Since 1975, the Government of Lao PDR has aimed to heal the wounds of war and steadily improve people’s living conditions. In 1986 the Government adopted the new Economic Mechanism, moving economic activity away from a central command system towards a market-based approach – allowing the private sector an active role in socio-economic development. Since then there has been considerable progress, with steady improvements in key social and economic indicators. Economic growth rates have also been strong. Despite the Asian financial crisis, for example, the macro-economic climate has remained stable and growth was maintained throughout the 1990s and through the first years of the new millennium. At the same time, Lao PDR has become an active partner in ASEAN and in other initiatives for regional co-operation.

The Government of Lao PDR sets the guidelines and defines the way forward. Through its 5-year National Socio-economic Development Plans, the Government then translates these into specific targets and objectives and for each sector identifies the necessary strategic programs and priorities. In March 2001, the 7th Party Congress further refined its 2020 vision for the country by specifying poverty reduction targets for 2005, 2010 and 2020 and highlighted priorities for industrialization and modernization.

To achieve these objectives, the Government of Lao PDR has outlined the following strategic priorities:

• Maintain an appropriate level of economic growth for the medium and long-term in response to demographic trends.
• Enhance human resource development through education, particularly basic education at all levels – including the formal and informal sectors as well as vocational training.
• Develop and modernize social and economic infrastructure in order to facilitate economic development in each region of the country while accelerating Lao PDR’ regional and international economic integration.
• Facilitate access to electricity for people in all areas and regions of the country in order to foster integrated economic development.
• Promote industries utilizing domestic natural resources, and actively promote small and medium-sized enterprises and the production of handicrafts.
• Develop and promote all economic sectors, particularly the private sector, including foreign direct investment, in order to expand business opportunities – emphasizing the export-oriented sectors in which Lao PDR has a comparative advantage.
• Enhance market linkages and trade facilitation.
• Strengthen existing legal and regulatory frameworks.
• Create favorable conditions and mechanisms for improving financial institutions and further capital market development;
• Promote economic cooperation with all partners and countries.

This refinement of strategic priorities has helped the Government implement its eight priority programs: food production; commercial production; shifting cultivation stabilization; infrastructure development; rural development; human resource development; service development, and foreign economic relations. Over half of the populations are young people and the Government’s over-arching concern is to pursue national development strategies that will create a positive future for them. One clear success has been in poverty reduction. As a result of efforts by both the Government and the people, between 1993 and 1998, the proportion of people living below the national poverty line fell from 45 to 39 percent.  First estimates for 2002-03 suggest that the proportion of people below the poverty line will reduce further. The Government has also put an increasing emphasis on the social sector. Between 2000-01 and 2002-03, it increased the proportion of the budget spending on education from 7.0 to 11.2 percent, and the proportion going to health from 3.5 to 8.7 percent. It will also increase the proportion going to the social sector in the years ahead. Between 2003-04 and 2005-06 this will increase from 28 to 34 percent, by which time health and education will account for three-quarters of social investment. With the rise of the social sector allocation over this period, the proportion going to the economic sector will decline slightly from 59.7 to 56 percent. Nevertheless, because of its importance, investment in the economic sector will remain a strategic priority for the government.