New Lithuania President’s interview – her thoughts about past and present and vision for future

I would like to offer you an interview of Lithuania’s newly sworn President Dalia Grybauskaite.  The interview was published in the Lithuanian business daily Verslo žinios on July 13.  Verslo žinios names this interview as a Grybauskaite’s vision for her presidency.  I would highly recommend you to read it.

“Encompassing Ideals of Gandhi, Toughness of Churchill”

[Verslo žinios] Should the state limit its functions in a time of crisis or should it control the economy more?

[Grybauskaite] I think during an economic boom the state should limit its functions, and during a downturn it should be more active. I think history confirms this. Today we see that certain financial services were being developed faster than certain governments had predicted or anticipated. The Breton Woods safeguards and other mechanisms that had existed did not stop the crisis. It is necessary to look for something new. In the near future, governments will have to be more actively-involved in the markets. International organizations will have to get involved and participate in regulation as well.

[Verslo žinios] How do you imagine intervention?

[Grybauskaite] Theoretically, the free market system is a very good idea. In the global world, however, we witnessed the creation of global monopoly, not free market. Especially in the area of finances and financial instruments. This monopolistic system started controlling the global economy and market mechanisms. The free market system mutated. Governments and international organizations should create new mechanisms that would revive competition.

[Verslo žinios] What needs to be done?

[Grybauskaite] In the world there is a very interesting discussion: What can be done by big countries, which can fire up their money printing machines, and what can be done by small countries, which do not have resources or money printing machines. I think countries like Lithuania cannot increase public spending, deficit, and debt. Above all, they must reduce public spending and government apparatus and must eliminate overlapping functions of various institutes as well as obstacles for businesses. In addition, such countries must save. Small countries, which do not have resources and money printing machines, have only these options in addition to structural reforms. [passage omitted: The Baltic states should start recovering approximately six months after Europe's economic recovery].

[Verslo žinios] What reforms are the most necessary in Lithuania?

[Grybauskaite] Lithuania until now has been partially parasitizing and has been stuck in the old, inefficient economic structure. The economy lacks innovation and the service sector is underdeveloped. Our possibilities are innovation, services, science, and scientific research. Without abundance of natural resources, the biggest wealth one has is people, who must be valued. The problem is this: During the past twenty years we have freed the market and have reduced the state’s involvement in the economy, yet we have not reduced the state’s social obligations. The old style social security system that we have inherited does not go well with the market economy. During an economic crisis, this disproportion becomes an impossible burden for the state.

[Verslo žinios] Does this mean that in the future there will be smaller pensions, social payments, and assignations for education?

[Grybauskaite] I would phrase the problem differently. Society must decide anew what size taxes it is prepared to pay and what services it wants to receive from the state. Between these things there is a direct correlation. If one wants to maintain the same social system, one has to increase taxes. If taxes remain the same, the state’s obligations must decrease. Of course, even the funds the state has today can be used more effectively, too. For example, the latest study of the World Bank shows that our healthcare system looks like this: There are too many hospitals, there is too much equipment that is not used properly, because there are no specialists trained to use that equipment. Money disappears, but there is no impact.

[Verslo žinios] Unlike Latvia, Lithuania has refused to ask the IMF for help. You once said that such a step was unnecessary. Why?

[Grybauskaite] It is the last step a country can take. If external borrowing conditions do not get worse, Lithuania will still able to manage on its own. I do not want to criticize the IMF or the World Bank, but every politician should know that no one will solve our problems for us. I do not want to comment on Latvia’s problems, too much. I think Latvia asked the IMF for assistance when it had no other choice.

[Verslo žinios] The government completely ruled out the litas devaluation scenario and announced it would try to enter the euro zone in 2012 by reducing public spending. Do you support this strategy?

[Grybauskaite] I would not want to discuss concrete dates. However, the euro zone is synonymous with financial discipline. Order in our financial system must be the main paradigm of our thinking, as a real alternative to political populism. Concrete date for joining the euro zone will depend on the extent of the crisis and on our ability to have order. I also do not see any alleged benefits of devaluating the litas. Perhaps it would be meaningful, talking about increasing competitiveness of our exports. However, can you show me any markets that today are not gripped by recession? Therefore, devaluating the litas would only increase the country’s debt, two thirds of which are in foreign currency. In addition, energy resources would become more expensive. Therefore, we should move in the direction of euro adoption.

