chapter  4
Laos: Economic and social development towards the ASEAN Economic Community (AEC)
Pages 19

The History of Laos is officially traced to the establishment of the kingdom of Lan Xang by Fa Ngum in 1353. Entering a period of decline in the seventeenth century, Lan Xang was controlled by Siam (now Thailand). During this period, the country was divided into three dependent states: Luang Prabang in the north, Vientiane in the centre, and Champassak in the south. Following its occupation of Vietnam, France also absorbed Laos into French Indochina via treaties with Siam in 1893 and 1904. During World War II, the Japanese occupied French Indochina. When Japan surrendered, Laos declared Laos independent, but by early 1946, French troops had reoccupied the country and conferred limited autonomy on Laos. During the First Indochina War, the Indochinese Communist Party formed the Pathet Lao (Lao Nation) resistance organization committed to Lao independence. Laos gained full independence on 22 October 1953. Growing American and North Vietnamese military presence in the country increasingly drew Laos into the Second Indochina War (1954-1975) (Stuart-Fox, 1997). The Pathet Lao took total power on 2 December 1975. After 1975, Laos intro-

duced planned economy like the Soviet Union and other communist countries. During that period, there was poor economic performance and Laos depended heavily on Soviet aid channelled through Vietnam up until the Soviet collapse in 1991. In the 1990s the communist party gave up centralized management of the economy and turned it into a market-oriented economy in 1986 called New Economic Mechanism (NEM) or ‘Chinthanakanmai’ in Lao. Under NEM, Laos was reformed in various areas leading to high economic performance (Goscha and Ivarsson, 2003). Since 1986, Laos has implemented various reforms under NEM, which include the following vital components: promotion of private production through improved incentives; upgrading institutional infrastructure to improve market economy operation; strengthening Laos’ comparative advantage through trade liberalization and specialization; and the establishment of price stability through macroeconomic policy measures (Ljunggren, 1993).