Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

LAO PEOPLE’S DEMOCRATIC REPUBLIC

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of February 28, 2007)

Status under IMF Articles of Agreement
Article XIVYes.
Exchange Measures
Restrictions and/or multiple currency practicesThe staff report for the 2005 Article IV consultation with the Lao People’s Democratic Republic states that as of February 22, 2006, Lao P.D.R. maintained a restriction subject to Fund approval under Article VIII (tax payment certificates are required for some transactions). (Country Report No. 06/399)
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)There are frozen accounts and restrictions have been imposed on financial transactions involving 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.
Other security restrictionsIn 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.
References to legal instruments and hyperlinksBank of Lao P.D.R., www.bol.gov.la; Ministry of Industry and Commerce, www.moc.gov.la.
Exchange Arrangement
CurrencyThe currency of Lao P.D.R. is the Lao kip.
Other legal tenderDollars and Thai baht are used for some transactions.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateEffective February 19, 2007, to ensure gradual adjustment in the exchange rate, commercial banks are required to adjust their buying and selling rates within ±0.3% of the daily reference rate of the Bank of the Lao P.D.R. (BOL) for the dollar. Previously, commercial banks were required to adjust their buying and selling rates within the following range: (1) ±0.25% of the BOL daily reference rate for the dollar; and (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. 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.
References to legal instruments and hyperlinksDecision of the Governor of the Bank of the Lao P.D.R. dated February 19, 2007.
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.
Controls on the use of domestic currencyn.a.
Use of foreign exchange among residentsThis requires formal authorization from the government, although the use of foreign exchange (principally dollars and 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.
Regional arrangementsn.a.
Clearing agreementsn.a.
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.
Payments arrearsn.a.
Controls on trade in gold (coins and/or bullion)
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 KN 5 million require BOL authorization.
Foreign currencyEffective November 15, 2006, residents traveling abroad may take out foreign currency up to the equivalent of $5,000 (previously, $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 on 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 KN 5 million.
Foreign currencyEffective November 15, 2006, persons entering the country may bring in unlimited amounts of foreign currency, but amounts in excess of the equivalent of $5,000 (previously, $2,000) must be declared to customs at the port of entry. Imports by commercial banks require BOL approval.
References to legal instruments and hyperlinksDecision of the Governor of the Bank of the Lao P.D.R. No. 457, dated November 15, 2007.
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. 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 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.
Approval requiredYes.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
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 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 ensure that the funds were originally converted from foreign currency or obtained as kip from some other legal source.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Minimum financing requirementsn.a.
Advance payment requirementsn.a.
Advance import depositsMargin deposits are required against LCs; the rates are set by commercial banks.
Documentation requirements for release of foreign exchange for imports
Domiciliation requirementn.a.
Letters of creditYes.
Import licenses used as exchange licensesYes.
OtherProof of payment of import duties is required.
Import licenses and other nontariff measuresEffective October 11, 2006, import licenses are required for 25 categories of goods: most are used for quality control, safety, or animal quarantine; however, some (e.g., cement) are used for limiting the overall level of imports. Previously, import licenses were issued automatically, but were subject to indicative limits on the overall level of imports.
Positive listYes.
Negative listYes.
Licenses with quotasQuotas are imposed on imports of petroleum and gas.
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. 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.
References to legal instruments and hyperlinksDecree on Import-Export Management No. 205/PMO of October 11, 2006.
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 an LC approved by the BOL, or (3) specified in a contract between the foreign investor and the government.
Surrender requirements
Surrender to authorized dealersReceipts 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 licensesEffective October 11, 2006, export licenses are required for live animal, fish, paddy, and forestry products (such as resin). Also, export licenses are required for mining and for processed and semiprocessed wood products. These licenses are issued by the trade department under the Vientiane prefecture and provincial government authorities.
With quotasExports of logs and timber are prohibited.
Export taxes
Other export taxesTaxes are levied on selected products.
References to legal instruments and hyperlinksDecree on Import-Export Management No. 205/PMO of October 11, 2006.
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. No restrictions apply to the remittance of interest and amortization relating to external debts incurred with official approval.
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 payments
Indicative limits/bona fide testApplication 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.
References to legal instruments and hyperlinksDecree on Management of Foreign Currency and Precious Metal.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsProceeds from invisibles are, in practice, treated in the same way as proceeds from merchandise exports.
Surrender requirements
Surrender to authorized dealersYes.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsAll capital transactions require BOL authorization.
Repatriation requirementsn.a.
Surrender requirementsn.a.
Controls on capital and money market instrumentsControls apply to all these transactions.
Controls on derivatives and other instruments
Purchase locally by nonresidentsn.a.
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 creditsControls apply to all these transactions.
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 allowed in all sectors and zones of investment in Lao P.D.R., except for 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. Business cooperation by contract is a business arrangement between domestic and foreign legal entities without establishing a new legal entity in Lao P.D.R. Foreign investors may borrow revolving capital only from commercial banks in Lao P.D.R.
Controls on liquidation of direct investmentForeign investors may repatriate profits, capital gains, and other income after full payment of duties, taxes, and other fees, in accordance with the regulations and laws, to their home countries or a third country through a bank located in Lao P.D.R.
Controls on real estate transactions
Purchase abroad by residentsYes.
Purchase locally by nonresidentsForeign investors have the right to receive benefits for the lease of or the concession over land, such as the right to use or sell the assets associated with the leased land or concession, to create security interests over such assets in favor of any persons or financial institutions or to take such assets for the purpose of the joint venture, to sublease the right to use the land, to transfer the land lease or concession agreement in accordance with the terms of the lease, or to use the land lease contract or concession in favor of other persons. The details of the rights, benefits, and obligations of foreign investors relating to the land lease or concession must be in compliance with the Land Law and other relevant laws.
Sale locally by nonresidentsYes.
Controls on personal capital transactions
LoansControls apply to all these transactions.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsn.a.
Settlements of debts abroad by immigrantsn.a.
Transfer of assets
Transfer abroad by emigrantsn.a.
References to legal instruments and hyperlinksLaw on the Promotion and Management of Foreign Investments; Land Law.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadn.a.
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.
Purchase of locally issued securities denominated in foreign exchangen.a.
Differential treatment of deposit accounts in foreign exchange
Liquid asset requirementsn.a.
Interest rate controlsYes.
Credit controlsn.a.
Differential treatment of deposit accounts held by nonresidents
Liquid asset requirementsn.a.
Credit controlsn.a.
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.
On nonresident assets and liabilitiesn.a.
Provisions specific to institutional investorsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Arrangements for payments and receiptsNovember 15. Persons entering or leaving the country were allowed to bring in or take out the equivalent of $5,000 (previously, $2,000) in foreign currency without customs declaration.
Imports and import paymentsOctober 11. The list of goods subject to prohibition and import licenses was revised.
Exports and export proceedsOctober 11. The list of goods subject to prohibition and export licenses was revised.
Changes during 2007
Exchange arrangementFebruary 19. Commercial banks were required to adjust their buying and selling rates within ±0.3% of the daily reference rate of the BOL for the dollar. Previously, the following ranges applied: (1) ±0.25% of the BOL daily reference rate for the dollar; and (2) margins between the buying and selling rates not exceeding 1.15% for the dollar.

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