Michael Kirk (1996):
Land Tenure Development and Divestiture in Lao P.D.R.

2. Overview of the Transformation Process in Lao PDR

Central stages, objectives and instruments of the transformation process in Laotian society and economy since the beginning of the 70s can be demonstrated pin-pointedly in the formation and securing of land access and land use rights.

Following a protracted civil war lasting two decades, the Lao People's Democratic Republic was declared at the end of the Vietnam war in 1975, replacing the monarchy. The transformation in the direction of a centrally administered economy was urged on through diverse political instruments (World Bank 1995a). The legal basis for land ownership and land use rights under the previous French-influenced regime was dismantled and no new formal framework was put in its place (Gaston 1995a). The old system under French colonial rule and the subsequent kingdom in Laos until 1975 guaranteed private ownership for individuals and legal entities in the case of registered land. The system used the complicated process of "immatriculation" when registering land, and claimed extensive state property using the instruments of "domaine public" and the "domaine privé", which, for example, was concretely established for the forestry sector in the "forêts classées" [FN 2] .

Moreover, the rule of law and the bulk of the existing legislation, such as contract law, civil law with its regulations on inheritance or title registration as a basis for land distribution, were repealed and were finally replaced by an extensive set of decrees from the Party. Up to the beginning of the 90s, the country was governed on this basis by presidential and Party decrees and ordinances which could be revised at any time by the Party apparatus. Thus legal security, continuity and comprehensibility were neither guaranteed for the executive administration, nor for the individual citizen. Many properties owned by Laotians who fled the country were nationalized and placed under state management (Gaston 1995a). Furthermore, with the nationalization of the marketing, the distribution system and all land and its re-allocation in the beginning of the collectivization of agriculture, the small family farms dominant up to that point were put under scrutiny.

These efforts to collectivize led to the formation of more than 2.000 cooperatives; all in all, however, this program was urged on with only slight success. Long-term investment in land, for the maintenance of soil fertility, only took place to an inadequate degree; individual economic incentives did not exist. Collectivization was already stopped in 1979 due to the collapse of rice production, and greater efforts were made to consolidate existing cooperatives. This represented the basic shift in the government's approach from collective farming to acknowledging the preference of most farming families for private enterprise (Pham 1994, Gaston 1995a). Thus, the fundamental role of family farms as the safeguard of basic nutrition for the country continued to be recognized.

Although 23 percent of agricultural land was already being worked by cooperatives in 1984, the agricultural sector was still characterized by small private holdings. The legal status of this non-collective land remained unclear: the reach of an active nationalization policy concentrated itself on economically valuable registered areas of land in urban and peri-urban areas, where nowadays restitution claims against the State, Party and individual persons accordingly lead to long, drawn out, and sometimes severe conflicts about land tenure. The effectiveness of nationalization in rural areas was limited; new laws remained largely unknown and were scarcely enforceable. Legal uncertainty was increased by the abandonment of farms and massive migration within and between the Provinces as a result of the war.

The economic framework conditions for family farms in the Lao PDR were also consciously formed to the disadvantage of these farms. Farmgate prices and trade in agricultural products were strictly regulated by the state. Trade between provinces was restricted. The domestic price control, as well as overvalued exchange rates, led to parallel markets for goods and foreign exchange. Inflation increased with the worsening supply shortages caused by a distorted incentive structure (Pham 1994).

This is a brief sketch of the situation in which, even before the collapse of the East European centrally planned economies in 1986, the Laotian government introduced new political approaches and bundles of measures within the one-party system by using the "New Economic Mechanism". These approaches had an extensive economic liberalization and a return to market principles as their objective. Here is a summary of the areas in which the NEM is applied (Pham 1994):

• In pricing policies, because the dual price system (official and parallel market) was lifted, subsidies for agricultural inputs were eliminated, and the system of forced procurement of wage goods (rice) by the Government at below-market prices was done away with.
• In the liberalization of domestic trade: as self-sufficiency at the province level was abandoned, the movement of goods between provinces became allowed, private smallholders were given access to imported raw materials, machinery, transport. They were even allowed to borrow from the banking system.
• Liberalization of foreign trade: the Government ceased its monopolistic trading practices except for a few strategic goods such as minerals and logs (!), and - alongside other instruments - the encouraged simplification of import and export taxes.
• Macro-economic stabilization policies were carried out together with a comprehensive structural adjustment program enforced by the International Monetary Fund and the World Bank, which resulted in significant innovations and reforms in the fiscal, tax, and monetary policies.
• Structural reforms, the simultaneous undertaking of which was unavoidable for the success of the stabilization policies mentioned above, comprised the following elements: the reform, i.e. the divestiture of public enterprises (about 600) and a comprehensive privatization program, the reform of the financial sector with separate functions for the central bank and commercial ones as well as the revision of the foreign investment code.
• Institution building which above all comprises the adoption of the new Constitution and other important legislative work, the reform of the budgetary processes and a better coordination through inter-ministerial working groups, etc.

