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WEEKLY NEWSLETTER
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Laos
Index
Money supply--measured by both M1 (demand deposits and
currency
outside banks) and M2 (M1 plus quasi-money such as
checking
accounts)--expanded between 1980 and 1989 (statistics are
only
available from 1980 on), in part because of the
remonetization of
government salaries, rising wage and price levels in
industry, and
extension of credit to indebted state-owned enterprises.
World Bank
figures indicated that money supply as measured by M2
increased at
an annual rate of between 35 and 75 percent--except for
1984, when
money supply was steady--until 1987, when, fueled by
increases in
domestic credit to public enterprises and foreign currency
deposits
from public enterprises, it jumped by over 300 percent.
During the
next two years, the money supply--measured by M1 and
M2--continued
to grow rapidly, reaching a growth rate close to 90
percent in
1989.
The average annual inflation rate was about 11.5
percent from
1985 to 1989. In 1989, however, inflation increased
dramatically,
to 52 percent, fueled by the massive increase in the money
supply
and a devaluation of the kip and exacerbated by a
reduction in
foreign exchange caused by the ban on forestry exports and
the
temporary reduction in exports of hydroelectricity to
Thailand.
Monetary policy was tightened in 1990; credit allocated to
unprofitable state-owned enterprises was restricted
through Decree
17 and through higher interest rates. As a result, growth
in M2 was
held to just 2.3 percent in 1990. Lower food prices as a
result of
good harvests in 1989 and 1990 following the years of
drought also
helped to slow inflation to about 20 percent; inflation
continued
to decline slowly through 1994--to about 9 percent.
Data as of July 1994
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