Chapter

LAO PEOPLE’S DEMOCRATIC REPUBLIC

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2004
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(Position as of December 31, 2003)
Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of the Lao People’s Democratic Republic is the Lao kip.
Exchange rate structureUnitary.
Classification
Managed floating with no preannounced path for the exchange rateEffective October 13, 2003, in order to ensure gradual adjustment in the exchange rate, commercial banks are required to adjust their buying and selling rates within the following limits: (1) ceilings of ±0.15% and ±0.30% for the dollar and Thai baht, respectively, of the Bank of the Lao P.D.R. (BOL) daily reference rate; and (2) margins between the buying and selling rates of 1.15% for the dollar and 1% for the Thai baht. Within these limits, commercial banks are free to set their own rates, which vary from the parallel market rates by a very small margin. Effective October 27, 2003, the official reference exchange rate is calculated as the weighted average of the previous day’s commercial bank and interbank rates. Previously, la Banque pour le commerce extérieur du Laos (BCEL), the major state owned commercial bank and the main participant in the official exchange market, had set the commercial bank exchange rate, taking into account movements in the parallel market exchange rates and keeping the spread between the commercial bank and parallel market rates less than 2%.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo prescription of currency requirements is imposed on receipts or payments but, in principle, the BOL, the central bank, provides and accepts only dollars, euros, Japanese yen, pounds sterling, Swiss francs, and Thai baht.
Use of foreign exchange among residentsThis requires formal authorization from the government, although the use of foreign exchange (principally the dollar and the Thai baht) for domestic payments is widespread. Duty-free shops are authorized to accept payment in foreign currency.
Payments arrangements
Bilateral payments arrangements
OperativeThe bilateral payments agreement with Vietnam is in the process of being renewed.
InoperativeAn inoperative bilateral payments agreement exists with Malaysia.
Barter agreements and open accountsBilateral trading arrangements are maintained with China and Vietnam.
Administration of controlThe BOL is the controlling authority over the foreign exchange market. Commercial banks are the primary participants in this market. Foreign exchange shops are authorized to buy banknotes, coins, and traveler’s checks and to sell only banknotes and coins. External borrowing by the public sector requires approval by the MOF. External borrowing by the private sector requires BOL approval.
International security restrictionsn.a.
Payments arrearsn.a.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeEffective September 29, 2003, imports and exports of gold and silver exceeding the equivalent of $2,000 require BOL authorization. Previously, all imports and exports required authorization.
Controls on exports and imports of banknotes
On exports
Domestic currencyEffective September 29, 2003, exports of domestic currency in excess of kip 5 million require BOL authorization. Previously, all exports required authorization.
Foreign currencyEffective September 29, 2003, residents traveling abroad may take out foreign currency up to the equivalent of $2,000. Amounts exceeding this sum require BOL approval and a customs declaration. Previously, this limit was revised periodically.
Nonresidents are authorized to take out foreign currency up to the amount they brought in and declared upon arrival.
Exports by commercial banks require BOL approval, and must be for approved purposes.
On imports
Domestic currencyEffective September 29, 2003, imports of domestic currency require BOL authorization for amounts exceeding kip 5 million. Previously, all such imports required authorization.
Foreign currencyPersons entering the country may bring in unlimited amounts of foreign currency, but amounts in excess of the equivalent of $2,000 must be declared to customs at the port of entry.
Imports by commercial banks require BOL approval.
Resident Accounts
Foreign exchange accounts permittedBalances in foreign exchange accounts may be used for foreign and domestic transactions, subject to general or specific approval. Withdrawals in cash are limited to $10,000 or its equivalent an account a day; larger withdrawals require BOL approval.
Held domesticallyResident accounts may be credited with (1) foreign exchange transferred from overseas; (2) foreign exchange transferred from other foreign exchange accounts; (3) foreign exchange purchased legally from the domestic market; (4) foreign currency brought into the Lao PDR supported by a customs certificate; and (5) foreign exchange derived from salaries, bonuses, travel allowances, family financial assistance, and inheritances supported by proof of source.
