Demand for money in Lao PDR and policy implications

MINISTRY OF EDUCATION AND TRAINING VIET NAM NATIONAL ECONOMICS UNIVERSITY SOMPHAO PHAYSITH DEMAND FOR MONEY IN LAO PDR AND POLICY IMPLICATIONS (Finance and Banking) Code : 62.34.02.01 A dissertation submitted to the National Economics University in fulfillment of requirements for the degree of Doctor of Philosophy in Economics Supervisor: Prof Dr TRAN THO DAT Hanoi, December 2012 ii ACKNOWLEDGEMENT First of all, as the Governor of the Bank of the Lao PDR, I am very pleased and greatly honored for taking the opportunity to take part in the doctoral program organized jointly between the National University of Laos and National Economics University of Vietnam After a number of years following this program, my study is devoted to the title: “Demand for Money in Lao PDR and Policy Implications” I would like to express my heartfelt appreciation to the Lao People’s Revolutionary Party and Ministry of Education and Sport of Lao PDR for granting me this opportunity to undertake this rewarding doctoral program and achieve the result successfully as my wish comes true As one of the candidates for this program, I would like to extend my gratitude and appreciation to the leaders and management staff of these two universities for making this program possible to enhance capacity building for Lao leaders, who are well qualified from the program During the five-year program, I have got the close guidance and knowledge from the lecturers of the two universities as well as relevant authorities for their support that enable me to ease difficulties and hurdles and to complete the program successfully My achivement is also due to valuable academic support from Prof Dr Tran Tho Dat, my academic advisor and close supervisor for my research, who enable me to fulfill all requirements of the doctoral program on a timely manner My special thank also goes to Assoc Prof Lai Phi Hung, the program coordinator I would also like to extend my profound appreciation of wholehearted assistance and cooperation between our two nations, Lao PDR and Vietnam iii My research is carried out with the staff development grant from the Bank of the Lao PDR Furthermore, I shall not forget and pay tribute to kind support and sincere assistance rendered by the BOL staff, namely Ms Fongchinda Sengsourivong, Mr Soulysak Thamnuvong, and Mr Khamkeo Visisombath Lastly, my profound thanks go to my beloved family, including my wife and my two daugthers for their encouragements, care and motivation during my research They always provide me very important supports, and love during the period of hardship All of their supports provided are the power injecting to me to strive the various difficulties and to complete the program successfully as the task assigned by the Party and Lao people iv TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENT ii TABLE OF CONTENTS iv ABBREVIATION vi LIST OF TABLES vii LIST OF FIGURES viii LIST OF VARIABLES ix INTRODUCTION CHAPTER I: OVERVIEW OF THEORETICAL AND EMPIRICAL STUDIES ON MONEY DEMAND 1.1 A brief theoretical overview 1.1.1 Quantity theory of demand for money 1.1.2 Keynesian approach (John Maynard Keynes) 10 1.1.3 Friedman’s model of the demand for money 14 1.2 Some empirical problems in estimating money demand functions 15 1.2.1 Functional forms 16 1.2.2 Choice of variables 17 1.2.3 Empirical estimation problems 20 1.3 Some Asia-specific studies on the money demand function 