[Verslo žinios] Do you think Lithuania’s energy dependence on Russia is dangerous?

[Grybauskaite] Every country needs to strive to diversify its energy sources. Energy has always been measured using the geopolitical ruler. Therefore, integrating Lithuania’s electric power system and energy sources into Western networks would mean Lithuania’s political independence. It is necessary, and we will try to make sure we do not depend on one energy supplier.

[Verslo žinios] Does this mean that Lithuania must be prepared to pay higher prices for energy resources in the near future?

[Grybauskaite] Just as for any geopolitical choice. There is a certain price that needs to be paid for geopolitical orientation. Even if a competitive environment is established in Lithuania’s energy system in accordance with the EU requirements, the future of this sector will not be just a matter of economy or business. Of course, it is important to have a competitive environment in the energy market, but above all we must tame local monopolists and defend the consumer’s interests. Today in Lithuania, it is clear that local barriers are built against innovation and development of alternative energy sources.

[Verslo žinios] What is your opinion about the conditions for foreign investments in Lithuania? For example, Russian businessmen complain about discrimination here…

[Grybauskaite] The flow of investments, naturally, has subsided. The boom that started 15 years ago has ended. Yet, for now this is not too painful, because the lack of foreign investments in the country is compensated by the EU aid funds. Of course, we should analyse why the investment conditions have become worse. The Russian investments, meanwhile, are just as important to Lithuania as the investments from other countries. In certain areas non EU investments are limited and European interests are defended. The common EU investment policy is in the interests of Lithuania as well, but there is no national protectionism that would violate European principles.

[Verslo žinios] Have you heard any proposals to distance yourself from the executive branch and to remain a consolidating political figure, the way your predecessor, who was called “moral authority,” was?

[Grybauskaite] Political analysts say this is exactly what I should do. It would be nice to distance myself, point my finger, and criticize. I, however, see myself as someone who is not afraid of responsibility, and the first thing I will accept, if we work together with the cabinet, is responsibility.

[Verslo žinios] Perhaps today it would be meaningful to strictly adhere to the separation of power doctrine?

[Grybauskaite] It is an abstract theory. I know that today the nation entrusted a big credit of trust to me. Therefore, I want to talk about consolidating not only the government but also the public for big tasks. One of the most painful problems is the fact that the political elite have usurped democratic mechanisms. There cannot be a healthy economy, if the citizens’ power to make decisions is limited, and there cannot be a healthy economy without healthy politics. The decreasing interest in politics and lack of civic activeness is a problem not only in Lithuania, but also in Europe.

[Verslo žinios] All of your predecessors sooner or later started complaining about limited powers of the president…

[Grybauskaite] In politics there are de jure and de facto tools. Juridical tools are in the Constitution: The veto right, the right to initiate laws, the power to appoint officials. Factual tools – the nation’s trust, my word, which seems to have had substantial influence so far. Finally, I am also a professional in a certain field, which allows me to offer my help to the cabinet.

[Verslo žinios] Do you agree with those who say that every senior politician achieves the most important things during his first six months in office?

[Grybauskaite] This depends on one’s term in office (smiling)… Perhaps they are right: During the first six months one can look at things objectively, through a set of fresh eyes, before routine and system sucks one in. However, I think I clearly see the main tasks, which I raised not only during the election campaign, but also for myself. I hope that political and economic conditions will not obstruct their implementation.

Source BBC Monitoring

Lithuania posts steepest rise in industrial production across EU in May

Industrial production in Lithuania rose by 7.3 % in May versus April and the rise was the steepest across the European Union (EU), the Eurostat reported.

In April the industry posted a 1.2% monthly decline, while over March the production contracted by 7%, according to the EU statistics agency.

In May compared with May 2008, industrial production in Lithuania plunged by 18.5%.

The monthly decline in industrial production was the largest in Latvia (4%) in May, while in Estonia the output rose by 1.3% from April.

The largest annual drop was registered in Estonia (29.9%), while in Latvia the industrial production contracted by 19.3% compared with May 2008.

Source BNS

IMF sees Lithuania’s economy contracting in 2009 by 16% and the SEB bank forecasts by 15.5%

Lithuania’s economy will contract by at least 16% this year and shrink by further 3.75% in 2010, the International Monetary Fund (IMF) forecasts writes the BNS.

