Archive for October, 2008
At the moment many people are asking the same question ‘Which country is next after Iceland?’ The Danske Bank has announced a list of the 15 most financially vulnerable countries in the world. This analysis suggests that Hungary is ‘en route’. The three Baltic countries are also amongst the ‘lucky’ 15. This news coincided with Commissioner’s Grybauskaitė vist to Lithuania. She has confirmed the news – the Lithuanian economy is in trouble… But there is also some good news.
Perhaps it should be noted that the announcement of the black list came after a British paper miss interpreted the Head of the International Monetary Fund as saying that the Baltic countries are very close to the ‘Icelandic scenario’. The local economists jumped in and vigorously denied this prediction. Yes, the Baltic countries are in trouble but the causes of our troubles are different from the Icelandic.
Eg. Lithuania’s external debt is 13 per cent and the internal debt is about 70 per cent of our GDP. Further more, Iceland’s budget deficit was 9 per cent, Lithuania’s less than 3 per cent. More, our currency Litas, is pegged to Euro (with all positive and negative effects). The Danske Bank senior analyst Lars Christensen also confirmed that even though Lithuanian is well into the hard landing (according to him it started about a year ago) Lithuania is in a better situation than our Baltic brothers.
As it was mentioned Lithuania heard the bad news not only from the Danske Bank. ‘Lithuania’s landing is fast, hard and painful” Dalia Grybauskaitė, the EU commissioner responsible for financial programming and budget anounced last week during her visit to Lithuania. This former Finance Minister is one of the most popular public figures in Lihtuania. For the last two years she harshly critisies Lithuania’s Goverment at every visit to Lithuania. The PM Kirkilas once complained to the EU Commission’s President about Grybauskaitė’s ‘interferience’ in the Lithuanian politics.
However Mrs Grybauskaitė decided to go open about the Lithuania’s economical situation two years ago, because the Government would not react to her remarks. She said, “Actual Lithuania’s economic situation shows that nobody has heeded advices in Lithuania. We see that the situation has got worse. Everybody, not just the European Commission (EC), but international organizations, sees it as well. They make very straightforward evaluations, for example, the rating agencies have revised Lithuania’s credit ratings down. Meanwhile, it means more expensive borrowing, lower confidence in the country and more complicated borrowing terms” BNS quoted her.
First of all she suggested the President to veto the new proposed 2009 budget. “We should speak about the general fiscal deficit, and, as to my knowledge, it (the budget) is getting closer to the critical limit of Maastricht criterion, 3 percent of gross domestic product (GDP). Clearly, if the rate is larger, mistrust will be huge. We have had such experience with this year’s budget. A country has submitted a certain deficit figure to the EC, and now it is getting clear that the actual rate is five times larger than the initial one,” according to the BNS the commissioner said.
As the BNS noted Lithuania risks having its fiscal deficit cross the 3 percent limit in 2009, the European Commission (EC) warns. In 2008, as projected by the Commission, the country’s deficit will reach 1.7 percent of gross domestic product (GDP).
The outlook for Lithuania’s economy is poor with the International Monetary Fund (IMF) seeing the countries GDP growing by meagre 0.7 percent next year, much less than envisaged by the government, she says.
As the BNS further noted the commissioner slammed the government for denying problems and delaying their solutions thus eventually failing to get prepared for the crisis. “Such politicians and governments are drowning their countries. I do not want to specify any names, you know them yourselves,” Grybauskaitė said.
She projected that Lithuania’s fiscal deficit would exceed the 3 percent GDP limit in 2009. “I think it will be well above that limit.’
The hopes of balanced budget were failing, while the inflation spiral was being given an additional impetus instead of being curbed, the commissioner said.
“There are two anti-inflation plans but no actual actions. Moreover, some actions of opposite effect have been taken, such as the indexing of payments. No actual actions have been taken, since the plans were declarative. Structural reforms in the area of education and on the labour market have not taken place, on the contrary, they have been avoided,” she pointed out.
In short there are a lot of bad news in the Lithuanian economy. However, there is also hope. The Commissioner noted that this a very good time for the Lithuanian political establishment to get their act together. The new government should be formed this year already. There is a lot of speculation in the Lithuanian media about Grybauskaitė’s return to the Lithuania’s politics in order to set the Lithuanian finances straight.
As the BNS agency noted she isn’t shooting for Lithuanian prime minister’s seat. She did, however, note willingness to cooperate with whatever government is formed in result of the general elections. “I am not at all referring to any posts, as government or post apportionment is of no interest to me, this is not in my life priority list”.
The BNS further noted that any political force or majority to come into power will not be capable of managing forthcoming challenges alone, she forewarned, noting the need for achieving a joint agreement – inclusive of all main parties – on how to conquer these challenges, with the least to come of it being a moratorium on any new financial commitments for at least a one year period.
