Laos Declares Intention to Graduate from List of Least Developed Countries

Sources:

ADB: Confronting Rising Inequality in Asia

IRIN News: Laos: Aiming to Leave Least Developed Country List

Reuters: Laos Clears WTO Entry Hurdle, Yemen Still Trying

UN CDP: Strengthening Smooth Transition From the Least Developed Country category

UN ECOSOC Committee for Development Policy: Report on the Fourteenth Session

(12-16 March 2012)

UN OHRLLS: Criteria for Identification and Graduation of LDCs

 

After obtaining support from all the member countries of the World Trade Organization (WTO), Laos has finally received WTO membership. The next ambition for this country is to graduate from the United Nations’ (UN) list of least developed countries (LDCs). The United Nations first created the list of LDCs in 1971, and the countries on the list represent the poorest and the weakest countries in the world. While graduation from the list symbolizes increased economic stability and international respect, membership on the LDC list allows countries to qualify for greater amounts of foreign aid. In addition, members of the LDC list who are also members of the WTO qualify for lower membership requirements, including lower standards for reducing trade barriers—laws that discourage imports.

 

To be on the LDC list, a country must fit a specific standard. The standard requires countries to have: 1) a low per capita income, which is the total annual income of a country’s entire population divided by the number of people in the country; 2) a low human asset index (HAI) score, which is a numerical scale the UNs uses to measure the quality of a country’s health and education systems; and 3) a high economic vulnerability index (EVI) score, which is a numerical scale the United Nations creates to measure a country’s ability to cope with economic shocks such as natural disasters. The threshold numbers to be included on the list are a per capita income of $992 or less, an HAI of 60 or less, and an EVI of 36 or more. However, the thresholds for graduating from the list are different, requiring a per capita income of $1,190 or more, an HAI of 66 or more, and an EVI of 32 or less. To graduate from the list, a country must meet two of the three thresholds in two consecutive reviews by the U.N. Committee for Development Policy (CDP), which occur every three years. After a country qualifies for graduation, the U.N. General Assembly must pass a resolution to remove it from the LDC list.

While graduation from the LDC list demonstrates economic growth and stability, it also brings challenges for countries. The biggest challenge is that by graduating from the LDC list, a country no longer qualifies for higher levels of foreign aid and lower WTO requirements. Only three countries have graduated from the list since the United Nations created it in 1971, largely due to fears of losing these privileges. Although the United Nations has developed a plan to ease the transition for countries that graduate, losing these privileges remains a major concern.

Laos has set the goal to be off the LDC list by the year 2020. This is an ambitious goal since the recent CDP review in early 2012 showed that Laos failed to meet any of the three threshold requirements for graduation. The country had a per capita income of $913, an HAI score of 61.4, and an EVI score of 37.1. However, these indicators are within reasonable range of the graduation thresholds; the U.N. Conference on Trade and Development (UNCTAD) estimates that Laos will meet the qualifications by the next CDP review in 2015. In order to put its ambitions into action, Laos held a meeting between government officials and experts in May 2012 to formulate a concrete strategy for achieving its goal of graduation by 2020, though the strategy remain unpublished. In addition, Minh Pham, UN Resident Coordinator and Resident Representative of the U.N. Development Program (UNDP) in Laos, believes that Laos is not as vulnerable to the concern of losing LDC privileges because of large increases in foreign direct investment in Laos, particularly with hydroelectric energy. Foreign direct investment involves financial investment in physical assets of a foreign country, such as a manufacturing plant or a financial management company, through either purchasing an existing company or starting a new one.

Laos’ goal to graduate from the LDC list by 2020, along with clearing the way to full membership in the WTO, demonstrates Laos’ determination to be a full participant in the global economy. Although it still has progress to make to graduate from the list of LDCs, Laos has the confidence and support of both the UNCTAD and the UNDP.