23 Conclusion of chapter 28 CHAPTER II: LAO FINANCIAL SYSTEM AND MONETARY POLICY 31 2.1 Economic development 31 2.2 Overview of monetary developments in Lao PDR 34 2.3 Banking system 35 2.3.1 Mono-bank system 37 2.3.2 Banking system reform 40 2.4 Monetary Policy 47 2.4.1 Monetary instruments 47 2.4.2 Target of monetary policy 51 2.5 Dollarization 54 2.6 Bond market 56 v 2.7 Stock market 58 2.8 Interbank market 59 2.9 Exchange rate policy 60 Conclusion of chapter 66 CHAPTER III: DEMAND FOR MONEY IN LAO PDR 67 3.1 The theory-based money demand function for Lao PDR 67 3.2 Data description and issues 69 3.2.1 Definition of money 69 3.2.2 Scale variable 71 3.2.3 Opportunity costs 71 3.3 Unit root and co-integrated test 73 3.3.1 Unit root test 73 3.3.2 Johansen co-integration test 74 3.4 Estimating money demand function for Lao PDR by using ECM 76 3.4.1 Engle and Granger: Error Correction Models 76 3.4.2 Estimated results and hypothesis testing 77 Conclusion of chapter 92 CHAPTER IV: POLICY IMPLICATIONS 93 4.1 Lao economic development strategy 93 4.1.1 Macro-economic targets 93 4.1.2 Targets of Economic Sectors 94 4.2 Monetary policy recommendations 98 4.2.1 Monetary instruments 99 4.2.2 Choosing intermediate target 99 4.2.3 Increasing banking supervisor 101 4.3 Some recommendations to Lao government 102 4.3.1 Dedollarization 102 4.3.2 Stimulate financial market development 104 CONCLUSION 106 REFERENCE 108 APPENDICES 114 vi ABBREVIATION Lao PDR Lao People’s Democratic Republic Laos Used under monarchy regime BOL Bank of the Lao PDR MOF Ministry of Finance BCEL Banque Pour le Commerce Exterieur or Bank for Foreign Trade Lao LDB Lao Development Bank APB Agricultural Promotion Bank SOCBs State-Owned Commercial Banks GDP Gross Domestic Product Kip Khangkhay Banknotes issuing by tri-parties of the coalition government in 1962 Kip Potpoi Liberated currency under Lao Patriotic Front NPL Non-Performing Loans RR Reserve Requirement CIB Credit Information Bureau vii LIST OF TABLES Table 1.1: Estimated income elasticity and interest rate semi-elasticity for selected Asian countries 26 Table 3.1: Unit Root Test Results 78 Table 3.2: Likelihood ratio test: lag lengths test 79 Table 3.3: Johansen test: the λmax and λtrace tests results at 5% 80 Table 3.4: Diagnostic tests for the short-run dynamic money demand model, equation (3.9) 82 Table 3.5: Short-run dynamic estimation, dependent variable is ∆ ln rmt 90 Table 3.6: Long-run relation, dependent variable is ln rmt 91 Table 4.1: Nonperforming loans ratio and number of banks in Lao PDR 102 viii LIST OF FIGURES Figure 1.1: Determinants of money demand function 30 Figure 2.1: GDP growth (1991-2011) 33 Figure 2.2: GDP by Components (billion Kip) 33 Figure 2.3: GDP growth, Inflation rate, M2 growth, M2 to GDP and FX to total deposit 35 Figure 2.4: Interest rates of deposits and loans in Kip 50 Figure 2.5: Monthly loans interest rates by currency (%) 50 Figure 2.6: Money supply- M2 (billion Kip) 52 Figure 2.7: Deposits by currency (%) 55 Figure 2.8: Relationship between M2, inflation and exchange rate (%) 63 Figure 2.9: Exchange rate (Kip/USD) movement (%) 65 Figure 2.10: Average exchange rate (Kip/USD) 65 Figure 3.1: Cumulative Sum of Squares of Recursive Residuals 82 Figure 4.1: Money and interest rate targets 100 Figure 4.2: Lao money multiplier and velocity, January, 1999 – September, 2012 101 ix LIST OF VARIABLES M Total amount money in circulation T Level of transactions Y Output