“Such forecasts involve rather significant uncertainty and risks over the outlook for such a development,” Catriona Purfield, the head of visiting IMF mission, said during a news conference in Vilnius on 22 June.

Lithuania needed further corrections to the scale of approximately 7% of GDP [to reduce fiscal deficit by 7 points] over mid-term, based on current estimations including the measures already taken, she said.

The BNS writes that Lithuania had not applied to the fund for assistance and there were no discussions of a loan under way, she said. The current currency board regime was adequate yet the country had to continue reforms in order to maintain it, Ms. Purfield added.

“The road ahead will be difficult, hence regular measures to ensure fiscal and financial sustainability will be necessary during that period. Despite fast balancing of the current account, the safeguards from potential risks are limited, therefore regular efforts, including further large-scale consolidation of public finances, creation of additional safeguards in the financial system, further regulation of wages and structural reforms, will be required in order to ensure smooth functioning of the currency board until the adoption of euro,” she said.

“The figures provided in the IMF working report are very clear – the consolidation of public finances, which exceeds 7% of GDP and which will have to be implemented in coming two years, is a great challenge, yet it is possible to be implemented since everybody understands what will happen if it is not implemented,” Prime Minister Andrius Kubilius told the reporters after the meeting with the IMF representatives.

The IMF mission arrived to Lithuania on 11 June.

On 23 June the SEB, Lithuania’s largest commercial bank forecasted that Lithuania’s GDP should contract by 15.5 % this year and that is forecast downgrading its previous projection of a 9 percent economic decline this year.

As the BNS informed for 2010 the bank’s analysts are projecting a 3.5% decline, unchanged from earlier forecasts. In 2011 the economy should expand by 3%.

Fiscal deficit should reach 7% of GDP this year and 5% in 2010.

“It means that the hopes of the head of Lithuania’s government to adopt the euro in 2012 are too optimistic since the authorities will not manage to reduce the fiscal deficit to the required 3 percent level until mid-2011,” Gitanas Nauseda, an adviser to SEB bank president, said on 23 June.

World Bank forecasts 10% GDP slump for Lithuania in 2009

As the BNS informs the World Bank forecasts that Lithuania’s GDP will contract by 10 % this year.

In a report published on June 22, the World Bank warned that the Baltic countries would face the sharpest recession in Central and Eastern Europe. Latvia’s GDP is expected to slump by 13 % in 2009.

Despite relatively strong fundamentals, Poland is feeling the pinch of the crisis as well: its GDP this year is expected to grow by a mere 0.5 %.

Central and Eastern Europe’s GDP is expected to decline by 1.6 % this year and remain flat next year.

Nine countries reached agreements with the International Monetary Fund on 55.8 billion US dollars worth of loans from September 2008 to May 2009. Six of them have received aid through the World Bank, the European Commission and several other institutions.

Another 5,700 people join Lithuania’s jobless ranks in a week, Lithuanian unemployed ‘discover’ Scandinavia

As Lithuania’s Labour Exchange said on 22 June another 5,700 people were registered as unemployed in Lithuania last week, down 24% from 7,500 people registered a week earlier

The total number of people with the status of unemployed persons reached 196,400 as of 19 June (up from 194,900 a week earlier), which accounted for 9.2% of the working age population, as calculated by BNS.

As the BNS informs some 1,163 job vacancies were registered in 12-19 June down 19 % from 1,440 vacancies a week earlier. Some 2,600 persons got employed, down 19% from 3,200 the previous week.

There were around 1,300 vacancies in the Labour Exchange database on 19 June.

This morning Lithuania’s Public Radio announced that Lithuanians remains the immigration champions per capita in the EU.  However, destinations for new immigrants are changing.  According to this information Lithuanians starting to discover the neighbouring Scandinavian countries when looking for employment.

Nordic, Baltic PMs agree EP election results boost chances of extending Barroso’s EC presidency

Is the BNS informs on 18 June the Nordic and Baltic prime ministers agreed in Brussels that the victory of centre-right parties in the recent elections to the European Parliament (EP) boost the chances of a second tenure for European Commission President Jose Manuel Barroso.

“In these obscure times, at least something should be clear. Europe needs strong mustering leadership. Jose Manuel Barroso is perfectly suitable for the position,” Lithuania’s government cited Prime Minister Andrius Kubilius as saying.