These accounts may be debited for (1) permitted external payments; (2) domestic payments, where permitted; (3) conversion into domestic currency; (4) purchases of other payment instruments, for example, traveler’s checks and bank drafts; and (5) withdrawals in cash for approved purposes.
The opening of an account with an amount in excess of $10,000 or its equivalent requires proof of source. Withdrawals in cash of more than $10,000 or its equivalent may be approved by authorized banks but must be reported to the BOL.
Held abroadResidents may open accounts abroad in exceptional cases with the approval of the BOL.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedThe regulations applying to credits and debits on resident accounts apply also to nonresident accounts. Balances in foreign exchange accounts may be used for foreign and domestic transactions, subject to approval. Daily withdrawals are limited to $10,000 or its equivalent a day; larger withdrawals require BOL approval.
Domestic currency accountsCommercial banks are required to establish kip accounts for nonresidents of the Lao PDR who obtain kip by the conversion of foreign currency or from other legal sources. Such account holders are permitted to use the accounts to pay for domestic goods and services, or to withdraw funds to spend in the Lao PDR, to make gifts, or to establish trusts.
Convertible into foreign currencyAccount holders may convert balances to foreign currency for transfer to their home countries or to third countries. Whenever an account balance is converted to foreign currency, the servicing bank must make sure that the funds were originally converted from foreign currency or obtained as kip from some other legal source.
Blocked accountsn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance import depositsMargin deposits are required against LCs; the rates are set by the BCEL and other commercial banks.
Documentation requirements for release of foreign exchange for importsProof of payment of import duties is required.
Letters of creditYes.
Import licenses used as exchange licensesYes.
Import licenses and other nontariff measuresImport licenses are issued automatically, but are subject to indicative limits on the overall level of imports.
Positive listYes.
Negative listYes.
Licenses with quotasQuotas are imposed on imports of cement, fuel, steel bars, and vehicles.
Import taxes and/or tariffsThe tariff structure is composed of six rates (5%, 10%, 15%, 20%, 30%, and 40%). The lowest rates apply to imports of raw materials, certain inputs, and certain essential consumer goods. The highest rates of 30% and 40% apply to luxury consumer goods, certain beverages, and tobacco. The Lao PDR applies the ASEAN free-trade agreement; imports from ASEAN countries are subject to CEPT rates of 5% to 30%. In addition to CEPT rates, a rate of 40% applies to luxury consumer goods.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsIncome from exports of goods and services must be repatriated within 120 days from delivery at the border (date of f.o.b. shipment) except for parts of the income (1) used for external loan repayments approved by the BOL, (2) used for payment of a letter of credit approved by the BOL, or (3) specified in a contract between the foreign investor and the government.
Surrender requirementsReceipts from exports of wood and wood products must be surrendered to state-owned commercial banks after all payments due to the government have been settled, as follows: 80% for exports of sawed timber and 60% for exports of wood products.
Financing requirementsn.a.
Documentation requirementsn.a.
Export licensesExport licenses are required for mining, timber, and processed and semiprocessed wood products. These licenses are issued by the trade department under the Vientiane prefecture and provincial government authorities.
With quotasQuotas apply only to timber. Exports of logs are prohibited.
Export taxesTaxes are levied on selected products.
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Trade-related paymentsPayments for imports and direct import/export-related services, such as transportation, insurance, and warehousing, are permitted.
Investment-related paymentsRemittances of profits, dividends, interest, and other payments related to foreign investment are permitted.
Payments for travelForeign exchange shops may sell up to $2,000 or its equivalent. Application for larger amounts must be made to commercial banks with supporting documentation.
Personal paymentsForeign exchange shops may sell up to $2,000 or its equivalent for medical treatment or education abroad. Applications for larger amounts must be made to commercial banks with supporting documentation.
Foreign workers’ wagesRemittances of wages and salaries of foreign personnel associated with foreign investment are permitted.
