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Viewing cable 07VIENTIANE220, WORLD BANK OFFICIAL EXPRESSES CAUTIOUS OPTIMISM TO

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Reference ID Created Released Classification Origin
07VIENTIANE220 2007-03-19 09:47 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Vientiane
VZCZCXRO8790
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHVN #0220/01 0780947
ZNY EEEEE ZZH
R 190947Z MAR 07
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 1023
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
UNCLAS E F T O SECTION 01 OF 02 VIENTIANE 000220 
 
SIPDIS 
 
NOFORN 
SENSITIVE 
SIPDIS 
 
E.O. 12958: DECL: 03/17/2017 
TAGS: EAGR EAID EAIR ECON EFIN ELAB EMIN ENRG ETRD
LA, PGOV, PHUM, PREL, SENV, SOCI, TH, UNDP, KFLU, TBIO 
SUBJECT: WORLD BANK OFFICIAL EXPRESSES CAUTIOUS OPTIMISM TO 
EAP/MLS DIRECTOR 
 
REF: A. VIENTIANE 121 
 
     B. VIENTIANE 133 
     C. VIENTIANE 1155 
 
1. (SBU)  Summary:  During a March 2 meeting, World Bank 
country manager Patchamuthu Illangovan told visiting EAP/MLS 
office director Rapson that he is more optimistic than he 
used to be about prospects for progress in Laos.  The World 
Bank's major hydropower project, Nam Theun 2, has brought 
dynamism and good practices, although there are still many 
"second and third tier companies" that have agreements with 
the government in the hydropower and mining sectors.  Nam 
Theun 2 is going forward in a satisfactory way, although 
there have been delays in relocating affected families.  The 
Lao government has made surprisingly good progress in public 
finance reform, in part due to prodding by the newly vigorous 
legislature.  Corruption appears to be on the rise, and the 
Lao have asked the World Bank for help in addressing it.  End 
summary. 
 
2.  (U)  At a March 2 meeting with visiting EAP/MLS Director 
Robert Rapson, World Bank country manager Patchamuthu 
Illangovan provided an overview of current World Bank 
priorities and concerns.  The World Bank's Laos office is 
currently implementing the March 2005 strategy, which 
emphasizes capacity development of organizations and 
individuals.  The office recently created a senior position 
dealing exclusively with capacity-building.  Investment and 
trade capacity-building is a priority for the World Bank and 
other donors.  The World Bank is prepared to move quickly to 
assist the Lao government in addressing avian influenza. 
(Note:  After this meeting, the World Bank reached agreement 
with the Lao government to fund a major poultry culling 
operation, currently underway.  They continue to review other 
assistance requests.  End note.) 
 
Public Finance and Governance 
----------------------------- 
 
3.  (SBU)  Mr. Illangovan said he has observed a lot of 
dynamism in Laos since the beginning of the Nam Theun 2 
hydro-power project.  (Note:  This is the World Bank's 
largest project in Laos.  It was approved in 2005.  End 
note.)  Despite his initial skepticism regarding the Lao 
government's ability to take on public finance management 
reform, there has been encouraging progress.  Recent 
amendments to the budget law (Ref A) will improve the fiscal 
situation by centralizing revenue collection, which 
previously took place primarily at the provincial level. 
This effort has been led by very committed officials, 
including the Vice Minister of Finance.  Mr. Illangovan noted 
that China and Vietnam undertook similar reforms in the 
mid-1980s and mid-1990s, respectively. 
 
4.  (SBU)  Mr. Illangovan said that there is a sense that 
corruption is on the rise.  The Lao government has asked for 
assistance in addressing this.  Anti-corruption efforts, 
which heretofore have fallen under the Deputy Prime Minister, 
will be moved into an independent unit. 
 
