VILNIUS - Oct. 28, 2009 was a historic day of the "watershed agreement" for Lithuania, according to Prime Minister Andrius Kubilius. His government signed an economic 'pact' with the most important business, labor and social groups on policies and initiatives to overcome the current deep recession as swiftly as possible and put the economy back on track for euro adoption and stable growth. The pact is kind of a moral obligation, though it has no juridical power.
Heads of the four largest trade unions, the most important business federations and a foreign investor group joined Kubilius on Oct. 28 to sign the National Accord, joined by associations of farmers and pensioners. Altogether, signatories representing more than 350,000 individuals and 5,500 companies agreed to the plan of fiscal discipline and economic stimulus.
Parties to the National Accord agreed that, even after budget cuts this year, equivalent to seven percent of GDP, further consolidation is needed in order to bring the fiscal deficit back below the euro-adoption limit of three percent of GDP as soon as possible and prevent an excessive build-up of public debt. The government will reduce civil servant wages by an average 10 percent and streamline or eliminate many state institutions. The government will also reduce pensions and maternity benefits.
The government pledged not to introduce new taxes or increase tax rates in the next two years, except for a maximum two percentage point increase in the social security tax, and to consider reducing the corporate profit tax by five percentage points, to the 15 percent-level. Business associations, for their part, will encourage member companies to avoid lay-offs, conscientiously pay taxes and wages, and maintain support for social projects.
According to the National Accord, the government will simplify and shorten administrative procedures for companies to get European Union structural funds and construction permits and for business regulation in general. It will also offer low-interest loans for start-up companies, and will initiate public projects to employ workers from distressed companies.
After the signing ceremony, the main signatories gave their press conference at the government office. "Those decisions are a compromise, but it is a necessary compromise," said Bronislovas Lubys, president of the Lithuanian Confederation of Industrialists.
Commenting on the agreement, Danas Arlauskas, head of the Lithuanian Business Employers' Confederation, praised the government for finding the political will to join social partners at the negotiating table and reach broad agreement. "It is a sensible democratic approach, which helps eliminate the sources of unnecessary tension in society," Arlauskas said.
"Such open dialogue and social solidarity will help maintain order and reduce tensions as we work to resolve the complex and often painful challenges of the current unprecedented crisis," Kubilius said.
Critics point out that the accord was not signed by opposition political parties. The accord was not signed by smaller trade unions which receive no state subsidies while those trade unions which signed the accord are receiving such subsidies. The organization of Active Mothers refused to sign the accord because it does not agree with maternity benefits cuts.
"You should bring that accord to the toilet," Viktor Uspaskich, leader of the Labor Party, said about the accord in a briefing after his party's presidium sitting which discussed the possibility of supporting the current center-right coalition. According to him, the government should fight the monopolies to help avoid a reduction in pensions and benefits. Uspaskich also urges to support exporting companies and companies which can compete with imports on the domestic market. This could be done with preferential tax treatment for such Lithuanian companies, according to him.
Despite criticism, Kubilius is especially happy with the latest data from the Lithuanian Department of Statistics. The data shows that the government was right in its economic decisions, according to Kubilius. In the third quarter of 2009, compared against the second quarter, Lithuania's GDP increased by six percent. Kubilius states that though Eurostat's data on all EU member states has not yet been published, this could be the highest growth rate among the EU countries. The optimism from analysts is more cautious, because they wonder how sustainable such growth is.