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Laos Rides Economic Good Times Thanks to Mining, Tourism and Hydropower

The Lao economy is enjoying robust growth as it benefits from investment in the mining and hydropower sectors as well as tourism. But economic reforms, poverty reduction and persistent corruption remain challenges for the government.

Lao musicians and dancers entertain tourists and guests at a hotel in Vientiane. Laos is in the midst of economic good times and tourism is a key source of foreign exchange for the nation.

Tourism investment is evident in the construction of new hotels and guesthouses to meet demand as tourist arrivals reach record levels.

"Last year Laos has received more than one million tourists, it was a big jump for Laos, it was the fastest growth in the history," said Kettasone Sundara, marketing director with the Lao National Tourism Administration.

In 2004, the number of foreign visitors was close to 900,000, and that was up from 630,000 in 2003.

Laos began economic reforms in the 1990s, after the collapse of the former Soviet Union, which had been the country's key benefactor since 1975, when the Pathet Lao Communists took power.

In 1991, a new constitution began the shift away from a centrally planned economy to a more market oriented one.

A flood of investment and trade followed. However, that flood dried up rapidly during Asia's financial crisis in the late 1990s. Rattanatay Luanglatbandith, an Asian Development Bank senior economist, says the Lao' gross domestic product has fully recovered from that blow.

"Laos has recorded respectable economic growth in the past five years. The GDP [gross domestic product] growth for 2005 was 7.2 percent," said Rattanatay. "The drivers of the economy mainly come from mining, hydropower, tourism … mining, especially gold and copper, and wood products and then services and then industry."

One showpiece is the Lane Xang Minerals project in Sepon. High international commodity prices have been a boon for the gold and copper mining operation, which is run by the Australian mining company Oxiana.

Peter Albert, managing director of the operation, says the Sepon project helps draw other investors - miners and companies that supply their needs.

"Because of the Sepon project we've attracted other investors, not only in the mining industry but in other industries, and yes the Sepon project bring many benefits to Laos," noted Albert. "There's a bit of momentum still building up but yet I'm pretty positive about the way it's headed."

Thailand is Laos' top investor with most projects involving hydroelectric dams that generate power for Thailand. Lao authorities in the first quarter of the year approved Thai investments totaling $643 million, up more than 40 percent from the previous year.

The next largest investors are Vietnam, China, South Korea and Singapore. Most of the foreign money goes into electricity generation, mining and garment manufacturing.

Leik Boonwaat, a United Nations development expert in Laos, says the growth is not confined to Vientiane.

"We've seen a gradual reduction in poverty, the government reports a 47 percent to 32 percent [fall] and there has been construction of roads all over the northern part of Laos," he noted. "This is opening up the country, which is important to bring all these areas into the general mainstream, social and economic development of the region."

While the traffic in Vientiane may not match the congestion of Bangkok or Manila, new cars and pedicabs, or samlors, are seen throughout the city - a big change from a few years ago.

"When I first arrived, there were very few cars on the road," said Australian expatriate Marnie McDonald, who owns a restaurant and bar in Vientiane. "Now there's quite a lot of traffic. There's been a lot of construction going on. Obviously there's a lot of money coming into the place. There's been an increase in the number of tourists who come here."

But the A.D.B.'s Rattanatay says the growth also brings new challenges, such as strengthening the financial system and shoring up the government budget.

"The primary challenge first of all is to try to maintain the macro-economic and financial stability, especially in the area of finance," added Rattanatay. "The country needs to expand its revenue base and to improve the public financial management."

Analysts say the Lao government needs to stick with its economic reform - especially budget controls and efforts to curb corruption. The anti-corruption watchdog Transparency International, in 2005, ranked Laos 77th out of 159 nations in dealing with corrupt practices.

Some international development experts and diplomats say there are concerns about the government's commitment to environmental and social protections, especially as it expands hydropower projects. The dams can hurt the environment and disrupt life for rural communities.

They also say the government needs to focus on improving education and business skills, instead of relying on foreign investment, if the economic gains are to be sustained over the long term.