V Transaction velocity of money P Prevailing price level Md Money demand MD Total demand for money M1 Sum of transaction and precautionary demands (narrow money) M2 Speculative demand (broad money) tc Transaction costs r Interest rate M/P = rm Demand for real balances πe Expected inflation rates i Nominal interest rate GNP Gross National Product NNP Net National Product GDP Gross Domestic Product ln Natural logarithm ∆ First differenced term cpi Consumer price index er Exchange rate π xt − p Error-correction factor EC t −1 Error-correction term INTRODUCTION International experiences confirm that countries with well-developed financial systems grow faster and more consistently and are better able to adjust to economic shocks A good financial market and system of institutions can channel funds from savers to the most productive investors A typical financial system in a transitional economy, especially banking system has limited capacity to assess credit risks and fund allocation according to the government plans Furthermore, governments have strong controls over the financial systems, such as setting interest rate ceilings, entry barriers, and interference in credit allocation According to McKinnon (1973) and Shaw (1973), such financial repression leads to reduction in private savings, thereby decreasing the resources available to finance capital accumulation, with a negative impact on growth The Lao PDR is in the process of transition toward a market economy, the requirement of government’s operations to change its intervention methods and scope is a fundamental process One of these fundamental changes is the way the government conducts its monetary policy as well as the development of the financial system, especially the banking system to achieve desirable economic growth The relationship between monetary growth and economic growth is still in debate Hossain and Chowdhury (1996, p.126) argued that there is a clear correlation between money supply growth and economic growth in the long-run Other studies in the field also point out the importance of monetary policy, especially, in managing the demand side of the economy In order to make the monetary policy more efficient and effective, the prerequisite for the monetary authority must be able to predict the demand for money with acceptable accuracy Theoretical views of the demand for money have usually been based on the consideration of money as a medium of 120 Broad money demand Long-run Dependent Variable: LNRM2 Method: Least Squares Sample(adjusted): 1993:2 2010:2 Included observations: 69 after adjusting endpoints Variable Coefficient Std Error t-Statistic Prob C 1.661321 0.772709 2.149995 0.0353 LNRGDP 0.684178 0.137271 4.984126 0.0000 LNCPI(-1) 0.062399 0.031250 1.996729 0.0501 RINUSD -0.189045 0.053584 -3.527977 0.0008 LNRERKB -1.083798 0.246852 -4.390476 0.0000 R-squared 0.945063 Mean dependent var 3.637831 Adjusted R-squared 0.941629 S.D dependent var 0.498756 S.E of regression 0.120500 Akaike info criterion -1.324637 Sum squared resid 0.929289 Schwarz criterion -1.162745 Log likelihood 50.69999 F-statistic 275.2423 Durbin-Watson stat 1.105083 Prob(F-statistic) 0.000000 121 Short-run Dependent Variable: D(LNRM2) Method: Least Squares Sample (adjusted): 1994Q1 2010Q2 Included observations: 66 after adjustments Variable Coefficient Std Error t-Statistic Prob C 0.050269 0.008342 6.025704 0.0000 D(LNRGDP(-2)) -0.489667 0.056522 -8.663302 0.0000 D(LNCPI(-3)) -0.325578 