IMF standby agreement nears for Lithuania

Mar 02, 2000
By Peter J. Mladineo

The IMF has all but approved a standby arrangement that would, in essence, give Lithuania the option to borrow $80 million if necessary. Kubilius and Reinoldijus Sarkinas, chairman of the Bank of Lithuania signed a letter of intent sent to the IMF, whose board will vote on final acceptance for Lithuania's arrangement on March 8.

While the Lithuanian government is currently insisting that it has no intention of borrowing from the IMF, it needs the arrangement because it would allow the Ministry of Finance to take a $100 million structural adjustment loan from the World Bank.

Kubilius used the signing as a symbol of successful economic policy.

"We have already fulfilled essential tasks needed to reach agreement with the IMF. I could not but rejoice that the government succeeded in reducing the fiscal state deficit of this year to 2.8 percent of GDP – this is a significant decrease as compared with last year of the first-draft budget of this year," Kubilius told reporters.

The Lithuanian letter outlined macroeconomic policy for the next 15 months, and so far, the IMF has been pleased.

"By signing the letter of intent, this confirms that a number of prior conditions that were agreed upon by the government and the Bank of Lithuania have been taken," said Mark Horton, the IMF's resident representative in Lithuania.

The IMF was satisfied by the reduction of the fiscal deficit and the current account balance, the passage of the budget for the State Social Insurance Fund (SODRA), the increasing of electricity and energy tariffs, the reduction of some import tariffs, and the publication regarding the state sale of the Mazeikiu Nafta oil complex to the US company Williams International on the Ministry of Finance's website, Horton explained.

"The two budgets, the energy tariffs, and the import tariffs, and the public information were the major actions that needed to be taken. From our standpoint it's quite encouraging in advance of this board meeting," Horton said.

The IMF was also impressed by the privatization of the energy sector, the privatization of the remaining state-run banks, and the adjustment of the tax system, he added.

"I think the prime minister is correct in that the new government has done a great deal of work to put in place this new framework."

But some of the Kubilius government's policies praised by the IMF have drawn suspicion from social groups. Many have already complained that the increase of energy costs, while helping the government's cause, have come at the expense of common Lithuanians.

Audrius Baciulis, spokesman for the prime minister, said that it's up to the government to voluntarily make changes in accordance with the IMF's standards.

"The standby agreement with the IMF is not being pressed by the IMF. This agreement is an instrument for the government to make changes in the Lithuanian economy. Now it's a kind of self-discipline. If you ever have deals with IMF guys they never demand something."

As Horton explained, some unpopular moves by the government, such as raising energy tariffs were necessary, if not unpleasant, steps.

"Energy prices haven't been increased in three years," Horton said. "Basically it was making the energy companies unable to service their debts. At the worst it threatened the country's ability to make debt service payments. Certainly it's not popular, but eventually that loss gets seen one way or the other. With the view to privatize Lietuvos Energija and Lietuvos Dujos one needs to be sure that the tariffs sufficiently cover a reasonable level of costs."

Some politicians worry, though, that the IMF's inflexible expectations may work against Lithuania. Nikolaj Medvedev, MP of the left-leaning Social Democratic Party, agreed with the need to seek the IMF standby agreement, but noted concern. "Usually the IMF uses the same criteria for different countries, not taking into account their differences. You can not act the same way in Hungary, Poland, the Czech Republic and Lithuania," Medvedev said.

Medvedev also articulated concern over the way in which money loaned from the IMF was often spent. "These loans are invested in general things, and only a very small part is invested in concise, complete projects. Loans should be invested in more concrete ways."

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