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

8. International Capital

After almost a decade of economic transformation, international capital is without doubt the most powerful and successfully operating interest group, although it is by no means homogeneous. One must differentiate between (middle-class) entrepreneurs, who for example invest in garment and consumer goods industry, in large, partially transnational companies which build hydropower plants and run logging companies, and in internationally operating agro-business enterprises which invest in the agro-industry.

For any entrepreneurial commitment in the agricultural and forestry sectors land rights are often a critical component in the investment equation (Myers 1995). Important foreign investors are not currently expressing so much concern about long-term stability and security of their assured rights, e.g. for dam projects with long reimbursement periods. However, they do see some of the objectives in Laos as not yet having been achieved: land titles should also be offered in rural areas, foreigners should be able to acquire land, and the process of approving and implementing laws should be simplified. All external development projects must be approved by the CPC. For major projects, CPC approval is a rubber stamp for decisions taken at a higher level. For these reasons, in the medium and long term, it is likely that they will continue to pressure the government into continuing the construction of a more coherent, transparent, and market-friendly set of legal and administrative structures (Myers 1995:43).

The greatest economic interest for foreign investors is the exploitation of natural resources of the country. The relatively low population density in Laos, [FN 93] so far combined with a general lack of environmental safeguards and the country's desperate need for foreign exchange, make its natural resource basis highly vulnerable to exploitation by neighboring countries (Claridge 1995). Thai investors are particularly eager to get access to Laos' timber resources and hydro-electric power. Their lobbying for the construction of the Nam Theun II dam, for instance, was strong and successful. Particular care must be taken in overcoming the hurdle created by the CPC, [FN 94] since it is difficult to imagine a line agency refusing permission for a project approved at the CPC level.

(Confidential) MoU's which have already been drawn up show the strong bargaining power of the investors, since they have often succeeded in privatizing expected profit and to externalize the possible costs and risks for the environment, i.e. they have put all the blame on the Lao State. [FN 95] Investors receive very favorable leasehold conditions (lease rates, length of lease) for the project land, only paying the lowest legally possible margin for royalties and other fees and taxes; a complete return of profit is guaranteed, and the utilization of the forests by the local population is heavily limited, etc. The State is responsible for and carries the cost of resettling the population, grants extensive tax incentives and is responsible for the main burden of environmental protection measure. The process of individual application and individually negotiated MoU's thus defines property rights to resources for investment each time, meaning that investors have a particularly good bargaining position (being able to make reference to similar cases with particularly favorable conditions).

International logging companies are also particularly successful in pushing through their objectives which, however, have been forced to rethink their strategies because of the new forest legislation (Decrees 169 and 186). Their representatives complain about the difficulties of working with the new decrees since there are no rules for their implementation, and their is scarcely any information about the state and position of forests (a lack of forest inventories) for being able to estimate the profitability of investments ex ante realistically and the power of the villages in negotiations is too great.

But obviously the companies succeed in negotiating favorable conditions and in realizing their entrepreneurial objectives. The great interest in logging quotas in Laos cannot be explained any other way. Examples of land lease contracts with villages for starting plantations indicate the strong negotiating position of the companies (setting wages for planting and maintenance work on the plantations and as a form of lease payment; [FN 96] limitation of access rights to forest production areas; determining the kind of agro-forestry utilization; fixing the distribution of fertilizer provided by the company).

In contrast, State bureaucrats complain about the problems of cooperation with private entrepreneurs in disseminating new legislation at the local level. In the absence of established blueprints from the forest administration, individual entrepreneurs high-handedly negotiate contracts between villages and investors for establishing and using plantations, and thus build up parallel legally binding structures alongside the State.

The question remains about whether foreign capital is likely to push for the construction of more secure and robust property rights in the long run, or whether they will not just use existing loopholes and inconsistencies for pushing through their own interests more efficiently and present the State with a "fait accompli" at the village level, and thus demonstrate their power.