Banking Sector Reform Program

Political support and macroeconomic stability are vital to the success of a development assistance program. At the time the Banking Sector Reform Program (BSRP) was approved, the government had just come out of a severe macroeconomic and fiscal crisis. The fiscal situation had stabilized by 2003 with a deficit equivalent to 5.6% of gross domestic product (GDP). The severe constraints on budget resources and suppressed spending on the economic and social sectors meant that the MInistry of Finance's (MOF) priorities were not closely aligned with the goals of the Bank of the Lao PDR (BOL) and the BSRP (which required a substantial placement of interest-bearing government recapitalization bonds in the two state-owned commercial banks or SOCBs).