0.104014 -3.130141 0.0027 ECM2(-1) -0.248531 0.060134 -4.132958 0.0001 R-squared 0.609123 Mean dependent var 0.027660 Adjusted R-squared 0.590210 S.D dependent var 0.083790 S.E of regression 0.053638 Akaike info criterion -2.954415 Sum squared resid 0.178378 Schwarz criterion -2.821709 Log likelihood 101.4957 Hannan-Quinn criter -2.901977 F-statistic 32.20589 Durbin-Watson stat 2.038844 Prob(F-statistic) 0.000000 122 Appendix 2: Expansion of commercial banks in Lao PDR As discussed above, private banks were permitted to operate in Laos in 1965 with total number of five banks during the era of monachy regime During 1968-1975, banking system was emerged in the liberated zone ruled by Lao People’s Party After declaration of a full independence in 1975, in March 1976 banking system was merged between two parts and established the National Bank as a mono-bank system with branches in every province and district After renovation policy of the Party and the implementation of market-oriented economy in 1986, a mono-bank was replaced by a two-tier banking system consisting of central bank and commercial banks By enforcing the resolution No.11/SPC dated 11th March 1988 regarding the transformation of banking sector into commercilization, Government completed the transformation of all branhes of the State Bank into stateowned commercial banks located based on geographical locations in 1991 After the enactment of law on investment promotion in 1988, foreign private investor and foreign banks were allowed to open banks in Lao PDR + Until 1991 there were state-owned commercial banks namely : Nakhonlouang Bank, Sethethirath Bank, BCEL (Foreign Trade Bank of Laos), PhakTai Bank , Lao May Bank, LaneXang Bank and AlounMay Bank, Joint Development Bank was established in 1989 All commercial banks were operated under decree of commercial banks + Foreign Banks opened their branches in Lao PDR during 1992-1995 namely: Thai Military Bank (1992); BangKok Bank, Krung Thai Bank and Siam Commercial Bank (1993); Krungsi Aduthaya Bank (1994); Public Bank (1995) Vientiane Commercial bank-joint venture bank between local private 123 sector and foreign partner (1993) In addition, the government also set up Agriculture Promotion Bank as a specilized Bank (1993) Up to 1995 there were 16 commercial banks: state-owned commercial banks, specilized bank, public and private foreign joint venture bank, private joint venture bank, branches of foreign banks and branch from Bank of Malaysia + In 1999 there were state-owned commercial banks merging into banks which later were renamed Lane Xang Bank and Lao May Bank, while BCEL was kept its structure In 1999 BCEL formed a joint venture bank with Investment bank of Vietnam to establish Lao-Viet Bank Kasikone Thai Bank was ceased its operations during Asian Financial Crisis Until 1999 there were 12 commercial banks namely: state-owned commercial banks, specialized bank, branches of foreign banks and joint venture banks + By end of 2003, the government decided to consolidate state-owned commercial banks and renamed as Lao Development Bank, while BCEL remained unchanged Other Banks continued to operate as normal By end of 2003 there were 11 commercial banks, namely: state-owned commercial banks, specialized bank, branches of foreign banks, joint venture banks During this period, commercial banks, joint venture banks and other were operating on a level of playing field, except branches of foreign banks