Laos to Ask Donors for More Aid as Copper Plunge Drains Revenue



Jan. 14 (Bloomberg) -- Laos, the poorest country in Southeast Asia, plans to ask donor countries for more aid to counter effects from the global economic recession as a plunge in copper prices threatens to deplete government revenue.

“We are discussing on how to approach our partners to request increasing aid to help us mitigate the impact,” Yong Chanthalangsy, a Foreign Ministry spokesman, said by phone. “We will have a very difficult time this year.”

Laos received about $433 million in overseas development assistance in 2007, the latest year for which statistics are available. That’s equal to more than half of annual expenditures and 11 percent of gross domestic product.

Economic growth may slow to as little as 5 percent this year, the lowest since 1998, the World Bank said. Laos has seen government revenues fall after copper prices dropped 61 percent since July, leaving it with few options to help its 7 million citizens, nearly half of whom are 15 years old or younger.

“We have had discussions with the government on a possible bailout,” Christopher T. Hnanguie, an economist with the Asian Development Bank based in Laos, said by phone. “We’re still worried because the economy has really been driven by hydropower construction and the mining sector.”

The ADB has allocated $23 million in further budget support that can be accessed once the Laos makes a formal request, Hnanguie said. The government is working “very closely” with donors, Yong said, declining to disclose how much it plans to request in further aid.

Falling Tax revenue

The drop in copper prices from a peak of $8,940 per ton last year may prompt tax revenue from foreign mining companies like PanAust Ltd. and OZ Minerals Ltd., representing about a quarter of all government revenue, to fall by almost half to $150 million, the World Bank said. At copper’s current price of $3,370 per ton, tax revenue from the mining sector could be about $75 million this year.

“We’re looking at how to mitigate the impact on the social side,” said Somneuk Davading, a Laos-based economist with the World Bank. “On stimulating growth, there is not a clear picture from the government yet.”

Ruled by communists since 1975, Laos began market reforms in the 1980s and plans to open a stock exchange by 2010. The government hopes the country’s rich natural resources will attract both foreign investment and tourists to boost an economy in which most people survive on subsistence farming.

Laos will aim to boost production of rice, maize and other crops to stimulate the rural sector, Yong said. Construction to prepare for the country to host the Southeast Asian games for the first time in their 50-year history has also helped bolster the economy, the ADB said.

Hydropower Projects

Public debt totaled 60 percent of GDP in 2007, down from 84 percent in 2004. The International Monetary Fund said in October that the country’s “external debt situation could deteriorate if expected returns to large resource project-related investments, mainly in hydropower, do not materialize.”

Laos has four major hydropower projects under construction with capacity of about 3,000 megawatts and worth a combined $4 billion. Construction on these projects may stall because of the global credit crunch, leading to a decline in foreign investment over the next few years, the World Bank said in an October report.

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