By Hélène Clark
A rare wave of headlines in Laos last month reported a new high-speed train connecting the capital Vientiane to China, with the government heavily in debt after the exercise.
But the country was also recently included in an inauspicious list. The International Monetary Fund has ranked Laos among the 30 underdeveloped countries at risk of economic collapse.
“We could see an economic collapse in some countries unless G20 creditors agree to accelerate debt restructurings and suspend debt service while the restructurings are being negotiated,” warned the IMF in November. He called for debt service obligations to be suspended until things improve, noting that 60% of low-income countries face debt distress, up from 30% just six years ago.
The US $ 5.9 billion bullet train promises to boost Laos’ economy, passing through a series of tunnels, reducing the weather but also the scenery. Reports suggest the government incurred at least US $ 1 billion in debt under the project, but at the same time, the tiny nation of six million people is seeking domestic income in the local currency of 28. $ 963 billion (US $ 2.63 billion) in next year’s budget, or 15% of GDP. This is apparently a 20% increase from 2020, according to the finance ministry.
“Mining and digital companies will contribute around 2 trillion kip,” Deputy Finance Minister Phouthanouphet Xaysombath reportedly said at a two-day planning, investment and finance meeting last month.
Mining seems conventional as a source of income – minus the mining part of the hope for ‘digital businesses’. Laos also believes that bitcoin mining could contribute 2,000 billion kip to the economy.
After initially banning cryptocurrency trading and mining, the government then allowed six companies, including four under construction, to begin a trial, announced in September.
Wap Data Technology Laos, Phongsubthavy Road & Bridge Construction, Sisaket Construction Company, Boupha Road-Bridge Design Survey company, the Joint Development Bank and the Phousy Group. Notably, Phongsubthavy Road is working in hydropower, among other energy sectors, which raises an interesting prospect for generating the electricity needed to support the cryptocurrency project.
A close observer speaking to the media said that there was not enough transparency in decision-making and that no one except the Joint Development Bank had financial experience. However, David Gerard, who wrote a book on cryptocurrency, 50ft blockchain attack, and another on Facebook’s largely forgotten attempt at its own currency says limiting it to local businesses is a smart move.
“There are 1 million bitcoin mining machines that no longer have a home in China and are looking for a buyer, for example,” he told me via email.
Laos’ financial system has remained relatively immature, with the highest kip rating being 100,000 LK or around A $ 12 (US $ 8.6). Laos created a stock exchange in 2011 and still has only 11 companies on the stock exchange. Unlike Cambodia or Timor-Leste, it does not use greenbacks in parallel.
There had previously been a cryptocurrency attempt, called Bananacoin, where the coins were backed by a specialized type of banana (really), with tokens based on the export price of 1 kilogram of bananas. It all turned out as smoothly as a fruit truck left homeless in the sun, suggesting a rationale for keeping things in the country, as this excellent preview from Forbes illustrates.
Externally, the latest proposal is a fancy idea: to use excess hydropower to generate the energy-hungry blockchain that underlies crypto coins. Meanwhile, get the cheap machines from China. The country’s plan for more than a decade has been to export excess energy from dams built in Thailand, China and South Korea to its neighbors, using its ‘land-bound, not landlocked’ label ( although the roadblocks sparked regular protests).
A notice published in November by the Minister of Technology and Communications, Boviengkham Vongdara, stated that “companies mining or operating cryptocurrency trading platforms must be 100% owned by Laos with stable financial status and must have sufficient capital to operate a cryptocurrency trading business, ”according to a report in The Lao Times. He went on to state that “a security deposit of US $ 5 million must be deposited with the Bank of Laos by any company applying to operate or act as a platform for cryptocurrency trading” .
Operators must use at least 10 MW “with 115 kV or 230 kV of power supplied under a six-year extendable contract, depending on the capacity of Electricité du Laos to supply electricity”. Transmission charges will be waived, but the cost will be a lump sum of US $ 1 million per 10 MW. They will, however, apparently pay lower rates during the rainy season. It will charge trading platforms a one-time fee of US $ 1 million and the tax will be 15%.
At this point, a trial with private companies paying the government seems like one way to limit the damage. Or as Gerard put it, “There’s nothing wrong with looking at weird ideas just in case.”
All this is going well, for one last problem only: the dams themselves.
Shortcuts and cost reduction hampered construction. A hydroelectric dam collapse in 2018 left at least 71 people dead, although the real cost in human lives may be higher. And there are fears of more danger. An American expert who used satellite data to model the first collapse posted images on Facebook last month, saying another storm-triggered disaster was likely.
What is the price for a kip-to-currency coin then?
This article was originally published in the Lowy performs. The News Lens has been granted permission to republish this article.
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