5.  (SBU)  Mr. Illangovan noted that the National Assembly is 
beginning to demand accountability.  For example, they pushed 
back on government revenue targets.  When the government said 
there would be shortfalls, National Assembly Vice President 
Pany Yathortu retorted that the legislature had passed budget 
legislation at the government's request and expected the 
government to uphold its own commitments.  (Note: Mme. Pany 
is a member of the communist party Politburo.  End note.) 
 
Trade and Investment Capacity-Building 
-------------------------------------- 
 
6.  (SBU)  Mr. Illangovan outlined the goals of the recently 
completed Diagnostic Trade and Integration Study, which 
articulates the key policy actions to be taken by the Lao 
government in order to increase export competitiveness and 
promote trade and investment.  (Note: Details on the program 
can be found in the World Bank's November 2006 "Lao PDR 
Economic Monitor," available on the internet.  End note.)  A 
multi-donor trust fund has been established to coordinate 
trade-related assistance, including strengthening customs 
procedures and developing enterprise regulations.  Mr. 
Illangovan said that the biggest challenge for donors is that 
the Ministry of Industry and Commerce lacks staff members 
capable of engaging on these issues. 
 
Hydro-power and Mining 
---------------------- 
 
 
VIENTIANE 00000220  002 OF 002 
 
 
7.  (SBU)  Mr. Illangovan said that progress on Nam Theun 2 
has been satisfactory, despite some setbacks such as delays 
in relocating villagers.  100 of 600 households have been 
relocated so far.  There are concerns about how people who 
were previously hunter-gatherers will adjust to being 
farmers.  The project has committed to doubling household 
incomes for affected families from $400 a year to $800.  The 
main income sources will be agriculture, livestock, 
fisheries, and forestry.  The next challenge will be ensuring 
the integrity of the watershed area.  Poaching and logging 
(particularly of rosewood) are the biggest threats. 
Downstream risks that have to be addressed include dirty 
water and rising water levels, which could lead to loss of 
fisheries in four to five years. 
 
8.  (SBU)  Nam Theun 2, Mr. Illangovan said, provided a model 
for high-quality investment in the hydro-power sector which 
the government hoped to replicate for other projects.  This 
has not materialized, however.  Senior energy and environment 
officials in Thailand are aware that they need to pay more 
attention to the quality of Thai investments in Laos.  Mr. 
Illangovan said that there have been concerns that the Nam 
Ngum 2 commerical hydropower project was rushed into 
operation, causing problems which the company is now trying 
to address by retrofitting.  Four or five other projects are 
scheduled to begin producing energy in the next five to seven 
years.  Chinese, Korean, and Russian companies have signed 
memoranda of understanding.  However, some of these projects 
"may not see the light of day." 
 
9.  (SBU)  Mr. Illangovan noted that the Lao government is 
concerned about quality of investments in the mining sector, 
which was the reason for the recently announced moratorium on 
approval of new mining investments (Ref B).  The government 
is worried that speculators are buying up concessions and 
then sitting on them, waiting to sell them to other buyers. 
However, the government does not want to discourage 
investors.  With regard to investment in general, more 
competition is needed.  Otherwise, Laos will become a 
"playground for second and third-tier companies." 
 
Cautious Optimism 
----------------- 
 
10.  (SBU)  Mr. Illangovan said, "A few years ago, I wasn't 
that optimistic.  But I see improvement.  Having come this 
far, I don't think they'll want to move the clock back."  He 
added, however, that getting things done will continue to 
require patience.  The Lao government places a premium on 
consensus-building; moving quickly is not a priority.  Donors 
are becoming more coordinated, but Laos is not yet where 
Cambodia and Vietnam are in terms of aid effectiveness.  The 
donor community has not yet developed joint sectoral 
initiatives.  The donor round table (Ref C) is not a 
businesslike, efficient process. 
 
11.  (SBU)  Comment:  Mr. Illangovan noted a number of the 
same encouraging developments that the embassy has observed, 
such as a stronger National Assembly.  We also share his 
views on obstacles to progress, foremost among them lack of 
human capacity.  End comment. 
MCGEEHAN