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Lithuanian recovery? Not quite yet

  • 2000-03-23
  • By Peter J. Mladineo
VILNIUS – Lithuania's exports increased in January, triggering some speculation that an economic recovery was in order. Naturally, economists resisted the temptation, but instead are taking the opportunity to highlight other, less-heralded aspects of the country's economy – management, technology, small business.

Statistics pointed last week to a reversal of the downward trend in Lithuanian exports. The state Statistics Department reported last week that export volumes in January soared by 260.2 million litas ($65.05 million) or 30.8 percent, compared to the same month last year. Analysts immediately predicted a further rise in exports and some even touted an economic recovery.

The same week the Ministry of Economy's Sunrise Commission, a body charged with finding solutions to Lithuania's befuddling business laws, predicted that this year the Lithuanian economy will grow two percent, the most significant growth rates to be observed in the second half of the year. Also, a Statistics Department report said that Lithuania's industrial output in the mining, quarrying and manufacturing sectors grew 3.1 percent in February against January. In terms of sales, output grew by 6.7 percent, not including negative figures from the struggling oil refining sector.

Most economists are hesitant to call this a "recovery." Eugenija Martinaite, director of the Lithuanian Banking, Finance and Insurance Institute attributed the more optimistic macroeconomic figures to the state's manipulation of error rates, which have a positive effect on export pricing. "It's really not the time for optimistic forecasting today," Martinaite said.

"There are no reasons today to say that we have the basis for expected growth of economy."

The economic fundamentals of the country are hurting, Martinaite and other economists have pointed out, because certain business fundamentals are missing.

"Unemployment is very high and still there is no re-orientation of labor forces for new technology," said Martinaite. "Teaching people to do business using high technology is crucial. Today competition requires a new know-how for labor and everywhere it's about new technology, not only about new materials."

She also blamed a lack of a coherent strategy in the restructuring of the country's economy.

"There's a lack of research, too many politicians, you know. All our difficulties not only depend on the Russian crisis and the error system, but exist mainly because of our lack of professionalism, a lack of ethics in our society," she said.

One word that seems to be missing from Lithuanian business parlance, Martinaite reports, is entrepreneurism.

"Entrepreneurism must be a lot more implemented in Lithuania. [In that sphere] we are probably not more active than Poles and Russians. I am a little bit lucky to know what entrepreneurism means, especially for growing a business. You have to be aggressive."

Aggressive could best describe Vilniaus Bankas, the country's largest privately owned bank, which has demonstrated a style of competitiveness that resembles banks in the merger-hungry West. Currently, its stock, which rose above 33 litas per share on March 14, is one of the hottest trades on the Lithuanian bourse. Its chairman, Julius Niedvaras, recently challenged pundits who decry an economic crisis now. Niedvaras, recalled bank spokesman Alexander Federas, "wouldn't call it a crisis as many people think or say. Most of the [country's economic] problems are kind of inward, hidden in the companies due to various factors like mismanagement or lack of efforts on the managerial level to find new markets, products or services."

Some Lithuanian companies, Niedvaras contends, are doing well despite the ongoing Russian crisis.

"If a company finds new markets for their exports, it's mainly because they're more energetic, more efficient, better managerially monitored," said Federas. "If they can do that, why can't others?"

Margarita Starkeviciute, an economist who recently published an analysis of Lithuania's economic situation in Lietuvos rytas, thinks that too much blame for Lithuania's economy gets placed on the Russian crisis.

"At the core of the crisis is the energy sector, not the Russian crisis," she said.

Starkeviciute contends all three Baltic States suffered similar declines in gross domestic product after the Russian economic crisis and ruble devaluation of August 1998. GDPs in Latvia and Estonia dropped by 1 percent while Lithuania's fell 1.5 percent. However, the real GDP in Lithuania fell 3.5 percent, the remaining 2 percent should be attributed, Starkeviciute feels, to the Williams/ Mazeikiu Nafta deal.

"Without Mazeikiu Nafta, Lithuania's economy went down by 1.5 percent. That's well-known information for macroeconomists, but usually Lithuanian politicians don't touch this fact, because it was their mistake to deal with Williams," she said.

Like Niedvaras, Starkeviciute feels that more light must be shone on the actions of successful companies in Lithuania.

"We have several good companies. They are well-managed companies, mainly owned by foreign and domestic investors. I don't think that those companies will have trouble, they have contracts, new ideas, and opportunities for development," she said.

To get its economy booming, Lithuania needs to focus on getting its small business sector up to speed.

"We have small private companies that have to grow up. They will become the main engine for growth. Big companies can generate some growth for economies, but not record growth. The growth of big companies will help ensure stability, but not rapid growth," said Starkeviciute.

The key in that approach is getting small businesses linked to the whims of e-commerce.

"Small businesses can boost their productivity using the Internet," she said.