Michel Boddington - Laos: Land of Plenty in Apocalyptic Times

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Laos:  Land of Plenty in Apocalyptic Times

 Michael A B Boddington
10th March 2009-03-10

Travelling around Vientiane and – occasionally – the rest of the country, it seems as though the financial woes of the rest of the world have yet to visit any part of this nation.  That is not true, of course, but it is a perception for which one could be forgiven.  The city roads are still crowded with high-end SUVs[1], the construction projects go on apace, public investment continues, albeit (perhaps surprisingly) supported by international aid budgets.
 
I have thought about why this is the case – and I have consulted a little and listened to others.  A World Bank lady called Katia – a Russian! – produced an analysis of the likely impact of the global financial circumstances on the Lao PDR about six months ago:  it looked to a downturn in economic growth, which has been running at over 7% per annum, but it did not suggest any approach to recession.  We might see annual figures dip to 6% or even 5%.  Perhaps she would change her mind today were she to factor in the decline in copper prices – riding high in the middle of last year and dropped to a third of what they were at this time.
 
There is no doubt that the region is in trouble.  Either suffering from the collapse of the US market, or unable to feed their raw materials into China, that vast machine that was fuelling USA with so many of its consumer goods.  China is stalled – but is currently rich in cash (if you count US$ as cash).  Singapore has collapsed as an entrepôt in a matter of months and now appears to be a place to store cargo ships.  S Korea is sinking and may be bankrupt within months.  Thailand has lost its place as the world’s manufacturer of mass-produced garments, whilst tourism looks sick.  The Hong Kong economy has witnessed the greatest drop in its exports for five decades.  Japan’s factory output fell 10% in January this year.   Migrant workers are returning to their homelands all over the world as nations pull up the drawbridge and enact legislation in favour of indigenous workers.
 
John Hendra, United Nations Resident Coordinator in Vietnam, has said it is clear the country is feeling the effects of the global slowdown -- and it is the poorest who will pay the heaviest price: "While there is currently little hard data to base projections on, the most recent drop in imports, export growth, freight traffic and international tourist visits in February suggests that a significant slowdown is under way in Vietnam."
 
Here, in Laos, OZ has laid off 3,000 workers at the Sepon complex, where gold, silver and copper are mined.  The Australian company seems to be in deep trouble, but the Chinese have stepped in and are said to be close to clinching a deal.  The investment will be there, the activities will continue, and if the Australians have lost a billion or two dollars, well, that will reflect on Australia and not on Laos – or China.  There are more Australian companies involved in the mining business and they are mainly said to be struggling.  It seems axiomatic that their assets will end up in the hands of China[2].
But, when people are laid off in Laos, it is not the same as in a developed economy.  These workers all have a foot in their rural villages and family farms, and they can go back there and survive – especially when they have been remitting a large part of their salaries and their families have been able to make all sorts of improvements in their circumstances – farm and home.  
 
We are still an agricultural economy here, with some 80% of the population living in rural areas.  They are insulated against what is happening on the world stage.  They can grow their own food, hunt and gather in the forests – such forests as are left after the depredations of the timber mafia - and survive without fear of the financial turmoil that is crashing outside their national gates.  For the time being.
 
In the cities, the needle on the financial barometer seems not to have flickered.  Possibly there are earnest discussions behind closed doors, but they have not spilled over onto the streets[3].  The most important major new property developments around the city are apartment blocks (mega-shop-houses) followed by enormous government buildings:  then come banks.  A new wave of private sector banks has been unleashed as a result of comparatively recent liberalisation legislation.  Some of the edifices that have sprung up, mushroom-like, around the city are massive.  It saddens me that they have not made any effort to contribute a modern Lao-ness to the architectural landscape but, instead, have adopted an anodyne international steel and glass paradigm that could be anywhere on earth[4].  But none of these new altars to mammon bears the name of Hong Kong Shanghai Banking Corporation, Citibank, Barclays and such, known throughout a financial world that has been kissed by the west.  We have Phongsavane Bank, Bank of Indochina, Joint Development Bank, Lao-Viet Bank, and others, equally unknown.
 
