Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

LAO PEOPLE’S DEMOCRATIC REPUBLIC

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of the Lao People’s Democratic Republic (Lao P.D.R.) is the Lao kip.
Other legal tenderU.S. dollars and Thai baht circulate freely.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateTo ensure gradual adjustment in the exchange rate, commercial banks are required to adjust their buying and selling rates within the following limits: (1) ±0.25% for the dollar of the Bank of the Lao P.D.R. (BOL) daily reference rate; (2) margins between the buying and selling rates not exceeding 1.15% for the dollar. Adjustments for exchange rates for other currencies are correspondingly limited by the adjustments for the dollar. Within the prescribed limits, commercial banks are free to set their own rates, which vary from the parallel market rates by a very small margin.
The official reference exchange rate is calculated as the weighted average of the previous day’s commercial bank and interbank rates.
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 practice, the BOL provides and accepts only dollars, euros, 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 restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)On November 23, 2004, the Lao P.D.R. notified the IMF that measures have been taken to impose restrictions on financial transactions and to freeze accounts of listed terrorist groups pursuant to the relevant UN Security Council resolutions and to the list of current terrorist organizations maintained by the U.S. Secretary of State.
In accordance with UN sanctionsIn accordance with the relevant UN Security Council resolutions, financial transactions are restricted and accounts are frozen if they involve individuals and organizations included in the list of terrorists maintained by the U.S. Secretary of State.
Payments arrearsn.a.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeImports and exports of gold and silver exceeding the equivalent of $2,000 require BOL authorization.
Controls on exports and imports of banknotes
On exports
Domestic currencyExports of domestic currency in excess of kip 5 million require BOL authorization.
Foreign currencyResidents 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.
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 currencyImports of domestic currency require BOL authorization for amounts exceeding kip 5 million.
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. Effective February 5, 2004, withdrawals exceeding this limit may be approved by authorized banks, but must be reported to the BOL.
Held domesticallyResident accounts may be credited with (1) foreign exchange transferred from overseas; (2) foreign exchange transferred from other foreign exchange accounts with BOL approval; (3) foreign exchange purchased legally from the domestic market; (4) foreign currency brought into the Lao P.D.R. 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 of funds.
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 governing credits and debits on resident accounts apply.
Domestic currency accountsCommercial banks are required to establish kip accounts for nonresidents who obtain kip by the conversion of foreign currency or from other legal sources. Such accounts may be used to pay for domestic goods and services, or to withdraw funds to spend in the Lao P.D.R., to make gifts, or to establish trusts.
Convertible into foreign currencyAccount holders may convert balances to foreign currency for transfer abroad. At conversion, 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 accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance import depositsMargin deposits are required against LCs; the rates are set by 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 P.D.R. 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.
Taxes collected through the exchange systemYes.
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 taxes
Other 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 trade–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. Remittances of profits and dividends require a tax payment certificate.
Payments for travelForeign exchange bureaus may sell up to $2,000 or its equivalent. Commercial banks may sell larger amounts with supporting documentation.
Personal paymentsForeign exchange bureaus may sell up to $2,000 or its equivalent for medical treatment or education abroad. Commercial banks may sell larger amounts 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 external 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 instrumentsControls apply to all transactions in capital and money market instruments.
Controls on derivatives and other instruments
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
Controls on credit operations
Commercial credits
By residents to nonresidentsApproved 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 nonresidentsYes.
Financial credits
By residents to nonresidentsYes.
To residents from nonresidentsYes.
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 borrow revolving capital only from commercial banks in the Lao P.D.R.
Controls on liquidation of direct investmentForeign investors may repatriate earnings and capital from foreign investment at the exchange rate prevailing on the date of repatriation.
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 liabilitiesIf 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 2004
Arrangements for payments and receiptsNovember 23. The Lao P.D.R. notified the IMF that certain measures were taken to impose restrictions on financial transactions and to freeze accounts of listed terrorist groups pursuant to the relevant UN Security Council resolutions and to the list of current terrorist organizations maintained by the U.S. Secretary of State.
Resident accountsFebruary 5. Authorized banks were allowed to approve withdrawals in cash from foreign exchange accounts in excess of $10,000 an account a day, subject to reporting to the BOL.

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