The Lao government is so desperate for cash that it is offering about U.S. $340 million in bonds with a six-month interest rate of 20 percent, terms that sources told RFA sounded too good to be true.
The Lao economy is struggling with rampant inflation, a severe lack of foreign currency, and shortages of food and gas. While all the problems are interconnected, the government has taken to blaming the devalued kip on black market moneychangers and has introduced measures to maintain the value of its currency.
To that end, the Bank of Lao P.D.R. said on Tuesday it would start selling bonds worth 5 trillion kip. Buyers will receive a certificate from the central bank.
“We’re selling bonds to everyone except commercial banks and financial institutions,” a central bank employee told RFA’s Lao Service on condition of anonymity to speak freely. “Even foreigners who have lived in Laos for only one year are eligible to buy bonds.”
But Laotians contacted by RFA said that the 20 percent rate over six months sounded too good to be true. They say they do not have confidence that their cash-strapped government will be able to honor the commitment.
“I’m not interested in buying bonds like that because they are too risky,” said the owner of a rubber-processing plant in northern Laos, who like the rest of the unnamed sources in this report declined to be named for safety reasons.
“I’m going to lose money on those bonds. Nobody is going to buy them. The government is broke right now, so how can it pay us back when the bonds mature?” he told RFA.
A Lao financial expert said the interest rate will make it hard for the government to repay the notes.
“The government won’t be able to pay that much. I heard yesterday from the Lao National Assembly meeting that the government wanted to sell 5 trillion kip worth of bonds to tackle inflation and divert more foreign currency into the system. The question is, who is going to buy them?” the expert told RFA.
“My impression is that most people are concerned, not confident. They are afraid that the government won’t have money to pay it back,” said the expert.
An import-export business owner from Vientiane also told RFA he won’t be buying any bonds.
“I don’t have much kip. Most of the time I use Thai baht because I import products from Thailand, and pay in baht. Most of the big businesses in Laos use either dollars or baht,” he said.
The owner of a business in the southern province of Savannakhet told RFA that she was surprised when she heard the interest rate on the bonds was set at 20 percent.
“The government will pay that high interest? 20 percent! Usually, we get a little more than 6 percent a year for stocks or bonds, but we’ll get 20 percent for government bonds? That’s much too high,” she said.
According to a report by the Lao Statistics Bureau, the country’s inflation rate climbed to 12.8 percent on the year in May, its highest rate in 18 years. This continued a trend of increasing on year inflation rates since January.
Translated by Max Avary. Written in English by Eugene Whong.
- Caption: Lao currency (Kip)
Credit: Public Domain
- Caption: Lao currency
Credit: Citizen Journalist