This new wave of banks have no history in international investment.  They are not saddled with toxic assets and they do not need bailouts.  Of course, this may not be true of some of the earlier institutions that were required by the government to make certain loans to State-Owned Enterprises (SOE), which loans were non-performing upon initiation.  Perhaps that lesson has been learned.  The country and its banks are untouched by the financial turmoil that is characteristic of the international banking fraternity.
 
Furthermore, they are working an innocent population, unaware of the niceties of international banking norms.
 
The most important saving opportunity for most Lao is gold.  Shops on the main streets and in the Morning Market sell it by an amount known as the bar.  One bar of gold runs out at 15 grams, or just under half a Troy ounce.  When you buy a bar of gold in the Morning Market, or one of the other emporia, it does not look like a miniature of what they hold in Fort Knox:  it comes in the form of a ring, a bracelet, a necklace or whatever.  Sometimes, at festivals, weddings, or a ceremony at the Wat, you will see people disporting their gold collection, and very vulgar it looks, too.  Why would people want to invest in that junk?
 
The great characteristic of gold is that you can do a runner into the jungle-covered mountains and lie low for a few years, living off the occasional gold ring, whilst the local people would laugh at your paper dollars, euros or yen, or your bonds, shares and land titles.  Gold is always respected.  But right now, you have to pay a lot for that respect, with a Troy ounce trading over US$900.  The last time that it was this high was late 1970s, early 80s, when it reached US$850.  That was an astronomical high, in historic terms, and it proved to be a local high, too (from 1800 to 1930, it was not far away from $20 per ounce).  By the late 1990s, it had fallen back around the $300 mark.  Had you invested $850 at the time of that high, you would have had to have waited until today, some thirty years on, to make any money on it - and then only about $100.
 
It is good to buy gold when it is low.  In the early months of 2009, it is at an all-time high.  You should have bought two or three years ago!
 
So, the new private banks are offering mouth-watering rates on kip accounts.  The best that you can do with US$ or Thai baht accounts is 3% per annum.  This is how it has been ever since I have taken an interest in banks in Laos.  Meanwhile, you can get 12%, or even 14%, on two-year deposits in Lao kip.  I have heard of higher rates in some of the new banks, and I begin to wonder whether they are operating Ponzi schemes.  I have a kip savings account which offers me 12% per annum on my entire deposits over two years, from the time that the account was opened.  So, if I save a million kip per month, I get the equivalent of 1% per month, compound, for each month that any deposit is with the bank!  Over two years, my investment of 24 million kip will turn into over 27 million kip:  if the dollar declines in value against the kip as much as it has done in the last two years, I shall have made $1,100[5]. 
 
Well, I reckon that all of this is Mickey-Mouse-land.  The US$ has only just started on its downward trajectory, to be followed by all of the other currencies of the world.  Hmmm.  How does that work?  If all of the currencies plunge, then don't they all keep much the same relationship with one another?  Well, yes, and that is happening to many of the major currencies.  They are sinking together.  Meanwhile, the Lao kip is standing up to it well - no doubt in the company of a number of other minority currencies, such as cowries and conch shells.  Countries that do not understand the term 'toxic asset'.
 
The downward financial journey is going to take the world to all sorts of hitherto uncharted places.  Whatever happened in the Great Depression is no guide to what is happening today.  Why?  Well, because we had not started along the financialisation track in those days, and now we are deeply mired within its rotting carcase.  And, once the bottom had been reached back in the 1930s, and an upward trend had been re-asserted (with the great assistance of John Maynard Keynes and his apostle, Franklin Delano Roosevelt), global resources were still abundant and easily come by.  Today, global resources are scarce.  Truly scarce resources.
I have been amazed to read that the great new financial elite of USA – for example, Tim Geithner and Ben Bernanke (not quite so new – more recycled) – are predicting a resumption of economic growth by the end of this year, or perhaps early in 2010, or certainly in 2011.  No.  There will be no resumption of traditional economic growth this side of 2015 at the very earliest[6].  Perhaps never. 
 
Even the World Bank is sending out dire predictions.  In a bleaker assessment than those of most private forecasters, on Sunday it foretold that the global economy would shrink in 2009 for the first time since World War II.  It didn’t give a specific estimate, but said it would be publishing one in the next few weeks.  Until now, even extremely pessimistic forecasters have predicted that the global economy would eke out a tiny expansion with the warning that even a growth rate of 5 percent in China would be a disastrous slowdown, given the enormous pressure there to create jobs for the country's rural population.  The Bank also warned that global trade would contract for the first time since 1982, and that the decline would be the biggest since the 1930s.
 