were only permitted to operate within Vientiane Capital + Since the promulgation of Law on Commercial banks in 2006, commercial banks were expanded rapidly Under this Law foreign banks are allowed to open their branches without restricted locations Banks with head 124 office in Laos are permitted to open their branches Bank with head office shall have a minimum registered capital of 300 billion Kip, while branches of foreign banks planned to open shall have a minimum registered capital of 100 billion Kip Until 2011, there were 25 commercial banks operating in Lao PDR, namely: state-owned commercial banks, of which APB-previously specilized bank was transformed into a commercially-oriented banks, specilized bank named Nayoby Bank (founded in 2007); joint venture banks, private banks, affiliated banks, branches of foreign banks, representative offices 125 Appendix 3: Lao Banking System Bank of the Lao PDR State Owned Commercial Banks Joint Venture Bank Private Banks Banque pour le Commerce Extrieur Lao Lao-Viet Bank Joint Development ANZN Bank Bangkok Bank Barque Franco-Lao Phongsavanh Bank Acleda Bank Krung Thai Bank International Commercial Bank Siam Commercial Bank Affiliated Bank Foreign Branch Standard Chartered Bank Lao Development Bank BIDV Bank ST Bank Agricultural Promotion Bank Indochina Bank Thai Military Bank Booyong Lao Bank Public Bank Nayoby Bank Nayoby Bank is a specialized bank, established in 2007 , with its main role to implement the government policy in providing credit to the poorest districts determined by government Representative Office Ayudhya Bank Sacom Bank Military Commercial Joint Stock Bank Industrial and Commercial Bank of China 126 Table 1: GDP Growth 1991-2010 GDP Components 1991 1992 1993 1994 1995 1996 1997 Agriculture, Forestry and Fishing -2.0 8.6 -1.7 7.1 2.6 3.3 1.7 Industries 9.4 7.8 8.3 12.4 9.0 16.2 12.8 Secondary Industries 9.7 5.1 16.6 7.9 6.8 8.4 14.3 63.7 -6.6 42.0 7.1 57.9 3.6 -3.8 4.0 7.0 5.9 8.1 7.1 6.8 6.9 1998 1999 2000 2001 2002 2003 2004 Agriculture, Forestry and Fishing 7.1 12.6 0.5 -2.2 -0.3 2.5 3.4 Industries 4.8 2.7 8.8 -0.1 13.4 19.4 3.7 Secondary Industries 3.1 8.3 7.0 16.4 11.2 3.8 12.0 -20.9 -41.3 84.5 45.0 15.3 5.0 13.4 4.0 7.3 5.8 5.8 6.9 6.2 7.0 2005 2006 2007 2008 2009 2010 Agriculture, Forestry and Fishing 0.7 2.5 8.6 3.7 2.8 3.2 Industries 10.6 14.1 4.4 10.4 18.5 17.5 Secondary Industries 9.9 9.7 9.1 9.7 6.0 7.0 13.1 19.3 8.1 9.0 3.5 4.5 6.8 8.7 7.8 7.8 7.5 8.1 Taxes on Products and Import Duties (net) GDP Growth Continued Taxes on Products and Import Duties (net) GDP Growth Continued Taxes on Products and Import Duties (net) GDP Growth Source: Department of Statistics, Ministry of Planning and Investment 127 Table 2: Inflation Rate 1991-2010 Month January February March April May June July August September October November December Annual Average Inflation 1991 14.96 13.04 14.00 13.69 15.81 15.23 13.57 13.25 13.38 12.38 12.19 10.36 1992 12.55 12.76 10.36 8.45 7.03 7.09 10.93 13.28 12.46 10.47 7.25 5.98 1993 6.44 6.39 6.06 7.57 5.17 5.21 4.33 5.18 6.53 6.68 7.00 8.96 1994 7.46 7.34 9.34 7.99 7.28 6.95 5.13 5.02 5.89 5.27 7.09 6.77 1996 26.71 29.08 24.97 19.72 13.76 13.23 11.42 4.56 2.95 5.65 6.99 7.28 1997 11.44 11.97 12.44 12.28 16.23 15.93 19.57 25.69 27.64 26.85 25.12 26.56 13.49 9.88 6.29 6.79 19.38 13.86 19.31 Continued January February March April May June July August September October November December Annual Average Inflation 2001 10.11 9.03 