| |
Strict fiscal politics and security of financial system stability, saving and elimination of social reliefs – painful for society, but essential for state vitality, aspirations of business promotion and search for the competitiveness of country’s economy as well as power safety are the underlying “remedies” of the Government against global economy recession.
According to experts, shocking radical taxing laws that were adopted by the Seimas of the Republic of Lithuania during the last nights of 2008 and unpopular solutions of Andrius Kubilius, the leader of Conservatives who won the elections of Seimas and became the premier influenced the current economic situation – incomparably better than that in Latvia, but slightly worse than that in other old-time member states of the European Union.
The indices of the first quarter of 2009 for Gross Domestic Product (GDP), retail sale, import-export, customer expectancies published by the Lithuanian Statistics cause depression. However, the decisive ambition of the new President and former EU Commissar Dalia Grybauskaitė to pay more attention on economy instead of blank politicking equals the programme of economy promotion and tightening of finance markets control executed by the President of the United States of America – Barack Obama. Although criticized by the opponents, antirecession programmes successfully make their way to daylight (on different scales in both Lithuanian and USA) and their effectiveness has not been seriously discredited so far, the more especially as it would be difficult to find the alternatives.
2009 are the Hardest
Lithuanian Department of Statistics has published the initial macroeconomic indicators of 2009 that show negative results in practically all areas of economics. In I quarter 2009, GDP at current prices made LTL 20652.5 million, and, against I quarter 2008, decreased by 13.6 per cent.
The most rapid decrease was observed for the value added of construction (by 37.3 per cent), trade, transport and communication (by 20.9 per cent) and industry and energy (by 13.5 per cent) activities. A slower decrease was observed for the value added of financial intermediation, real estate and business (by 7.5 per cent) and agriculture and fishing (by 1.3 per cent) activities.
According to the press-release of the Department of Statistics, an increase in the value added was recorded only for non-market services. The value added of public administration and defence, education, health and social work, and other community, social and personal service activities grew by 2.2 percent.
Gitanas Nausėda, economy analyst, adviser of the President of SEB bankas by commenting on the initial statistic data of this year noticed that the country is caught in “firm recession grip” and country’s economic indicators worsen along the indices of the global economy. “Of course, specific “Lithuanian” factors, i.e., the new tax reform, painful cut of public expenses, increase in the price of some power resources do also work, but it would be erroneous to think that Lithuanian economy would not suffer recession without these factors”, says G. Nausėda.
However the economists also notice some positive aspects of economy recession as the decrease of inflation, import, and wage. “The highest hope of recovery we relate to the return of trust in international finance markets that is still discussed in the future tense. At the end of 2009 and on the first half of 2010 the Western European market that is essential to Lithuania should enter into the recovery stage, while the economic renaissance of Russian, Ukraine and CIS should not be expected neither this nor the next year”, alleges G. Nausėda.
The Internal Market Has Shrunk due to the Global Crisis
According to the data of the Department of Statistics, consumer expenses significantly reduced in January-March as compared with the same period in 2008. Final consumption expenses of household and non-profit institutions declined by 15.1 and 14.2 percent respectively. Government sector final consumption expenses were still higher than in first quarter of 2008, therefore the actual rate of growth amounted to 2.2 per cent. However, the highest decline was observed in expenses for capital formation – by 37.1. per cent.
Significant decrease in consumption and capital formation greatly reduced import of goods and services (by 32.9 %). Although the decline was also observed in export (by 14.8 per cent), in January-March of 2009, the current account of balance of payments became well-balanced.
Although high level of inflation was recorded last year and this year, in May 2009, against April, prices for consumer goods and services went down by 0.2 per cent.
There is a likelihood that similar deflation tendencies will also remain in the future due to extreme decline in internal demand. Inflation should be reduced by cheaper food products and presumably lower clothing and footwear prices. The drop of other groups of goods and services will probably be insignificant and will have little impact on the dynamics of HICP. According to the predictions of the analysts of the Department of Statistics, the common reduction of prices will be suspended by the increasing prices of oil products.
Retail Sale Has Decreased, but Lithuanian is Still Able to Sell
Extremely important macroeconomic index indicating internal market situation – retail market index – dropped by 30 per cent in the first quarter of this year or 2.2 billion Litas per annum. Although the biggest Lithuanian supermarkets announce that the turnover fell by tenth, small trade companies allege they lost about 50 per cent of sales volumes.
Artūras Mackevičius, the chairman of Kaunas Regional Association of Small and Medium Enterprises says that small companies are not able to compete with aggressive activity of biggest supermarkets in Lithuania. "I think that biggest supermarkets can maintain relatively high sales volumes due to aggressive marketing measures and ability to screw suppliers. However their sales not nearly reflect the actual statistics of drop in sales volumes”, highlights A. Mackevičius.
