LAOS: Scandal on the Mekong

There are few more backward nations in the world than the 91,400-sq-mi. kingdom of Laos. Population figures in Laos are almost anybody’s guess (estimates run from 1,400,000 to 2,500,000), and some Laotians are jungle-dwelling, G-string-clad tribesmen whose chief armaments are bows and arrows. The nation’s main export is opium. Laos receives the largest per capita allotment of U.S. aid of all nations in the world (some $43 million for fiscal 1957), but because its economy is so primitive, Laos has practically no trained personnel to administer it. It was a situation marked for trouble, and last week the trouble had become acute. U.S. aid to Laos has fallen into a bog of misdirected effort, diverted profits and squeeze.

Kickback: 20%. The trouble can be traced to the days in 1955 when Communist armies of the Viet Minh hovered on Laos’ borders after the French debacle at Dienbienphu. With the French withdrawing financial support, the urgent necessity was to keep the 25,000-man Laotian army in the field. In a hastily drawn agreement, the U.S. committed itself to exchange dollars for Laotian kip at the rate of 35 kip for $1.

The primary purpose was to supply kip to pay and support the army. But in the two years since then, as the U.S. steadily broadened its aid program, the free rate has soared as high as 120 kip for $1 in the markets of Vientiane, Bangkok and Hong Kong. The disparity between official and free-exchange rates has become an open invitation to speculators. The system works this way: a Laotian importer wants to bring in 20 radios at a unit cost of $50 each. He gets an import license for $1,000 worth of radios from the Laotian government. He pays for it with $1,000 in Laotian kip, which he has already bought on the free market in Bangkok or Hong Kong for about $400. The profit, minus whatever he may have to pay in squeeze for the import license (usually about 20%), goes into his pocket.

Often enough the importer does not bother to import the radios—he has them intercepted in Bangkok and sold at still higher profits. Sometimes the radios really reach Laos (marked with the universally recognized symbol of clasped hands in front of a U.S. flag). But before Laos’ primitive customs guards can catch up and impose an import tax, the radios are smuggled back across the Mekong River and shipped into Bangkok for sale at handsome profits. Laotian officials, either out of confusion or collusion, have granted orders for some items that seem of questionable utility in a country that is still largely jungle. Recently, licenses were granted for 25 television receivers, though Laos has no TV station. The receivers were smuggled back into Thailand and resold at an enormous profit. There are more cars in Laos, mostly purchased with U.S. aid dollars, than there are miles of road to run them on. Some other mysterious recent requests by Lao entrepreneurs include one for 37 tons of toothpaste, another for 4½ tons of feather dusters.

Sporadic War. There is no question that Laos needs aid. Of the $43 million allocated for this year, about two-thirds is direct military aid for support of the army, which has been fighting to regain two northeastern provinces occupied by the Communist Pathet Lao forces after the Geneva conference. The basically pro-Western government of Premier Souvanna Phouma has shown itself increasingly aware of the extent to which both corruption and the artificial exchange rate are damaging both Laos and the U.S. attempts to aid it. Last week U.S. Ambassador J. Graham Parsons flew back from Washington to his post in Vientiane to sit down with Laotian officials and work out plans for 1) establishing a realistic rate of exchange, and 2) helping Laos get a larger real share of the benefits it is entitled to.