8.41 7.80 7.93 6.69 6.93 8.08 6.25 7.11 8.24 7.54 2002 7.18 7.22 7.17 7.44 6.67 9.07 11.23 12.63 14.71 14.25 14.00 15.19 2003 15.36 15.62 17.88 17.83 18.21 16.69 14.98 14.87 14.49 14.45 13.69 12.62 2005 8.06 7.05 6.48 6.42 5.97 5.45 5.35 6.55 7.66 9.44 8.75 8.78 2006 8.09 8.57 8.18 8.31 7.99 8.08 7.74 6.92 5.47 3.70 4.52 4.72 2007 5.51 4.91 4.64 3.56 3.43 3.49 3.53 3.58 4.25 5.59 6.13 5.57 2008 6.09 6.43 7.73 8.68 10.32 10.20 9.96 9.57 8.49 6.53 4.55 3.17 2009 2.43 1.64 0.67 -0.19 -1.59 -1.84 -1.51 -2.26 -1.76 -0.11 1.50 3.92 2010 4.20 4.71 4.89 4.84 4.77 4.94 6.82 7.98 8.13 7.87 6.70 5.76 7.84 10.56 15.56 10.55 7.16 6.86 4.52 7.64 0.08 5.97 2004 12.57 12.90 11.95 11.94 12.39 12.61 12.13 9.21 7.38 6.77 8.13 8.66 1995 7.92 8.53 10.55 14.73 21.11 19.00 19.55 24.66 27.04 26.99 26.84 25.66 1998 31.30 44.65 45.55 62.49 62.77 101.57 103.83 99.54 106.33 112.55 136.28 142.01 1999 150.80 150.42 167.06 159.21 155.44 124.66 135.71 140.17 122.62 121.10 94.33 86.46 2000 75.75 58.74 45.39 34.87 31.01 21.40 10.57 6.63 9.61 8.33 11.02 10.54 87.41 134.00 26.99 Source: Department of Statistics, Ministry of Planning and Investment 128 Table 3: Money Supply 1993-2010 (Kip billions) Year Currency Demand Outside Deposits Bank (1) (2) Dec-93 51.7 19.0 Dec-94 77.6 22.7 Dec-95 108.2 24.2 Dec-96 112.2 32.6 Dec-97 150.3 26.6 Dec-98 285.0 105.8 Dec-99 430.6 139.1 Dec-00 556.9 276.1 Dec-01 714.7 262.9 Dec-02 905.5 358.2 Dec-03 1066.6 436.7 Dec-04 1344.7 540.9 Dec-05 1637.9 610.4 Dec-06 2063.6 767.7 Dec-07 2671.3 1225.8 Dec-08 3052.2 1492.1 Dec-09 3919.2 1704.7 Dec-10 4624.3 2556.0 Source: Bank of the Lao PDR Narrow Saving & Foreign Time Currency Money Deposits Deposits (M1) (4) (5) (3)=(1)+(2) 70.8 30.9 43.7 100.4 45.6 59.0 132.5 44.4 75.7 144.8 70.2 99.2 176.9 96.3 229.7 390.8 116.2 580.8 569.7 96.8 1231.7 833.0 199.7 1712.3 977.6 307.7 2028.8 1263.7 452.3 2490.1 1503.3 761.8 2634.0 1885.6 897.2 3050.4 2248.3 842.9 3158.5 2831.3 944.7 4103.1 3897.1 1382.7 5391.9 4544.3 2025.0 5823.5 5623.9 3395.5 6992.1 7180.3 5452.3 9281.3 QuasiMoney (6) = (4)+(5) 74.6 104.6 120.1 169.4 326.1 697.0 1328.5 1912.0 2336.5 2942.4 3395.8 3947.6 4001.4 5047.8 6774.6 7848.5 10387.6 14733.6 Money Supply (M2) = (3)+(6) 145.3 205.0 252.6 314.1 503.0 1087.7 1898.2 2745.0 3314.2 4206.1 4899.1 5833.2 6249.7 7879.1 10671.7 12392.8 16011.5 21913.9 129 Table 4: Average Exchange Rate 1993-2010 Dec-93 Kip/USD Market Commercial bank Market 733.50 717.00 28.80 Dec-94 729.50 719.00 29.25 28.82 Dec-95 939.50 925.12 37.55 37.10 Dec-96 980.67 939.00 38.61 37.49 Dec-97 2,082.50 2,019.00 47.11 45.54 Dec-98 4,586.00 4,217.00 127.15 116.10 Dec-99 7,686.10 7,674.00 201.70 199.39 Dec-00 8,356.00 8,237.50 194.99 194.50 Dec-01 9,541.50 9,467.00 218.46 216.94 Dec-02 10,790.50 10,714.00 250.80 249.01 Dec-03 10,488.50 10,479.50 264.85 264.17 Dec-04 10,426.00 10,413.50 266.56 266.20 Dec-05 10,850.00 10,810.00 265.60 264.67 Dec-06 9,708.65 9,696.48 272.63 271.83 Dec-07 9,445.16 9,396.73 281.63 281.32 Dec-08 8,525.27 8,518.10 243.84 243.90 Dec-09 8,487.57 8,486.32 256.06 255.86 Dec-10 8,057.28 8,056.14 268.33 268.03 Year Source: Bank of the Lao PDR Kip/Baht Commercial bank 28.18 130 Table 5: Deposits of Banking System 1993-2010 (Kip billions) Current Savings & Foreign Total Year Account Time Currency Deposits = 1+2+3 Deposits (1) Deposits (2) Deposits (3) Dec-93 19.0 30.9 43.7 93.6 Dec-94 22.7 45.6 59.0 127.4 Dec-95 24.2 44.4 75.7 144.4 Dec-96 32.6 70.2 99.2 202.0 Dec-97 26.6 96.3 229.7 