ASEAN finance leaders wrap up meetings in Laos, pointing to challenges from geopolitics, volatile prices

LUANG PRABANG, Laos — Southeast Asian economies are improving as tourism and exports recover from the shock of the pandemic, but geopolitical tensions and volatile commodity prices still pose serious risks, regional finance chiefs said on Friday.

Laos Finance Minister Santiphab Phomvihane read a joint statement following meetings between finance ministers at a hotel in the Laos city of Luang Prabang, but he made no further comments and took no questions.

Estimates for economic growth among members of the 10-nation Association of Southeast Asian Nations vary but generally hover around a robust 5% in 2024.

„However, there are still challenges due to adverse financial spillovers caused by geopolitical tensions, volatility in global commodity prices,” Phomvihan said, adding that climate change, an aging population and the rapid growth of digitization are key factors for the region.

In terms of US dollars, Laos' economy is shrinking due to the devaluation of its currency, the kip. However, in local currency terms it grew at a rate of 3.7% last year and is projected to expand at a rate of 4% in 2024.

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„Things are getting back to normal,” said Winfried F. Wicklein, the Asian Development Bank's director for Southeast Asia.

But the country is considered to be in a debt crisis, with defaults of more than $1 billion a year and total debts of about 125% of its economy, half of which is owed to China.

Chinese financial institutions are believed to have repaid about $2 billion of those loans by 2020, helping Laos avoid outright default and easing some of the pressure on the economy.

„China is being pushed into the future without much transparency on debt repayments,” said Keith Barney, a professor at the Australian National University's Crawford School of Public Policy who researches Laos. For more than 20 years.

„The Lao economy is currently in a serious situation and we cannot easily see an obvious way out,” he said. „Laos' debt problems limit its future prospects for economic growth in a number of ways.”

However, Laos has acknowledged the seriousness of its debt problem, allowing an International Monetary Fund report to be released publicly last year, which was silent on outlining the urgent measures needed to fix the country's finances, Wicklen noted.

„They realize they have a problem and are willing to help. They invite you into the kitchen and that means a lot,” he said.

On the sidelines of ASEAN meetings this week, Laos signed agreements to launch cross-border payments using QR codes, among other incremental steps aimed at integrating its finances and economy with those of its larger and wealthier neighbors.

There were no major reports on climate-related issues as officials met with mountain fires, a seasonal problem Laos shares with its ASEAN neighbors, and thick smoke from burning fields and waste.

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But such meetings allow top finance officials to collaborate on devising strategies to curb carbon emissions and share lessons learned.

„It's a long way to go, but everyone is committed to the same direction,” Wicklein said.

Wickline pointed to a 600 MW monsoon wind power project that would allow Laos to export electricity to neighboring Vietnam as an example of increasing investments in the energy sector beyond Laos' huge hydropower sector.

„These megadeals have a proven effect,” he said.

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