The next milestone in Laos’s economic integration path is the launching of the ASEAN Economic Community (AEC), set for the end of 2015, which will liberalize flows of capital and labor among the 10 ASEAN nations. While the AEC presents new opportunities for investment in Laos, concerns exist about whether Lao industries will be overwhelmed by foreign competitors with superior resources and experience, and whether the arrival of skilled workers from other countries will hurt local employment.
Over the past 30 years, Laos has achieved a respectable track record of economic liberalization and integration. The nation’s ability to navigate its present challenges and maintain growth by continuing to attract foreign capital will depend largely on the government’s stewardship of the economy and investment environment.
From the New Economic Mechanism (NEM) reforms launched in 1986 until the present, remarkable changes have occurred in the economy and society of Laos that have helped to integrate the country into the world economy. These changes have had dramatic implications for trade and investment flows, and economic growth. NEM started Laos’ transition from a centrally-planned economy to a socialist-oriented market economy, leading to a broad range of social, political, and economic changes. Major reforms under NEM include removing price controls; abandoning socialist cooperative farming; unifying the exchange rate system; removing the government’s monopoly on trade; reducing the number of state-owned enterprises; promoting private-firm establishments; and pursing fiscal, banking, and financial reforms. Laos joined ASEAN in 1997 for geopolitical and economic development reasons. It has subsequently participated in ASEAN integration on a step-by-step basis in the lowering of intra-regional tariffs through the Common Effective Preferential Tariff (CEPT) Scheme for AFTA. Although ASEAN was established in August 1967, its commitment to pursuing regional economic integration in East Asia has intensified since the 1990s through arrangements such as ASEAN+3 and ASEAN+6. The East Asian economic community has evolved through multiple agreements under the frameworks of ASEAN.