Marius Busilas, managing director of Association of Lithuanian Trade Enterprises also says that the Lithuanian’s shopping manners has changed under the conditions of economic recession. Consumers refuse to buy not so necessary purchases and especially luxury goods by replacing them with the cheaper ones. "This is more of the psychological aspect. We eat no less than previously, however people do not know what to expect. Many fear of loosing jobs, fear of tomorrow, therefore even if they can buy more expensive goods, they choose cheaper ones and thus save money”, M. Busilas explains consumer psychology.
According to collocutor, suitable marketing tools – big discounts, actions, effective positioning of goods based on consumer groups and launch of new products that could be relevant during recession period allow salesmen to achieve good results in the Baltic States.
Government Politics for Promotion of Economy
Economy promotion plan has already been in preparation stage at the beginning of this year. After the approval of the Seimas the plan of economy promotion became targeted to the measures of expansion of business funding opportunities, energetic efficiency of buildings, more rapid usage of the EU structural funds, promotion of the export and investment as well as improvement of business environment.
According to Dainius Kreivys, the Minister of Economy, the highest achievement has already been made in development of business funding opportunities and promotion of export and investment. Minister D. Kreivys informed that private limited company “Investicijų ir verslo garantijos” (INVEGA) has already signed a contract with state commercial banks regarding extension of credits of 100 million Litas for small and medium-sized business. It means that banks are currently ready to provide credits of 120 million Litas to small businessmen in total. INVEGA fund has also started to cover interest for credits of economy subjects by using resources of the EU structural funds and 104 million Litas will be allocated for this purpose in total.
The measure of energetic efficiency of structures – Renovation of Public Buildings – has also been successfully implemented. Ministry of Economy has already allocated 451 million Litas out of total 931 million for thermo insulation of kindergartens, hospitals, schools and other public buildings. The Minister of Economy D. Kreivys alleges that transparent systemic instruments for business funding that were developed during a short period of time begin to function and their application will eventually help specific national companies to overcome recession.
According to measure “Improvement of Business Environment” of the economy promotion plan, the Government has already received 18 proposals for reduction of bureaucracy obstacles of total 56 Sunrise work groups that are managed by business representatives. The proposals to Sunrise work groups for improvement of business environment can be provided by any citizen or foreign investor.
Violeta Klyvienė, economist, senior analyst of “Danske” bank thinks that the politics of Lithuanian Government was correct. "Since the beginning of the year it was obvious that it was necessary to pursue fire extinction politics as the threat to stability of national finances and the whole economy itself was evident. Therefore the strict measures that are not popular and further reducing the growth of GDP are indispensable. The idea of business promotion plan was also good as it corresponded to all typical features of such plans – it was not small according to its volume, it had priorities and was executed”, says V. Klyvienė.
Kestas Petrutis, the head of business consulting company “VIR FULMINANS” emphasizes small indebtedness of Lithuania and that it will become competitive advantage in the struggle for foreign investment in the long-term perspective. In the meantime, Latvia is currently under the drastic necessity to borrow from the foreign countries and also used credits provided by International currency fund in order to avoid state bankruptcy.
"Lithuania has a relatively small indebtedness. O course, country’s debt significantly increased in 2008 and it was inevitable, because country has taken too ambitious obligations incompatible with its financial potential. In 2008, the decisions to increase budget expenses were taken in Lithuania when it was obvious that budget collection and income were drastically decreasing. In general, this has happened to many European countries, they were increasing their debt at the same time. Only several countries showed up in this context. The increase in Estonia’s debt has not manifested at all. Estonia has not increase country’s obligation and has not developed social programmes as sensed worsening situation, therefore country’s budget deficit is minimal”, says K.Petrutis.
Lithuania Managed to Control Economy Crisis
Premier A. Kubilius states that Lithuania has partially managed to control economic crisis. It is demonstrated by the intentions of the British bank “Barclays” to establish service center in Vilnius and emission of EUR 500 million euroobligations distributed by the Government.
According to the forecasts of the Premier, Lithuania can signify the end of economic crisis by adopting single EU currency – Euro. “Lithuania’ walk away from crisis must be related to the adoption of Euro. In order to achieve Lithuania’s preparation for adoption of Euro in 2011, it is necessary to coherently reduce budget deficits in 2009, 2010 and 2011”, alleges A. Kubilius in his press-release.
According to Premier, higher than 5 per cent deficit should be complex to be funded, because it is still expensive to borrow in the international markets. “We provide Seimas with the proposals regarding budget revision. The Government debates all potential measures of fiscal consolidation”, says the Prime Minister.
According to A. Kubilius, in respect of the rapid worsening of economic situation, if no measures are taken the deficit of government sector can reach 8 per cent of gross domestic product in 2009 and exceed the limit of 3 per cent determined by the Maastricht treaty, thus causing threat to financial stability of the country. Due to this reason, there are bigger plans for saving by reducing national expenses and temporarily increasing some taxes, for examples, value-added tax. In order to balance public finances the Government will have to take even deep structural reforms in the national sectors of state social insurance (“Sodra”), health care system and other.
| |
