Why Vietnam Should be Worried About Laos’ Economic Crisis

Laos is versus one of its worst economic crises in many years. Last month, inflation paste a 22-year high of 23.6 percent, according to official reports. Consequently, the price of fuel, gas and gold has raised by 107.1 percent, 69.4 percent and 68.7 percent, respectively, compared to the June 2021 price. Long lines at gas stations are they are no longer rare occurrences, which, in turn, has hurt the country’s recovery from the COVID-19 pandemic. The value of the local currency, the kip, has fallen from 9,300 per US dollar in September 2021 to around 15,000 today. With just $1.2 billion in foreign reserves, Laos is on the brink of sovereign bankruptcy, as the state is unable to meet its debt obligations, which require it to pay $1.3 billion per year through 2025. Of Laos’ $14.5 billion in foreign debt, about half is due to China to finance projects, including the recently inaugurated $5.9 billion China-Laos Railway connecting Vientiane to the Chinese border.

In the context of the crisis, Vietnam and Laos this month celebrated the 60th anniversary of the establishment of bilateral relations (1962-2022) and the 45th anniversary of the signing of the Treaty of Friendship and Cooperation (1977-2022). the leaders from both countries affirmed their “special relationship”, that Vietnam and Laos are not only neighbors but “brothers and comrades” committed to the joint task of national and socialist construction. Nguyen Phu Trong, General Secretary of the Communist Party of Vietnam described The ties between Vietnam and Laos as “invaluable” and “one of a kind” in world history. Lao Vice President Bounthong Chitmany said that Vientiane is determined to cultivate the “comprehensive unity of the great Vietnam-Laos relationship.”

There is no doubt that Laos is Vietnam’s most trusted friend. In fact, Laos is the unique Allied military treaty that Vietnam has had since the end of the Cold War, despite Hanoi official non-alignment policy. The Vietnam-Laos Treaty of Friendship and Cooperation serves as the spine of the alliance, under which Laos can to call for military support from Vietnam when there is a threat to its security.

Since the signing of the treaty in 1977, Hanoi has I consider the vital alliance to defend Vietnam from afar and negate the influence of other rivals in Laos. Such thinking is rooted in the geographical vulnerability of Vietnam. Laos borders The narrowest point in Vietnam at just 40 kilometers, which foreign enemies could exploit to split the slender nation in half. Vietnam also understands that if China were able to control Laos, Vietnam would be surrounded by Beijing on three fronts: the South China Sea in the east, the China-Vietnam border in the north, and Laos and Cambodia in the west. The survival of Vietnam is therefore tied to the survival of Laos. As Vietnam state media put succinctly, “the security of Laos is the security of Vietnam”.

For that reason, Vietnam has gone to great lengths to ensure that Laos remains under its tutelage in the face of Chinese opposition. During the Vietnam War, despite fighting a common US enemy, Vietnamese and Chinese advisers competed of influence over Laos. After 1975, Vietnam trusted in Soviet military and economic assistance to consolidate its rule over Indochina at China’s expense. Shortly after China invaded Vietnam in February 1979, Vietnam send troops to the border between Laos and China after the Lao government reported that China had invaded a small section of its northern border. Hanoi would station more than 40,000 soldiers in Laos in the following years to protect its ally from China and internal unrest, at a time when it was waging a counter-insurgency war against the Khmer Rouge in Cambodia and preparing for another Chinese invasion throughout the war. border between China and Vietnam. Throughout the 1980s, Vietnam was arguably Laos’ main security. Y economic pattern.

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The end of the Cold War and the standardization of Laos-China relations in 1991 posed a new challenge to Vietnam’s dominant position in Laos, as Vientiane was more open to Chinese investment. In a low security threat environment, the competition between Vietnam and China over Laos turned to the economic realm, forcing Laos to play a careful role balancing act between its military ally Vietnam and its now most important economic partner, China. As expected, Vietnam perceived Chinese investments in Laos as a threat because they undermine Hanoi’s economic position in the country.