“When I hear any political force speaking on how to deal with the pending economic crisis in Lithuania, we will then address it. All I hear now is division of power, therefore I cannot provide any answer”, the EU commissioner said asked to comment on hints of her being an example of a suitable PM BNS writes.
However, the EU commissioner brought at least one good news to Lithuania.
As BNS wrote she has praised the management of EU structural funds in Lithuania.
According to the data cited by the commissioner, Lithuania absorbed 91 per cent of EU assistance as of September. “I am delighted that all my comments have been truly considered in the area of structural funds management as far as the ministry of finance is concerned. The result is truly good. As of September, the rate of structural funds absorption in Lithuania is 91 per cent, and we believe that Lithuania will come very close to full absorption in the remaining two months,” Grybauskaite told the reporters.
The BNS reminded that according to the European Commission’s (EC) data, some 91 per cent (EUR 813 mln) of structural assistance funds envisaged for Lithuania in 2004-2006 were paid to the country as of Sept. 10.
Lithuania was only behind Estonia and Malta (92 percent each) in terms of EU assistance absorption rate.
In Lithuania, 70 parliamentarians are elected in multi-mandate district and the remaining 71 win mandates in single-mandate voting.
The elections multi-mandate district were already accomplished on Sunday afternoon after more than 25 percent of all voters turned to vote.Here are the multi-mandate results after the votes been counted in 2025 districts out of 2036
- The Homeland Union – Lithuanian Christian Democrats with 17 mandates and received 19.57 percent.
- The National Resurrection Party with 13 mandated and 15.14 percent
- The Order and Justice (Paksas) Party 11 mandates and 12.74 percent
- The Social Democrats with 11 mandates and 11.75 percent
- The Labour (Uspaskich) Party and Youth coalition eight mandates and 9.03 percent.
- The Liberal Movement 5 seats with 5.68 percent
- The Liberal and Centre Union five seats with 5.31 percent
Rest of the parties did not gather required 5 percent in order to get into the parliament.
Three MPs were elected to the parliament through the single-mandate voting. In order to do that a candidate must get 50 percent plus one vote. Hence, on the September 26 is going to be a second tour in which two most popular candidates will compete.
Usually, the Conservatives Home Land union and the Social Democrats are performing the best in the single-mandate. At the moment
- 44 Conservatives are leading in their constituencies,
- 25 Social Democrats,
- 16 Order and Justice,
- 10 from Labour,
- 10 form the Liberal and Centre,
- 9 from Resurrection Party,
- 8 from Liberal Movement,
- 6 Farmers
- 5 from Labour,
- 5 Independent
- 4 from the Polish election action.
At the same time the referendum took place. The referendum statement sounded something like that ‘‘I am in favour of the extension of the nuclear plant’s life span until the technically safe term expands, but not longer than the new nuclear plant will be built.’
Let me know if you need ‘further explanation’. Under Lithuanian legislation, the non-binding referendum is only valid if more than 50 percent of registered voters cast their votes. However, for the referendum to succeed it lacked some 60,000 votes as only some 47.9 percent of registered voters marked their referendum ballot papers on Sunday. Some 88.64 percent of referendum participants voiced their support for the extension of operations of the nuclear facility until the construction of new nuclear power plant. Some 3 percent of referendum ballot papers were spoilt.
The foreign observers paid a huge interest in the referendum. I thing it is much more important for Ignalina lifespan is what parties will form the government. Meaning that some of them (Paksas) mentioned that if their were to form the government their will resist the closure of Ignalina.
As the BNS reported, the Chairman of Lithuania’s Central Electoral Committee, Zenonas Vaigauskas, announced that no major violations for invalidation of the results of the general elections had been registered. “We have received no reports of major violations for invalidation of the election outcome, although some violations are alarming, and law-enforcement institutions are determined to take relevant measures against them,” Vaigauskas told a news conference on Monday.
All possible coalitions are possible, however best is to wait for the final result. There are possibilities of Centre Left, Centre Right and the Rainbow coalitions.
The biggest surprise is second place for the newfound Resurrection Party, rather a bad result for Paksas and a quite disappointing result for Uspaskich’d Labour. I am also surprise that it seems that the Farmers and the Social Liberals will be out. I was rather convinced that the split liberals (Liberal and Centre and Liberal Movement) will not get into Seimas due to the 5 percent for the fresh hold. It seems that both of them are inn and after this ‘success’ the two parties began making noises about possible unification.
Overall I regard this election positively, but still, lets wait and see until September 26
The wages of skilled employees in Lithuania are three times less than those in the UK and four times less than the wages in Ireland.