In the last area mentioned, the new formulation of the principles of allocation and the use of natural resources were tackled (World Bank 1995a). After the nation-wide standardization of the price-system, the systematic reforms of the institutional environment, especially the property regime, was the political action of the state since 1989, as well, of course, the strategies for exerting influence through various interest groups. Important steps here were:

1. Altered economic incentive systems: financial incentives, such as subsidies for cooperatives, were thus cut back which meant their very rapid economic end.
2. Above and beyond that, the Laotian State introduced active measures for the decollectivization and privatization of former state farms (Lao PDR 1995a). The majority of them were given back into the hands of the families which formerly owned them.
3. Systematic reforms of the institutional and regulatory framework were tackled beginning with the (re-)allocation of long-term land use rights to families, whereby the formal right of ownership remains with the State. These measures were connected with the further reduction of economic instruments which discriminated against family farmers (access to inputs, price policy).

The reprivatization of land use rights since the end of the 80s, especially in rural areas with concentrated populations, such as in the fertile river valleys, is made more difficult by either the spontaneous or government controlled resettlement of families who fled either to cities or safer provinces during the war. In doing this, the UNHCR programs for returning refugees from Thailand reflect in their numerical significance at best only a small section of the problem (UNHCR 1995). Waves of migrants within the country, squatting in abandoned villages, or either spontaneous or state directed resettlement led to either smoldering or open conflicts over land, particularly over valuable rice fields in the valleys which are unresolved even today, and create a big challenge for local authorities.

State leadership and official bodies came to the self-critical conclusion that inadequate growth in agriculture as well as low productivity in manufacture in the socialist phase was most certainly founded in the uncertain or unclearly defined property rights to agricultural land.

The reformation of land rights as well as the regulation of the use of significant forest resources is a key element of a far-reaching process of transformation, primarily aimed at the economic system. To this belong the privatization of numerous former State enterprises (including the logging industry) and further reforms in the legal and regulatory framework (Pham 1994, Schneider/El-Erian 1994).

The basic precondition for this was the working out of a Constitution (1991), the election of a National Assembly and the publishing of an Official Gazette in order to make public the results of the legislative process. In view of the lack of experience in the legislative process, internal government disputes, and enormous pressure of time, the percentage of decrees still outweighs the percentage of laws. In the years 1992-1994, milestones were achieved in the fundamental reformation of the legal and regulatory framework (Schneider/El-Erian 1994). Prime Ministerial decrees and laws were put into power:

• the organization of the ministries, of villages, and the statute governing civil servants;
• new regulations for the protection of national historical monuments and the environment;
• for the preparation of the regulation of intellectual property rights;
• the Land Decree and further regulations for implementation;
• other decrees issued in 1993 including various ones for taxation and customs duties;
• the adoption of the Enterprise Decree with its implementation regulations making provisions for partnership companies.

Other decrees from the socialist era, such as the Labor Decree, were removed without being replaced. At the end of 1995, there are still also deficits both where the working out of laws and regulations for their implementation are concerned. This comprises regulations for arbitration, public procurement, the accounting and auditing professions, a budget law, further commercial laws (negotiable instruments), and laws for the organization and functioning of the Government. "Even though the Lao PDR's agenda for the development of the legal and regulatory framework is yet to be completed, and at times the necessary means and skills for completing this agenda are not readily available, the country possesses the will and perseverance needed to continue with the achievements to date and develop its legal framework more fully over time." (Schneider/El-Erian 1994:112).

At the same time, it remains undisputed, even after 1988, that a continuous, wide-reaching central State influence alone - a "strong State" - is appropriate for enforcing reforms, and for permanently overcoming the constraints of a centrally planned economy. Comparable to the People's Republic of China or Vietnam, economic liberalization in Laos also served the objective of where possible being able to hold back a political and social liberalization, e.g. through permitting a multi-party system, and to maintain the power and privileges of the outdated bureaucratic and Party apparatus.