Laos’s Economic Crisis Spiraling out of Control, as It Struggles With Massive Debts to China

The tiny Southeast Asian state of Laos, with a population of around seven million, does not often make global headlines. A one-party, authoritarian regime, it mostly avoided the type of global criticism of neighbors like Myanmar, despite an atrocious rights record. It avoided drawing attention because of its small size and because it lacked any type of organized anti-government movement or leading dissident; the closest possible figure to a major dissident, Sombath  Somphone, vanished ten years ago.

Instead, Laos attracted foreign tourists to its pace of life and historic sites like the city of Luang Prabang. Increasingly, in recent years it also positioned itself at the center of growing trade, economic, and infrastructure integration in the Mekong subregion. Its dams would provide electricity for more populous neighbors, while its growing web of roads and rails, funded extensively through debt, much of it to China, would connect the region’s rising economies.

But in recent months, Laos’ economy has crashed. Inflation of basic goods is skyrocketing, staple goods like cooking oil are becoming scarce, and the local currency is collapsing against the dollar. Laos, whose credit rating was downgraded by Moody’s in June to junk rating, is now near default on its sovereign debts. Tiny Laos’ economic crisis, however, increasingly has both domestic and regional implications. For perhaps the first time, many ordinary Lao citizens are publicly questioning their authoritarian government, at a time when democracy is struggling throughout mainland Southeast Asia, with a coup regime running Myanmar and Cambodia becoming a hardline autocracy. Meanwhile, anger is rising in Laos at outside lenders, particularly China, while Laos is also looking for help from Russia, which could alienate the tiny state from major democratic powers. 

For more on Laos’ spiraling crisis, see my new World Politics Article here.