Last year the difference was 4 times and 4.75 times, respectively.
“The comparison of wages in Lithuania and abroad shall also include living costs. In countries, which are chosen for emigration by our compatriots the most often, life is more expensive than in Lithuania. When considering that, the situation is way more different – the gap between wages in Lithuania and Ireland narrows to 2 times, in Lithuania and the UK – to 1.5 times,” Neda Songinaite, Hay Group CEO for the Baltic countries, said at a news conference on Wednesday and the BNS informed.
As shown by the survey, the wages of employees at Lithuanian companies controlled by local investors were 18 percent below those paid at international companies. Last year that gap was 20 percent, in 2006 – 26 percent.
More than 200 Lithuanian companies have taken part in Hay Group’s survey this year.
How does it feel to live in the financial province? One could ask a Lithuanian, Latvian or Estonian. It depends when you live here. So far so good, the financial experts agree. There is not much we can do, Lithuanian financial system almost fully belongs to the Scandinavian banks. Hence we just have to watch and wait. We are told, the Scandinavian banks are amongst the most stable and prudent in the world, they are doing well!
The Bank of Lithuania announced that if required it could extend some 1 billion litas (EUR 289 mln) in loans to domestic commercial banks without breaching the norms of litas coverage with foreign currency and gold reserves.
The central bank governor Reinoldijus Sarkinas toled this Tuesday that “Our banks do not need those loans today, that is for sure. There were 3.4 billion litas on banks’ accounts in the morning, they perform all operations”.
He added that Lithuania’s commercial banks had some 40 billion litas in deposits and the aggregate loan portfolio of some 70 billion litas.
Sarkinas would favour the European Union (EU) decision to raise the amount of insurable deposit.
“We would support the proposal of the European Commission – to boost the amount of insurable deposit to 100,000 euros. I think we could agree to that,” he said.
In line with Lithuania’s legislation, a deposit amount of up to 3,000 euros is compensated 100 percent and the amount of up to 22,000 euros – by 90 percent in the event of bankruptcy of a credit institution. Thus the maximum insurance amount is 20,100 euros.
However, there are few things on the horizon. As the BNS announced Lithuanians have become increasingly worried about the country’s economic prospects in the past year, a public opinion poll has shown.
The BNS writes that the people continue to see rising prices, the brain drain and the use of Lithuanians as cheap labor by foreign countries as the main disadvantages of the EU membership, according to the poll conducted by Vilmorus for the European Commission’s Representation in Lithuania.
The percentage of respondents expecting Lithuania’s economic situation to improve fell to 35 percent from 40 percent a year ago and the percentage of those anticipating a further decline in unemployment was down to 39 percent from 51 percent.
On the other hand Lithuania’s Finance Minister Rimantas Sadzius expects the national economy to get on the upswing in 2011-2012.
“That slowdown, whether it goes reverse in 2011-2012, it only depends on us. On business in the first place,” Sadzius said at the meeting with industrialists in Vilnius on Tuesday.
Businessmen should face up to credits getting more expensive during at least several years, he added.
Sadzius said, “Economic development is slowing down, we all have problems. We should also include two more things into our expenditure estimates, i.e. growing prices of energy and labour”.
Although the situation was complicated, the government should decide later this week on the application of profit tax break for companies upgrading their technologies, he added.
However, recently one of the Lithuanian central bank analysts said to one of the reporters, most likely off the record, that only a panic could trigger the collapse of the Lithuanian banks. Having in mind that this Sunday Lithuanian is going to have Parliament elections such happening could have not only precocious to the banking system but also would certainly affect the composition of future Parliament.
Some since of this possible panic are apparent. The Lithuanian central bank governor acknowledged on Tuesday that panic-spreading rumours and SMS messages had scared some people into withdrawing part of their deposits from banks.
“A part of deposits have been cancelled. I think that it will be those people who panicked and lost interest [on their deposits] who will suffer from this, “the chairman of the Bank of Lithuania’s board, said during a meeting of the Industrialists’ Confederation and the BNS reported.
Sarkinas said that special services were searching for the authors of the panic-spreading messages. “Our services are working to find the sources of these messages. I think it is just a matter of time,” he said.
Despite the withdrawal of deposits by some people, the latest data from the central bank show that on Oct. 1 through 3, the total amount of private individuals’ deposits at the country’s banks increased by 57 million litas (EUR 16.5 mln) and business customers’ deposits rose by 15 million litas.
Sarkinas noted that the banking system’s capital adequacy was 12 percent in early September, compared with the required 8 percent.
Lets hope that the 2002 Presidential election will not repeat itself. And we all hope that our mother banks in Scandinavia are going to do well. At least until elections!