In November 1986 Kaysone implemented the New Economic Mechanism , essentially a market economy, which resulted in less government intrusion in people's lives and an abundance of material goods on the markets. Political changes did not accompany the economic reforms, however, and dissenters were still arrested. But by the late 1980s, Lao refugees were returning from Thailand, and Western tourists began to visit the country. The government improved ties with Thailand, ambassadorial relations were re-established with the US in 1992, and in 1997 Laos became a member of the Association of Southeast Asian Nations.

Unfortunately, the 1997 Asian economic crisis proved a major setback for Laos. The Lao currency lost eighty percent of its value between June 1997 and early 1999; inflation soared to a hundred percent; direct investment plummeted, and infrastructure projects were put on hold. The crisis has brought many of the weaknesses of the Lao economy to the surface, including the country's heavy reliance on foreign aid, which accounts for fifteen percent of Laos's GDP. The party appears to have few answers for the current economic dilemma - something which could ultimately threaten its hold on power and the unity of the country.

On 26 October 1999, a number of students and teachers attempted to hold a demonstration in front of the Presidential Palace in Vientiane to protest against the desperate state of the Lao nation. In a rare show of defiance against the government, the protesters passed out a list of reforms and urged their leaders to loosen their grip on the economy and to institute more freedoms. Predictably, the government cracked down hard on the demonstrators and several were arrested and imprisoned. The Lao government was successful in suppressing news of this event and reports that did reach the outside world were brief and vague.

On 1 January 2000, the Lao government held an exorcism ceremony at the former royal palace in Louang Phabang in an attempt to placate the spirits of the dead royals which, the old communists believe, are avenging their own murders by ruining the Lao economy. Twenty five years after the revolution, the government is still attempting to blame the monarchy for its woes