When the World Bank gets pessimistic, things really are bad!
 
Of course, it is banal and facile to say that the human population has to learn, as a priority, how to live with the planet we have:  how to nurture it:  how to respect all peoples and make space for all peoples:  how to succour all species and the complete environment.  Against these objectives, renewed economic growth pales into insignificance.
 
We know all of that.  It has been said so often, ever since Malthus.  Problem is, we have not learned.  It takes Armageddon for the message to sink in.  Until then, there is always a fast buck to be made out of the last exploitable resource.
 
It is my fervent hope that the peoples of this world can learn this lesson during these apocalyptic times.  I do believe that the times will have to be truly apocalyptic for the lesson to be learned.  I shall probably not survive the apocalypse. 
 
Those from the climate/environment professions, who have done the sums and run the models, say that vast areas of the world will become desert and rising sea levels will encompass significant lands that are now coastal – and often fertile.  The only places benign for human habitation and food production will be the currently extreme climes in Canada, Russia, Siberia, Greenland and the Antarctic.  If we are skilful and careful, it is possible that we shall be able to sustain the entire human population of the world there, but nationalism and borders will have to be abandoned.  Can we see any chance of that?
 
We could just be talking about 2020.  In any event 2100.  But more likely, closer to the first date.
 
When I moved to Laos, in 2002, I viewed a land that was flowing with milk and honey – well, their SE Asian equivalents.  Most particularly, we have an abundance of water.  This has made for an abundance of jungle.  Together, they have created conditions for an abundance of hydro-electricity. 
 
Climate models say that the run-off from the Himalayas will finish, as the glaciers melt away.  The Mekong river contains large quantities of run-off from the Himalayas. 
 
This area of the world will become desert. 
 
We have long been aghast at the activities of the Lao elite, who have plundered the timber resources of the country to the extent that the phenomenal jungle ecosystem has very quickly become almost a memory.  Lao politicians have declared that Laos is the battery of SE Asia, to be realised through the development of hydro-electric schemes.  Dams are being planned or constructed throughout the country.  But the depletion of the forest means a reduction in rainfall, and a reduction in rainfall means that the reservoirs are never going to be filled.  The denudation of the countryside means that run-off is enhanced carrying with it great burdens of silt which rapidly occupy the capacity of the reservoirs. 
 
For the time, Laos has an abundance of hydro-electricity. 
 
May the power be with us. 
 
Oh – and you!

 

[1] In the middle of last year, it cost me over 600,000 kip to fill up my low-end non-SUV with diesel:  now, it is back down to nearly 200,000 kip
[2] An important part of the medium-term outlook for Laos is the rapidly growing economic imperialism by China.  There have been some high profile aid and not-so-aid projects (the National Cultural Hall, the Lane Xiang Avenue/Patuxay improvement scheme, the ASEAN Games Stadium, etc):  in the north of the country, it is much more overt with huge businesses being undertaken by China, infrastructural projects that benefit China, such as the blasting of the Mekong channel and the development of the new road from China to Thailand, so called eco-tourism projects (since when were casinos with attached golf courses, classed as ecological) and swathes of countryside going under Chinese plantations.  Either the Lao government wants this to happen, or it is looking the other way, or it is stupid. 
[3] Though there are frequent headlines in the Vientiane Times ‘PM encourages Provinces to Work Hard to Escape World Financial Problems’ and the like:  quite how the wise words of the PM etc will be transformed into action is not explained.  All that is needed is for these worthies to turn up and spout and all will be well.
[4] This takes me back to my one and only visit to Indianapolis when I was collected at the airport by one Charlie Miller:  we drove around the edge of the city centre and the immediate impact on me was how the skyline of the 1800s and up to WW II was still visible.  It was a skyline of religious/spiritual edifices.  But now, overwhelming it by a mile was the skyline of high finance. 
[5] Please note that one million kip, at today’s exchange rate, is worth about US$120
[6] This is easy to predict:  the downside of a bubble lasts as long as the upside:  we are in the downside of the property bubble (sub-prime mortgages etc) and that started in around 1994 and collapsed in 2006 or thereabouts:  12 years.  12 years onto 2006 makes 2018.  



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