Lao leadership shuffle will see precarious development, foreign policy continue

Lao Prime Minister Thongloun Sisoulit (left). Photo: United Nations Development Programme; UN Photo/Paulo Filgueiras, CC BY 2.0, via Wikimedia Commons

The new government of Laos, largely a reshuffle of party leaders, is set to continue policies that do little to achieve inclusive development while racking up massive debt and alienating potential allies: an unquestioning embrace of China, risky damming of the Mekong river and entrenched authoritarianism.

Editorial

After a brief song and dance, the ruling party in Laos has picked its new leaders and, with sitting Prime Minister Thongloun Sisoulith set to become president, the Lao government appears poised to continue pushing a set of risky policies in the name of economic growth.

The Lao government has adhered to an agenda that gambles the country’s international reputation and is also starkly out of step with its stated goals around sustainable development: through dependence on and deferral to China, precarious damming of the Mekong river and an embrace of authoritarianism, Laos may alienate regional and global allies while making little progress towards raising standards of living.

The Lao People’s Revolutionary Party (LPRP) met last week and elected Thongloun as secretary general, meaning he will likely become the country’s president next month as outgoing party head and Lao President Bounnhang Vorachith is retiring. The post of prime minister will then likely be filled by current Deputy Prime Minister Sonexay Siphandone, according to Radio Free Asia. The LPRP has been in power since 1975 and controls all political power in the country as well as nearly all of the media.

When Thongloun became prime minister in 2016, he launched an anti-corruption push and offered some language—and occasional action—around environmental concerns. But his term has been dominated by a few key trends that don’t bode well for Laos’ international reputation or stability: mounting national debt, the damming of the Mekong river and declining space for any semblance of dissent.

Options shrink as debt rises from ill-fated hydropower and infrastructure push

The World Bank estimated that Laos’ public debt could reach 68% of GDP by the end of 2020, almost 10% higher than the year before—it’s not clear yet whether this was the case. The country likely owes US$1.1 billion or more in debt payments per year and has only $1.3 billion in foreign reserves. Last year, the country saw its credit rating downgraded twice. Credit agency Fitch estimated that the country’s fiscal deficit more than doubled from 2019 to 2020 and it’s unclear whether Laos’ economic growth can still outpace its debt servicing. 

The mounting national debt, whether truly a “crisis” or not, restricts Laos’ options and shows that something in the government’s development strategy isn’t working. It has also prompted international criticism of the Lao government’s approach and its dependence on two volatile pillars: the damming of the Mekong river and an overreliance on Chinese financing and political patronage.

Since 2016, Thongloun’s government has focused on economic growth with an eye to shedding Laos’ “least developed country” status in the eyes of the UN. To do so, the country has to show progress on poverty, economic stability and human resources, including education, health and literacy. This will continue with the new government; last week Thongloun announced a plan to raise average per capita income from US$2,500 per year to $2,887 by 2025, by maintaining annual economic growth of at least 4%. By 2030, the government aims to raise per capita income to four times what it was in 2016.

Much of the Lao government’s plan for economic growth hinges on new, large-scale infrastructure: railways, expressways, hydropower dams and other power projects. Thongloun’s new Socio-economic Development Plan for 2021-2025 includes a special nod to infrastructure. It also included mention of natural disasters—a key issue given the flooding that led to the deadly collapse of a dam in 2018 and the fact that involuntary relocations of communities appears to exacerbate Laos’ troubles with climate change.

The country’s leadership will likely continue with the damming of the Mekong river and its tributaries for hydropower—a fraught proposition to begin with, given that 60-70 million people across four other countries, all of them Laos’ neighbors, rely on the lower Mekong for food and livelihoods. The plan to export power to neighboring countries also appears increasingly shaky as Thailand’s demand for electricity, already artificially inflated, drops.

Xayaburi Mainstream Mekong Dam. Photo: Prince Roy from Arlington, Virginia, USA, CC BY 2.0, via Wikimedia Commons

Mounting debt has increased pressure to generate revenue and the government appears committed to continuing with its hydropower push, possibly out of a belief that it has few alternatives. Two dams have already been completed on the mainstream of the Mekong—the Xayaburi dam, backed by Thailand, and the Don Sahong dam, backed by Malaysia—and at least seven more are planned. Sinava Souphanouvong, Lao deputy minister for Energy and Mines, has said that the country will build 100 dams by 2030 and has already completed 78, with a production capacity of nearly 10,000 megawatts. 

Plans to dam the Mekong have recently become a source of overwhelming bad press for Laos and other dam proponents, and justifiably so. It also prompts objections from Vietnam, except in one key case, and sometimes from Thailand

Laos will only continue to draw global ire as one of its Mekong dams would devastate a UNESCO World Heritage site, Luang Prabang. The politics of damming the Mekong are made more volatile still by China’s 11 dams on the upper Mekong, some of which have held back water amid record-breaking drought, according to new research

Authoritarianism, dependence on China set to continue

Laos’ development plans are tied in part to its place in China’s Belt and Road Initiative, through a US$6 billion railway slated for completion this year, economic zones and a new “5G-powered smart expressway”, among other initiatives. Laos also signed a deal last September to cede majority control of its electrical grid to Chinese state-owned China Southern Power Grid Company. 

This dependence on China for development support is only likely to continue, unless the Lao government is given a viable alternative. China is currently a major source of Laos’ financing—somewhere between a half and 75% of the country’s debt is to China. One reason for this is that China offers loans and support without conditions around transparency or human rights. In return for political and financial patronage, Laos has settled firmly into China’s orbit.

This kowtowing to China, though likely in part done in self-preservation, is less than popular in the international community, including with neighboring Vietnam. In fall 2020, a retired Singaporean diplomat suggested that Laos, along with Cambodia, should be booted from ASEAN for acting as China’s proxies. A growing number of new books have taken in-depth looks at China’s growing influence in Southeast Asia and its foreign policy implications. 

Much of this analysis posits that as Laos and its neighbors welcome China’s overtures, the international community sees them as losing independence and sinking into Beijing’s ambit. This in turn shrinks Laos’ list of potential allies, forcing Vientiane to double down on its dependence on and deferral to Beijing.

Going in with China also allows the Lao government to deepen its authoritarianism without consequence—a trend that will continue under Thongloun’s presidency. In recent years, the government has arrested citizens for expressing dissent, including on social media, and failed to investigate disappearances. This leaves little space for alternatives to the party line—including alternatives to dams, debt or Chinese patronage—to gain much traction.

The changing of the guard within the LPRP will likely see the government continue its dogged commitment to volatile development plans that risk mortgaging the country’s future. But as Laos is squeezed by geopolitics and its struggle for inclusive development, Thongloun’s government may perceive few other options. Unless Laos can conceive of an alternative, the next five years will bring more of the same.

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