Since China has sought to expand its influence in Southeast Asia through the Belt and Road Initiative, Vietnam has seen their position in Laos deteriorates further. Many politicians in Laos, despite receiving their training in Vietnam, regard China as a favorite model of economic development. vietnam has continued a aid Laos the best I can, like give away Laos a new house of national assembly, building a new public park in Vientiane and money a series of cross-border infrastructure projects, such as the Hanoi-Vientiane expressway and the Vientiane-Vung Ang railway, a direct response to the Laos-China railway. Hanoi even wanted help from Japan to build infrastructure connecting Vietnam and Laos to offset their weaker economic power against China. Still, the long-term trend is clear. vietnam is losing his rule over Laos.

To further counter China’s attempts to drive a wedge between Vietnam and Laos through economic rewards, Hanoi has emphasized defense cooperation between the two countries. He wants to show that Vietnam remains the most important guarantor of Laos’ security, even though it is no longer the country’s most important economic partner. At a recent high-level meeting between the defense ministries of Vietnam and Laos to mark bilateral ties, both sides affirmed that “under any circumstances, the armies of the two countries will stand shoulder to shoulder, overcome all challenges and difficulties, and protect the revolutionary achievements of the predecessors.”

Lao Mayor-Gen. Khamlien Outhakaysone proclaimed that Laos will always cherish “great friendship, special unity and all-round cooperation” with Vietnam and believed that such a force “would push back all the conspiracies that divide the two countries.” Vietnamese Prime Minister Pham Minh Chinh again emphasized bilateral defense cooperation as an important pillar of Vietnam-Laos relations and a priority of Hanoi. Chinh added that recent economic difficulties due to inflation and skyrocketing fuel prices, as well as an uncertain international environment, should warrant closer cooperation so that both Vietnam and Laos can proactively deal with potential negativities. vietnam state media indicated that continued cooperation under the leadership of the two communist parties it is vital to the longevity and prosperity of the Vietnamese and Lao people.

However, Laos’ current economic emergency may complicate Hanoi’s efforts to limit Beijing’s influence. Vietnam could only keep Laos under its wing as long as Laos kept sociopolitical stability and China does not enjoy the last word in the survival of Laos’ economy, both threatened by the economic crisis. Hanoi has tried to help ease some of the economic burden on Laos by growing their investments by 33 percent between 2020 and 2021. In the first three months of 2022, bilateral trade grew up 19 percent compared to the same period in 2021. Hanoi also indicated that Vietnamese companies in Laos have paid more than $1 billion worth of taxes to Vientiane over the last five years. Still, it’s worth remembering that no matter how much Vietnam invests in Laos, it can’t overtake China. Money from Vietnam is also not the silver bullet for Laos’ economic problems if the country cannot deal with its endemic corruption and mismanagement.

The outcome of the economic crisis may decide whether Laos can maintain its balancing act between Vietnam and China. In a low security threat environment, Lao leaders may decide that economic survival is more important than security and that the country needs economic help from China to maintain internal stability in the short term. In the long term, China can serve as Laos’ main security. Y economic guarantor if such an arrangement increases Chinese influence in Indochina at Vietnam’s expense and frees Laos from its balancing act, thus effectively ending the Vietnam-Laos military alliance. Importantly, as a one-party communist state, China can also safeguard the survival of the communist regime in Laos like Vietnam. has been doingwhich would only smooth out that transition.

As has been the case for a long time before the COVID-19 pandemic, the rise of China has undermined Vietnam’s influence in Laos. A further weakening of the party-state in Laos would only allow China to exploit its favorable power position vis-à-vis Vietnam and finally win over the country to its side, after having successfully done so with Cambodia. The last time China and Vietnam fought a major land war was in 1979; It was about Cambodia. The next conflict between China and Vietnam may not be over the South China Sea but over Laos.

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