestyles first. One of the more corrupt ones along with Christian Children's Fund now the Child Fund International and World Vision

Yep, I had dinner once next to a table of aid workers, the overheard conversation, curled my toes.

[bust]

I spent some time in Mae Sot doing a bit with Karen refugees. Some of the NGO workers were on complete junkets. Sickening the funds wasted when so much could be done with so little money.

[Coss]

Another wee story, I was renting a place in Vientiane and the landlord was showing a beast from the states, the next door unit, he asked me if I could tell her what the neighbourhood etc. was like.

So I did, but her most important question was, who was and where, did I get my cleaner and cook from...

When I told her that I did my own cleaning and cooking and washing etc, she was aghast and said this:

"But the whole point of coming here, is to have people to do this, why would you do it yourself?"

She didn't take the place.

Boy I'm glad I didn't have to live next door to that.

 

[bust]

How Laos' plans to fast-track development left it facing a debt and inflation crisis

Laos has built scores of hydropower dams along the Mekong River in a bid to speed economic development.

In short:

Laos borrowed big — mainly from China through the Belt and Road Initiative — to fund an ambitious infrastructure program.

Some have accused China of carrying out "debt-trap diplomacy" by intentionally luring Laos into taking on huge loans it cannot pay.

What's next?

Defaulting, or declaring itself unable to pay its debtors, is one option for Laos, providing an opportunity to restructure its debt and apply for concessional loans.

Laos is in serious economic trouble.

The developing South-East Asian country borrowed big — mainly from China through the Belt and Road Initiative — to fund an ambitious infrastructure program.

With the goal of becoming the region's "battery", it built about 80 hydropower dams on the Mekong River and its tributaries.

But the revenue from the infrastructure is yet to flow through and the debt repayments are mounting up.

Laos' total government-guaranteed domestic and international debt reached $US13.8 billion, or 108 per cent of the country's gross domestic product, last year.

About half the $US10.5 billion owed to other countries is owed to China — though the details of the loans have remained opaque.

It begs the question, could Laos soon go broke?

What led to the debt crisis?

The former French protectorate has been a one-party socialist republic since the Lao People's Revolutionary Party came to power at the end of the Vietnam War in 1975.

It's got a population of about 8 million people, with most employed in agriculture, largely subsistence rice farming.

The economy was continuing to experience solid growth through the 2010s, with borrowed money flowing in to fund the infrastructure program.

But things went south during the pandemic, with Laos' currency, known as the kip, depreciating heavily, which in turn fuelled rampant inflation.

Laos' headline inflation averaged 31 per cent over 2023, according to the World Bank.

"The main factor in the kip's falling value has been the lack of foreign currency available in country, a result of the need to repay large external debts, despite some deferrals, and limited capital inflows," the World Bank said in a report last year.

 

Laos borrowed billions to pay for its hydropower dams.

Kearrin Sims, an adjunct senior lecturer in development studies at James Cook University, said Laos had been borrowing "fairly heavily and arguably unsustainably".

While the new infrastructure included transport projects such as highways and a joint-venture railway line with China, he said the hydropower projects were the biggest contributor to the sovereign debt issue.

He added that the problem was amplified by the slowing of economic growth during the pandemic, but that was true for many countries.

"If you look at the kind of longer-term trends with respect to Laos' debt, it's clear that this is a problem that started well before the pandemic," he said.

He said trying to achieve rapid economic growth, and in turn development, through large-scale infrastructure projects was a flawed approach.

"Large-scale infrastructures can make important contributions to development, and often require borrowing to finance," he said. 

"It is not that all infrastructure financing in Laos should stop, but that a more balanced approach to development is needed — one that prioritises poverty alleviation, human development, and sustainable resource management over economic growth and resource extractivism." 

 

Laos' debt obligations means less money in the budget for things like education and social services.

How are people in Laos being affected?

Dr Sims said the money going to repay the debt was money not going into things like education, healthcare, social services and other kinds of public goods.

"In the context of Laos, a lower-middle income economy, that has real effects for poverty alleviation efforts, for the ability of Laos to achieve sustainable development goals," he said.

The director of the Lowy Institute's Indo-Pacific Development Centre, Roland Rajah, said the depreciation of the kip and inflation had devastated Lao households.

"Measured consumer prices have roughly doubled, including for essentials like food and medicine," he said.

"People in urban areas have been the worst affected as they rely more on cash incomes and imported food."

 

Urban people in Laos are being affected more by the economic problems. (Reuters)

Keith Barney, an associate professor at ANU's Crawford School of Public Policy, said the rural population could rely to some extent on locally grown or foraged food supplies.

"However, especially for the urban poor and lower middle classes, their spending power has been significantly reduced," he said.

"This affects their ability to purchase adequate quantities of healthy and nutritious food as well as things like spending on education and health.

"The economic crisis has been a disaster for Lao youth who are dropping out of schooling at record rates, with thousands heading across the border into Thailand or further afield, to find any work in a foreign currency."

