V

IENTIANE - Sweeping market reforms are rejuvenating Laos despite a disastrous

rice harvest, poor infrastructure, a lack of skilled workers and worries by

international organizations about the impact of progress on the country's

precious natural resources.

There is an air of prosperity in this

riverside capital with its new shops, hotels and restaurants, and its busy

markets overflowing with imported consumer goods.

Motorcycles and cars

are gradually replacing bicycles, and it is not uncommon to a see a Mercedes

Benz gliding down one of the city's tree-lined thoroughfares.

Behind the

facade of budding urban wealth, however, here and in main provincial towns, lies

the grinding poverty of a still largely subsistence-level countryside, home to

85 percent of Laos' 4.5 million people.

There are also concerns about the

rapid exploitation of forests which, though fueling short-term growth,

jeopardizes hydro-electric power generation upon which the country has pinned so

much of its long-term hopes.

The extent of rural poverty in Laos is

illustrated all too starkly by the statistics.

Annual per capita income

is $230. The infant mortality rate is 103 per 1,000 live births. Life expectancy

is 50 years.

Cross the Mekong river to Thailand and life expectancy

shoots up to 69 years and the infant mortality rate is 27 per 1,000. Per capita

income in Thailand is $1,570.

Laos' rice harvest last year was down

almost 17 percent compared with 1992. Yet the increasingly resilient economy is

still expanding at almost seven percent a year.

"The growth rate is very

healthy," Ameerah Haq-Perera, of the United Nations Development Program

said.

She added: "The reason you still have this high growth rate is

because of the increase in the service sector particularly, and foreign

investment, particularly in the garment sector.

"If there hadn't been a

shortage in the production of rice we would have seen an even higher growth

rate."

The communist regime which took over in 1975 began broad economic

restructuring four years later when it abandoned bids to set up Soviet-style

collective farms.

A macroeconomics reform program - dubbed the New

Economic Mechanism - was launched in 1986 and three years later a constitution

was adopted, guaranteeing domestic and foreign ownership of companies and

explicitly encouraging private business.

One diplomat said: "The

transition to a market economy has been much better than expected, they've

always been pragmatists - nationalists before communists. If something is not

working they give it up".

A UN official said: "In the short term the most

serious constraints are poor infrastructure and a shortage of human resources,

which the government is taking steps to remedy."

Growth is backed by

exports of timber, wood products and hydro-electricity. Another prospect is the

garment industry, which enjoys preferential access to the European

market.

Timber and wood product exports earned $50 million last year

while the garment sector made $38 million and hydro power $15 million according

to government and World Bank estimates.

Logging quotas have been reduced

in recent years but illegal logging is still widespread.

While official

log production quotas have stabilized at about 275,000 cubic meters a year,

about half as much again is being cut illegally, mostly for export to Thailand

the World Bank said.

The bank said: "The total annual cut [is] almost 50

percent above estimated sustainable timber removal rates."

The bank

warned that sedimentation of reservoirs and rivers as a result of deforestation

"pose a significant potential threat to hydro-power schemes and irrigation

development."

The bank said: "The mountainous country has hydro-electric

power generation potential of 12,300 megawatts. Current capacity is 200

megawatts, most of which is exported to Thailand."

One diplomat said:

"The government plans to develop a generating capacity of 1,500 megawatts by the

year 2000 - Laos knows that in the long-term it can be a source of power for

very, very hungry markets in the region,"-Reuters