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Central bank cuts funding for infrastructure development
The Bank of the Lao PDR (BOL) will no longer provide loans for state infrastructure development projects in an effort to curb rising inflation in the country, according to a senior bank official.
“We stopped financing state infrastructure projects at the end of last year,” BOL Office Head Mr O Vilaphanh told Vientiane Times yesterday.
According to the latest report from the National Statistics Bureau, inflation in Laos hit 9.76 percent in May, with food and transport costs the main driving forces. The inflation rate has been rising since the end of 2010, from 5.98 percent in December 2010 to 7.73 percent in March, 9.24 percent in April and 9.76 percent in May.
The central bank has provided substantial funding to a number of infrastructure projects over the past few years, meaning less money is going to businesses that produce food and other goods to boost production levels.
Mr O said another way the BOL is attempting to reduce inflation is to cooperate with the relevant sectors to encourage people to make purchases in Lao kip and also for vendors to advertise the price of their goods in the national currency. This strengthens the capacity of the central bank to manage currency exchange.
The BOL will encourage commercial banks to provide low interest loans to agriculture production groups to help them boost production levels.
The BOL is also encouraging commercial b anks to provide low interest loans to import and export companies to enable them to stockpile goods for distribution during the wet season. This would combat the shortages that often occur at this time, causing a seasonal spike in the inflation rate.
Banque pour le Commerce Exterieur Lao (BCEL) Director General Mr Sonexay Sithphaxay said yesterday the bank agrees in principle with the central bank's policy to provide low interest loans to agricultural production groups and import and export companies to stimulate the supply of goods in the domestic market.
However, BCEL will carefully scrutinise business plans and finances before allocating a loan to any business, he said.
Mr Sonexay said BCEL also requires information regarding exactly which products are in short supply so it can provide funds to the right businesses and ensure the scheme contributes to easing inflation.
To address rising inflation, the relevant sectors need to ensure the effectiveness of state investments and reduce unnecessary government spending on development projects, he said.
vientiane times
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