Other paymentsNo restrictions apply to the remittance of interest and amortization relating to foreign debts incurred with official approval. Application for payments not explicitly mentioned in Article No. 5 of the Decree on Management of Foreign Currency and Precious Metal may be submitted with documents supporting the need for foreign exchange.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsProceeds from invisibles are, in practice, treated in the same way as proceeds from merchandise exports.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsAll capital transactions require BOL authorization.
Controls on capital and money market instrumentsThere are controls on all transactions in capital and money market instruments.
Controls on derivatives and other instrumentsThere are controls on derivatives transactions.
Controls on credit operations
Commercial credits
By residents to nonresidentsThese are subject to BOL approval. Approved loans must be registered and the performance of the loan, from disbursement to full repayment through the banking system, must be reported to the BOL.
To residents from nonresidentsThese are subject to BOL approval.
Financial credits
By residents to nonresidentsThese are subject to BOL approval.
To residents from nonresidentsThese are subject to BOL approval.
Controls on direct investmentDirect investments are subject to the Law on the Promotion and Management of Foreign Investment.
Outward direct investmentInvestment by residents abroad requires approval by the relevant authority; based on this authorization, the BOL approves the export of capital. Investment abroad with funds borrowed from a domestic commercial bank is prohibited.
Inward direct investmentForeign investment is not permitted in fields detrimental to national security, the environment, public health, or the national culture. Foreign investment may be wholly foreign-owned. Joint ventures require a minimum contribution of 30% of equity by a foreign investor. Foreign investors may repatriate earnings and capital from foreign investment at the exchange rate prevailing on the date of repatriation.
Foreign investors may borrow revolving capital only from commercial banks in the Lao PDR.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase abroad by residentsYes.
Purchase locally by nonresidentsForeign investors may lease and make improvements on land and may transfer leasehold interests.
Sale locally by nonresidentsYes.
Controls on personal capital transactions
Loans
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Provisions specific to commercial banks and other credit institutions
Maintenance of accounts abroadAuthorized commercial banks may open accounts abroad.
Lending to nonresidents (financial or commercial credits)These are subject to BOL approval. Approved loans must be registered and the performance of the loan, from disbursement to full repayment through the banking system, must be reported to the BOL.
Differential treatment of deposit accounts in foreign exchange
Interest rate controlsYes.
Open foreign exchange position limits
On resident assets and liabilitiesEffective September 10, 2003, if a bank holds a net open position in any foreign currency in excess of 15% of its tier I capital or an overall open position in excess of 20% of its tier I capital at the end of a business day, the bank must sell the surplus or purchase the shortage of each foreign currency from the interbank market on the following business day.
Provisions specific to institutional investorsn.a.
Other controls imposed by securities lawsn.a.
Changes During 2003
Exchange arrangementOctober 13. In order to ensure gradual adjustment in the exchange rate, commercial banks were required to adjust their buying and selling rates within the following limits: (1) ceilings of ±0.15% and ±0.30% for the dollar and Thai baht, respectively, of the BOL’s daily reference rate; and (2) margins between the buying and selling rates of 1.15% for the dollar and 1% for the Thai baht.
October 27. The BOL began calculating the reference rate as the weighted average of the previous day’s commercial bank and interbank rates.
Arrangements for payments and receiptsSeptember 29. Exports and imports of gold and silver exceeding the equivalent of $2,000 required BOL authorization; previously, all amounts required authorization.
September 29. Exports and imports of domestic currency exceeding kip 5 million required BOL authorization. Previously, all exports and imports required authorization.
September 29. The limit on foreign currency that residents may export was increased to the equivalent of $2,000. Previously, the limit was subject to frequent revision.
Capital transactions
Provisions specific to commercial banks and other credit institutionsSeptember 10. If a bank holds a net open position in any foreign currency in excess of 15% of its tier I capital or an overall open position in excess of 20% of its tier I capital at the end of a business day, the bank was required to sell the surplus or purchase the shortage of each foreign currency from the interbank market on the following business day.

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