Earlier on 18 June, Kubilius met with his Nordic and Baltic counterparts to discuss the stances taken by the countries before the start of the European Council. Heads of Finnish, Swedish, Danish, Lithuanian, Latvian and Estonian governments attended the meeting.

The prime ministers shared their evaluations of the economic situation in their countries and the region, as well as plans of overcoming the downturn, discussed the election of EC’s new president and enforcement of the Lisbon Treaty.

Latvian Prime Minister Valdis Dombrovskis presented the steps of his government to reduce the budget deficit.

According to the press release, the Nordic and Baltic prime ministers expressed support to Latvia’s difficult but necessary steps and agreed that the frequent proposals to devalue national currencies would not solve the problems but, instead, create new ones.

Source BNS

Memorandum on Baltic interconnection plan signed in Brussels

As the BNS writes the leaders of all Baltic Sea countries and European Commission President Barroso signed in Brussels on June 18 a memorandum of understanding on the Baltic Energy Market Interconnection Plan, thus marking the launch of the implementation of this action plan.

Lithuanian Deputy Energy Minister Romas Svedas, who is a member of the EU’s high-level group on developing the plan, confirmed the signing of the memorandum.

“This is an unprecedented fact in the European Union’s energy policy history: such an important document has been worked out within such a short period of time — eight months. The annexes [of the document] set out how and when a Baltic energy market will be established and integrated into the Nordic market,” he told BNS.

Svedas pointed out that the document identifies concrete projects, amounts of money and the main companies responsible for their implementation.

“This is a conceptual and phenomenal document and a good example for other EU regions, defining the energy development policy. This is a long-term document that is integrated into the period of Sweden’s presidency of the EU, which means that a focus will be given on a strategy for the whole Baltic Sea region, encompassing science, culture, energy and transport,” the official said to the BNS.

“The Baltic states, which are an energy island, must be integrated into the EU’s internal energy market and the energy island label has to be eliminated,” he said.

The European Commission’s president and the leaders of Denmark, Estonia, Finland, Germany, Lithuania, Latvia, Poland and Sweden signed the memorandum on the eve of the European Council meeting in Brussels,

The memorandum underlines the need for a further development of the electricity and gas markets in the Baltic Sea region and their integration into a wider EU energy market, as well as for promoting investments.

According to the document, the three Baltic countries aim to create a level playing field in the electricity market, open up to free international trade, and establish free competition and pricing policies.

In the gas market, their main goals are to find the cheapest solution for linking Finland and the Baltic countries to an integrated European gas network and new sources of supply, as well as to accelerate the opening of the market.

The European Union has earmarked 175 million euros for the planned power interconnection under the Baltic Sea from Sweden to Lithuania. Another 100 million euros should be provided for a second interconnection between Estonia and Finland.

The countries are to submit their joint application for the EU’s funds by Jul. 15.

Source BNS

Grybauskaite confirms Lithuanian Minister of Finance as her successor in EC

As most of the Lithuanian media outlets informed Lithuania’s president-elect Dalia Grybauskaite has confirmed Finance Minister Algirdas Semeta as her successor and Lithuania’s new European Commissioner. “The future will show how he manages. It is essential for Lithuania to retain the current EU financial programming and budget chief mandate,” Grybauskaite on Monday told the press.

Grybauskaite went on to mention Lithuania’s Ministry of Finance Undersecretary Ingrida Simonyte as a candidate to replace the finance minister.

Kubilius, on the other hand told journalists on Sunday that had has a conversation with the EC president Borrosso but refused to reveal the name of the candidate. “I agreed with Barroso that the information is confidential,” the prime minister told journalists. Nevertheless, Kubilius will be accompanied by Finance Minister Algirdas Semeta to the European Council’s meeting on Wednesday, however, refused to say whether the minister would be proposed for the EC writes the BNS.

The speculations of possible Semeta’s ‘exile’ to the Brussels began after Grybauskaite won Lithuania’s presidential race. Semeta was Grybauskaite’s choice even though PM Kubilius was maintaining that Mr Semeta is needed more in Vilnius than in the Brussels. Mr Semeta is known as not only a good Kubiliu’s friend but one of the most trustworthy Cabinet members. Mr Kubilius regards his friend Semeta as a financial genius, almost irreplaceable during this crisis.