Why have the debts become such a problem?

Dr Barney said after all the spending on dams and transmission lines the state electricity company Électricité du Laos (EdL) owed about 40 per cent of Laos' public and publicly-guaranteed debt.

He said the reasons for the big debt were "multi-causal and cascading" including:

• "over-lending" and poor due diligence by Chinese banks;
• "over-borrowing" by Laos with the sheer number of project loans appearing to overwhelm the utilities' capacity effectively manage so many large and complex energy projects;
• over-estimated domestic energy demand projections which justified these investments;
• a seasonal mismatch between hydropower energy supply and demand forcing Laos to re-import expensive electricity from Thailand in the dry season; and
• poor planning between the large number of hydropower dams targeting the domestic energy market and the extent of high voltage transmission infrastructure needed to deliver that output to load centres; and
• EdL sale prices of electricity falling below cost recovery.

The result was a large surplus in domestic energy production capacity, and stranded and idled hydropower projects. 

Meanwhile, the deep depreciation of the kip meant that the value of the revenue EdL was receiving in local currency was shrinking relative to the debt repayments and operational expenses priced in US dollars.

Mr Rajah said problems were "almost inevitable".

"Laos simply borrowed too much for projects that could only pay off over the long term but it had to start making big repayments to China now," he said.

 

Laos' foreign debt problem has exacerbated runaway inflation.

Has China snared Laos in a 'debt trap'?

Some have accused China of carrying out "debt-trap diplomacy" by intentionally luring Laos into taking on huge loans so that Beijing can seize its assets or increase its geopolitical influence.

It's a charge Beijing denies.

China had been carrying out "mutually beneficial cooperation" with developing countries including Laos that involved strong support for economic and social development, China's Ministry of Foreign Affairs recently told Bloomberg.

The ministry said the "debt-trap" allegations were part of US attempts to disrupt Beijing's cooperation with developing countries.

"It cannot deceive the majority of developing countries," the ministry said.

 

China and Laos worked on a joint-venture project to link the Lao capital Vientiane with the Chinese border by rail. (Reuters)

Dr Sims said there was an open debate about the use of the term "debt-trap diplomacy" and whether China was using it more than other countries.

He pointed out that other development partners like the Asian Development Bank had been calling for Laos to invest in infrastructure such as hydropower.

"China's just been the one to pop in the money," he said.

However, he said that it was clear loaning money to another country brought political leverage as well.

"I think we can say with confidence if we have a very high debt, like in the case of Laos, to another country then that country bears influence politically and economically," he said.

How is Laos digging itself out of the hole?

Mr Rajah said the Lao government was now "essentially scrounging around trying to raise money, especially in foreign currency, any way it can".

"That includes borrowing domestically and selling state assets," he said.

"The main thing keeping Laos afloat at the moment, though, is that Laos has been allowed to defer its debt repayments to China, which are very large.

"But each year Laos has had to negotiate with China to secure this, which is not a sustainable solution.

"And in any case Laos still needs to find more money because it still has to make other debt payments and meet its import needs."

Dr Barney said the measures Laos was taking did not seem to be able to lower inflation, or get the Lao currency moving in the right direction.

"Inflation is sticking at around 25 per cent, and the kip continues to slowly lose value after having depreciated by 60 per cent since 2019," he said.

"At the end of 2024, Laos is likely to meet one definition of 'hyperinflation', defined as 100 per cent of compounding inflation over three years.

"Again this just piles on the pressure for meeting external debt repayments.

"We think Laos needs to chart another pathway out of its economic crisis."

How close is Laos to defaulting?

Defaulting, or declaring itself unable to pay its debtors, is one option for Laos.

It would be an opportunity to restructure its debt and apply for concessional loans at low interest rates from institutions like the International Monetary Fund.

But defaulting could also make future borrowing more difficult and expensive.

Dr Sims said due to Laos' lack of transparency — particularly in relation to the loans with China — it was hard to say how close the country was to that outcome.

"Whether or not a country defaults is largely dependent, not so much on the country itself, but on its borrowers," he said.

"They're the ones that have the means to prevent a default by offering debt relief.

"So with more than half of Laos' foreign debt being held by China, whether or not it defaults is largely, but not exclusively, dependent on whether or not China would choose to bail Laos out, offer delays on debt repayments, things like that."

He said it was worth noting that defaulting may not be the worst possible outcome.

"A number of countries have in the past defaulted on their debt and sometimes it hasn't resulted in the kinds of consequences that are sometimes threatened," he said.

Mr Rajah said ultimately Laos needed substantial debt write-offs rather than just continued short-term deferrals from China.

"At the moment it seems Laos and China both hope that Laos can just grow its way out of its debts," he said.

"It's the classic 'extend and pretend' but that's just unrealistic given the size of the debts and would come at huge social costs for Laos.

https://www.abc.net.au/news/2024-07-18/laos-debt-crisis-hydropower-infrastructure-loans/104080736