VILNIUS - The Minister for Economy announced on April 3 that the business sector is set to receive 895 million litas (262 million euros) intended for business recovery in Lithuania. The money will soon be lent out as credit, with banks expected to supplement the figures by 20 to 30 percent from their own funds.
Economy Minister Dainius Kreivys announced the news after a meeting of the working group on the supervision and control of the implementation of the economic stimulus plan. Banks were previously invited to bid for the sum based on the lowest interest rates. Banks offering the best rates were given money, which is intended to kick-start the flailing economy.
The money will be lent out mainly to construction companies, which will get contracts for public works. "We have projects on the program of heating insulation of public buildings moving via our ministry, which alone amounts to 600 million litas. We think that this moving will become only faster: we have already signed 47 projects totaling 150 million litas and crediting has already started," Kreivys said.
Prime Minister Andrius Kubilius is optimistic about the plan. He said the economic stimulus plan would help revive the country and that there might be no need to cut the state budget by yet another 1.5 to 2 billion litas in June.
The government plans to reduce the budget by about 3 billion litas in April with another revision possible in June.
The government has also announced that it will simplify business in Lithuania by eliminating different obstacles in late April.
DEVALUATION
Kubilius has pledged that the government will not permit a big fiscal deficit to appear in order for the stability of the litas to be maintained.
"The devaluation of the litas would obstruct sooner adoption of the euro in Lithuania," Kubilius said at a conference titled "How to Preserve and Develop Business: Strategic Alternatives."
A conference on April 1 on Lithuania adopting the euro revealed that the European Commission largely approves of the country's fiscal policies.
Mykolas Majauskas, the Prime Minister's adviser for economic issues, said 2011 would be a year of victories and expects the country will be able to fulfill the Maastricht criteria 's the requirements for euro adoption.
"There are unprecedented challenges to our economy and this brings the importance of the euro as a much needed stabilizer in the current environment and a crucial track toward long term stability. The government has faith in the strategic importance of the euro and will strive for membership."
"We will work hard to win the trust of the European Commission in our economic policies and we will work hard to bring back the confidence of international investors," he said.
Financial analysts though, expect the country to get the euro after Estonia.
"In Lithuania, there aren't going to be any problems with inflation in the next two years, but I am concerned about the fiscal deficit and interest rates. We could be close to the eurozone, but it would be hard for 2011. I guess it is more realistic for 2012 or 2013," Gitanas Nauseda, economy adviser for SEB Bankas told TBT.
A presentation given by Karsten Staehr, a professor of International and Public Finance who teaches at the Tallinn University of Technology, showed that the country doesn't have to devalue the currency necessarily.
He suggested an implicit devaluation of the currency.
"You can drop it on what the employees or the employers pay 's it might not matter. In Germany, they dropped it on the employers so they pay less social contribution. This means that when they export, it is cheaper for them because they don't have to pay so much social security contribution," Staehr said.
"However, to finance this, one would need to raise the Value Added Tax. This would affect domestic producers when they sell, but also import. It gets cheaper to export and more expensive to buy products from abroad 's you mimic a real devaluation, but you don't have the balance sheet problems that people who have borrowed in euros would have," he said.
Nauseda believes that this is a possibility for the government adding that the country does not have strong unions and that wages and social contributions could go down naturally by as much as 30 percent.