Lithuania needs time and strength to recover from crisis – Prime Minister

As the BNS wrote the Prime Minister Andrius Kubilius said on 10 June that it would take much time and strength for Lithuania to overcome the current economic crisis.

“This forum is taking place here in Vilnius in a time of challenges. We can say from our experience that the global economic chaos is not over yet. Certain rays of hope have emerged already, but, of course, it will take time and global strength before we will be able to say that we are on the road to recovery,” Kubilius said in his opening address to the two-day World Forum for Direct Investment.

The forum, which is being held in Vilnius for the first time, has brought together more than 150 business leaders from around the world for discussions about foreign direct investment issues. International companies are to present their expansion strategies.

At a reception held on the eve of the forum, Lithuanian President Valdas Adamkus thanked Red Hot Locations for choosing Vilnius as the first host for the forum in “New Europe”. “Lithuania indeed is one of the most open and flexible economies in Eastern and Central Europe, which has been confirmed on many occasions by international organizations,” the President said.

“I can assure you Lithuania will continue to pursue a market regulation policy based on eliminating excessive business restrictions and building the groundwork for economic recovery,” he said to BNS.

The head of the investors’ forum Ms Ruta Skeriene was pleased with Prime Ministers speech in which he said that Lithuania is the best place to invest. Even though there is a lot to do but it is great that we starting to realise that we are capable country. His optimism shows that the Cabinet has a road map and is determined to achieve this Ms Skeriene said.

However, some complained that there was not enough attention from the Lithuanian high-ranking officials to the forum. As many observed only the mid and low ranking officials actually stayed in the forum all time.

Forum participants include representatives of Accenture, HewlettPackard, ComTrade, Intercell, BTG, Firstsource, Lindorff, iSoftStone, Transcom Worldwide, S3 International, Programeter and Electronic Arts.

In recent years, forums have been held in London, Amsterdam, Brussels, Bologna and Valencia.

Lithuanian EnergMin wants Leo LT off power link, N-plant projects

As the BNS reported the Energy Ministry proposes that the much-criticized national energy company Leo LT should not be allowed to build either a new nuclear power plant or power links with Sweden and Poland, and that a state-owned company should take charge of the projects.

The ministry also proposes that Leo LT should not be allowed to administer EU funds.

Energy Minister Arvydas Sekmokas presented the preliminary proposal to the Cabinet on 3 June.

“A state-owned company will build both the interconnection with Sweden and a new nuclear power plant. Leo LT will not have EU funds at its disposal. Those two principles are laid down in the [ministry's] conclusions,” Ridas Jasiulionis, the prime minister’s spokesman, told reporters after the Cabinet meeting BNS wrties.

The Cabinet is likely to discuss the proposal next week, he said.

The spokesman could not say which state-owned company would implement the projects.

The European Union has earmarked 175 million euros for the planned power interconnection under the Baltic Sea from Sweden to Lithuania, including the reinforcement of the power transmission network in western Latvia.

The countries are to submit their joint application for the EU’s funds by Jul. 15.

Additionally the BNS informed that a special-purpose governmental task group has proposed to raise the state’s interest in Lithuania’s national energy company Leo LT to at least 66 percent thus conferring more powers to the government to make decisions on the future of the company.

The government then could decide to use the assets of Leo LT for the financing of planned construction of a new nuclear power plant and power links, or to reorganize the company.

The Cabinet will consider the conclusions of the task group, a transcript of which has been obtained by BNS, as well as proposed legislative amendments, next week.

The construction of new nuclear facility and power links with Poland and Sweden is expected to be handed over to public companies, some shares of which could be assigned to the companies controlled by Estonia, Latvia and Poland.

The state’s holding in Leo LT could be raised to at least 66 percent via the issue of new shares exclusively to the government.

New shares might be paid up by property contributions, which would be determined via reappraisal of existing state’s contribution to the authorized capital of Leo LT. Estimation of value of the state’s property contribution will include Kruonis Hydro Accumulative Power Plant and the Kaunas Hydro-Electric Plant.

The state’s interest in Leo LT would have to be raised to 66 percent no later than in six months from the enforcement of relevant legislative amendments.

The government owns 61.7 percent of Leo LT, which was established last year as an investment vehicle in the planned new nuclear power plant and other multi-billion-litas energy projects. NDX Energija, a privately owned firm, holds the remaining 38.3 percent.