Lithuania PM – Eastern Europe needs coordinated EU help. Dark clouds of crisis over the Baltic States and some rays of optimism

February 18, 2009 at 9:19 pm Leave a comment

Economical gloom is reigning in the Baltics.  The SEB bank has released a traditional forecast for the Baltic economies.  According to the report the Batics are in the long and painful recession.  However, Lithuania looks much better against its other Baltic brothers.

In its latest Nordic Outlook report, SEB forecasts that Lithuania’s economy will contract by 5.5 percent this year and 3 percent next year.  If you think this is bad read further.  Estonia’s GDP will plunge by 10 percent and 2.3 percent and Latvia’s economy will slide by 9.5 and 3 percent, respectively.

Lithuania’s average annual inflation rate is expected to ease to 5 percent this year, down from 11.1 percent last year, and decelerate further to 4 percent in 2010. Inflation in Latvia should reach 4.8 percent this year before falling to 0.5 percent next year. Inflation in Estonia will be 0.7 percent and 1.5 percent, respectively.

During his visit to Sweden Lithuania’s Prime Minister Kubilius once against called for the EU countries to look at the problems in Eastern parts of the EU more seriously.  In his interview to the FT he stated “It would be good to see a more coordinated approach from the EU authorities.  We are all suffering in a similar way from the credit crunch and the recession.”

In this interview Kubilius also expressed his worries about the situation in Ukraine and Russia.  “We are worried about what can happen in Ukraine and Russia.  The collapse of one of these big markets would have a very negative impact on the whole region.”

Kubilius said Baltic companies were complaining that foreign banks were tightening lending conditions, preventing them getting credits to pursue export opportunities. “Sometimes we would like to see a more positive attitude, especially when business is not in a bad shape,” he said.

In the same interview Kubilius noted that the Baltic States were in an especially difficult position because, to defend their fixed exchange rates, they had to tighten rather than loosen fiscal policy and their exports had become less competitive compared to countries with depreciating currencies.

However, Lithuania did not yet need to follow neighbouring Latvia and seek help from the International Monetary Fund (IMF), Kubilius noted.  “We don’t have any real need for IMF lending,” Kubilius assured. “We are controlling our budget deficit and we don’t have any real problems at the moment with local banks.”

However, Kubilius said this could be counter-productive: “There is a stigma [in seeking IMF help] that we want to avoid,” he said. “We can still borrow from private sources and we hope that in the second half of the year there will be a more positive international market.”

Nevertheless, Kestutis Glaveckas, the chairman of the Lithuanian parliament’s Budget and Finance Committee, has mentioned that Lithuania may have to turn to the IMF for financial support to stimulate the economy.

The MP noted to the BNS on Feb 18 “The financial instruments and powers that we have and are waiting for from the EU can be insufficient in the next six months and we may have to look for other financing sources. Seeking [financial support] from the IMF is not ruled out”.

However, even in the such grim environment the Lithuanian Economy Minister Dainius Kreivys still keeps his upbeat spirit and expects that either Google.com or Amazon.com will “sooner or later” begin to develop operations in Lithuania.

As he the BNS wrote, “It’s a question of time. I believe that sooner or later we’ll attract either Google.com or Amazon.com,” Kreivys told members of the parliament’s Economics Committee on Feb 18.

The BNS informed that the minister said that he was personally in talks with Sweden’s furniture group Ikea, Norway’s aluminium manufacturer Elkem and Google.com over investment in Lithuania.

As the BNS states Elkem considered investing about 800 million litas (EUR 232 mln) in building a factory in the port of Klaipeda or in the central Lithuanian town of Kedainiai. The company discussed those plans with the then Prime Minister, Gediminas Kirkilas.

Google was interested in the possibility of establishing a data centre in Lithuania. Ikea, which bought the chipboard and furniture factory Giriu Bizonas for more than 100 million litas last December, mulled building a new fibreboard and cellular furniture factory in Lithuania.

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Entry filed under: Baltic States, Economics, Estonia, Lithuania, Northern Europe, Politics, Russia, Scandinavia, Sweden, Ukraine.

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