Since the introduction of the New Economic Mechanism in 1986, Lao PDR has been gradually moving from a centrally planned economy toward a market-oriented system. It has planned a wide range of reforms, assisted by various supranational bodies such as the World Bank, ADB, IMF, and the European Union.

Financial sector reforms are one of the country's priority initiatives, with banking sector reforms the government's current focus. This involves strengthening the operation and oversight functions of the Bank of the Lao PDR, and restructuring state commercial banks (SCBs) by improving their lending decisions and risk management systems. SCBs reforms are expected over the next 3-4 years and will be guided by international bank advisors. The Government is looking for a strategic investor for one of the two SCBs by 2005.

A number of legislative reforms to support financial sector development are expected. Implementing regulations for the Foreign Exchange Decree Law will be issued by June 2004. Amendments to the Decree Law on Commercial Banks were submitted to the National Assembly in January 2004.