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Flows of Money
In a modern economy, trade-related financial flows are essential to competitiveness. These flows are facilitated by strong banking sectors and flexible where these is adequate access to credit and foreign exchange. Poor access to credit for domestic-owned traders impedes start-ups and stifles expansion by the countries producers. Burdensome foreign exchange requirements drive up the costs of doing business and ward off foreign investors.
In Laos, cross-border transactions reflect a low amount of monetary exchange, especially compared to neighboring countries. Under $2 billion in goods and services were traded in 2005 – exports $659 million and imports at $1.1 billion. Net FDI inflows amounted to $265 million in 2005, which was up slightly from $256 million in 2004. The banking system is small with domestic and foreign banks present, including three state commercial banks, ten private banks (seven foreign and three domestic), one representative office of a foreign bank and one agriculture promotion bank.
Overall, Lao laws, public and private institutions do not support these trade-related money flows. Basic trade finance products are not available widely to traders, even though some banks technically provide a full range of international banking services, including import and export letters of credits, import and export collections, bond and guarantees, inward and outward transfers and payments. Foreign currency exchange, while available, is not easily exchanged for all traders. And although, Laos has made progress in trade-related finance over the past decade, the country needs to do much more if it is to grow and compete.
In this chapter, we analyze legal, institutional and operational issues regarding trade-related finance and recommend ways to minimize those constraints. First, our analysis focuses on legal framework for the trade-related institutions, the banks, currency exchange providers and central bank. Second, we consider the operational and institutional issues regarding trade-finance management and operations. Third, we review other institutions involved in trade-finance facilitation and their role in trade facilitation. Lastly, we identify major recommendations to improve facilitation of trade-related money flows.
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