352.7 Dec-98 105.8 116.2 580.8 802.8 Dec-99 139.1 96.8 1231.7 1467.6 Dec-00 276.1 199.7 1712.3 2188.1 Dec-01 262.9 307.7 2028.8 2599.4 Dec-02 358.2 452.3 2490.1 3300.6 Dec-03 436.7 761.8 2634.0 3832.5 Dec-04 540.9 897.2 3050.4 4488.4 Dec-05 610.4 842.9 3158.5 4611.8 Dec-06 767.7 944.7 4103.1 5815.5 Dec-07 1225.8 1382.7 5391.9 8000.4 Dec-08 1492.1 2025.0 5823.5 9340.6 Dec-09 1704.7 3395.5 6992.1 12092.3 Dec-10 2556.0 5452.3 9281.3 17289.6 Source: Bank of the Lao PDR 131 Table 6: Loans of Banking System 1993-2010 (Kip billions) Year Claims on Credit to Total Government (net) economy Credit Dec-93 14.2 87.2 101.4 Dec-94 73.4 129.5 202.8 Dec-95 95.7 191.5 287.2 Dec-96 63.8 209.9 273.7 Dec-97 230.3 398.7 629.0 Dec-98 569.5 760.4 1329.9 Dec-99 621.7 1318.3 1940.0 Dec-00 476.2 1858.9 2335.1 Dec-01 1029.3 2474.4 3503.7 Dec-02 934.9 2563.8 3498.7 Dec-03 1165.6 2377.7 3543.3 Dec-04 1159.4 2603.2 3762.5 Dec-05 1071.4 2829.3 3900.7 Dec-06 1122.6 2616.8 3739.4 Dec-07 -247.4 3162.5 2915.2 Dec-08 448.5 5846.8 6295.3 Dec-09 516.0 11143.1 11659.1 Dec-10 674.4 16118.3 16792.7 Source: Bank of the Lao PDR 132 Table 7: Deposits Interest Rates 1993-2000 (% per annum) Saving Deposit 12-month Deposit Year Kip Baht Dollar Kip Baht Dollar Dec-93 12.00 5.00 2.50 15.00 8.50 4.25 Dec-94 12.75 5.00 2.50 14.50 8.00 4.65 Dec-95 16.00 4.75 2.50 17.50 8.00 4.63 Dec-96 16.25 3.75 2.38 17.50 6.25 4.25 Dec-97 16.25 4.00 2.50 18.00 6.50 5.00 Dec-98 22.00 5.50 5.00 22.00 7.50 6.38 Dec-99 9.00 2.75 2.00 20.00 4.75 4.00 Dec-00 9.00 1.75 1.75 20.00 3.75 4.00 Dec-01 9.00 1.75 1.75 20.00 3.75 4.00 Dec-02 9.00 1.75 1.75 20.00 3.75 4.00 Dec-03 7.17 0.50 0.43 14.75 1.40 1.20 Dec-04 8.50 0.31 0.28 12.67 0.89 0.78 Dec-05 4.50 0.48 0.44 10.50 1.13 1.06 Dec-06 4.13 0.69 0.81 11.00 1.98 2.50 Dec-07 3.65 0.75 0.88 10.54 2.04 2.59 Dec-08 3.62 0.82 0.97 9.88 2.17 2.59 Dec-09 3.54 0.99 1.19 10.90 3.41 3.24 Dec-10 3.28 1.00 1.21 8.98 3.28 3.17 Source: Bank of the Lao PDR 133 Table 8: Loans Interest Rates 1993-2000 (% per annum) Year Kip Baht Dollar Dec-93 19.38 15.75 9.00 Dec-94 17.50 14.00 9.00 Dec-95 22.88 14.56 9.50 Dec-96 23.38 14.34 9.69 Dec-97 21.63 14.59 11.25 Dec-98 29.13 14.63 11.63 Dec-99 28.88 13.50 10.75 Dec-00 23.25 10.47 9.13 Dec-01 23.25 10.47 9.13 Dec-02 23.25 10.47 9.13 Dec-03 22.50 11.63 9.67 Dec-04 20.56 11.01 9.64 Dec-05 19.75 11.50 10.79 Dec-06 19.00 11.10 10.55 Dec-07 18.10 11.52 10.17 Dec-08 17.64 11.52 9.83 Dec-09 14.36 8.77 8.54 Dec-10 14.12 9.76 9.28 Source: Bank of the Lao PDR 134 PUBLICATIONS Somphao Phaysith (2012), “Lao banking sector and monetary policy of Lao PDR”, in Proceedings of International Conference: “Lao–Vietnam economic cooperation on development of some key industries up to the year 2020”, Volume III, pp: 136 -167, Vientiane, October, 2012 Somphao Phaysith (2011), “ðầu tư trực tiếp nước (FDI) với việc phát triển thủ ñô Viêng Chăn”, Kỷ yếu Hội thảo Quốc tế: “Phát triển kinh tế - xã hội Việt nam – Lào giai ñoạn 2011 – 2020”, tập III, pp:153-160, Vientiane, July, 2011 Somphao Phaysith (2011), “The Bank of the Lao PDR’s Mandate on Balancing Growth, Inflation and Exchange Rate”, paper presented at the “International Symposium on Investment Opportunities in Lao PDR”, Vientiane, 15-16th September, 2011 Somphao Phaysith, Tran Tho Dat and Ha Quynh Hoa (2012), “An Analysis of Demand for Money in the Lao People’s Democratic Republic”, Journal of Economics and Development, Volume 14, Number 3, December, National Economics University, Hanoi