No panic in Lithuania

  • 1998-08-27
  • By Parker Ruis
VILNIUS - As the first day of the work week, Mondays are typically met with scorn by the working population who would just as soon continue their weekends. As a result of the continuing financial crisis in Russia, however, the past two Mondays proved to be more painful than usual by bringing a paralyzing uncertainty to the Russian people while prompting growing concern elsewhere throughout the world.

On Aug. 17, the international and Lithuanian mass media reported that Russian President Boris Yeltsin appeared to be backpedaling on a previous pledge as the ruble, in effect, was devaluated in an effort to hold off a complete financial collapse.

The currency's dropping value sent many Russians scrambling to exchange their rubles for dollars or Deutsch marks. On the following Monday, Aug. 24, Russia began its first full day under a new governmental administration. The previous evening, the ever unpredictable Yeltsin axed Prime Minister Sergey Kiryenko, who managed to hold the job for less than half a year, and brought back the man Kiryenko replaced, Viktor Chernomyrdin.

The rapid political changes and dismal economic situation in Russia have drawn a great amount of international attention and concern. With Russia being a huge trading partner for Lithuania, the Baltic country is also keeping a close eye on the events to the east.

Rapid assessment produces calming results

As the Russian financial crisis began to unfold, the Bank of Lithuania stated its views of the potential impact the financial situation could have on the Lithuanian economy. While the central bank expressed that the situation and the rate of the ruble in Russia "have an influence" in Lithuania, they stated that it was doubtful these factors could cause a negative affect on the Lithuanian monetary system.

"In the past few years, Lithuania has achieved significant accomplishments in the areas of financial stability and financial restructuring," the central bank claimed.

The bank leaders stated a number of reasons why they felt the Lithuanian currency, the litas, would not be tainted by the problems in Russia. The increase of foreign currency reserves, and Lithuania's not being dependent on short-term or influxes of speculative foreign capital were two factors mentioned. The idea of devaluating the litas was brought up, but only to reiterate that the central bank was not considering it. Lithuania's adoption of European Union standards and regulations was stated in an effort to show the country's movement is toward western markets and away from eastern ones.

One day later, the chancellor of the state counselor's office, Kestutis Cilinskas, met with cabinet ministers, specialists, Lithuanian Bank officials and the leaders of commercial banks in order to further analyze the situation. By the meeting's end, they agreed the situation in Russia would not have a huge effect on the Lithuanian market.

"The Lithuanian economy is becoming more closely integrated with the economic systems of western countries and has a satisfactory level of currency security," the meeting group agreed.

The group also mentioned that "not a small amount" of Lithuanian companies already had the foresight to form dollar-agreements or barter methods with Russian and other foreign companies.

"Big effects will not be noticeable in Lithuania," claimed the group. "But we agreed we should maintain a very clear view of this situation in Russia."

What will be affected and to what degree

Although Lithuania is heading more westward than eastward in economic terms, Mazeiku Nafta, the only oil refinery in the Baltics, has already felt one effect from the Russian crisis. Credit Suisse/First Boston asked the refinery to pay back $73 million worth of eurobonds two years earlier than the company had expected.

In response, Williams International, an American oil company set to purchase a 33 percent stake in Mazeikiu Nafta and two other state-owned oil companies, expressed "surprise."

Randy Majors, General Director of Williams Lietuva relayed his disbelief in that Credit Suisse/First Boston could show "such a misunderstanding of economic conditions in Lithuania by directly grouping the country with Russia and Southeast Asia." Majors continued by saying that the situation in Russia should not be a cause of reevaluating the financing of Mazeikiu Nafta.

Analysts are predicting no sudden catastrophes at the National Stock Exchange of Lithuania. While the stock market has shown lethargic activity this summer, Tomas Andrejauskas, stockbroker at Suprema said the market could be affected by Russia's financial woes in a way which is "not sharp, but hardly beneficial."

"How the shares do depends on two angles," said Andrejauskas. "First, those companies which have close relations with Russia will feel some affect. The second angle depends upon the confidence of investors. The whole region, including Poland and other countries can feel some investors taking money from this area. Everything depends upon the investor."

Vilnius Bank stockbroker, Kestas Kvainauskas, also expects the stock market to simply feel a slight prick as opposed to a deep cut. While Kvainauskas stated that increased activity in trading is not probable and foreign investors are sure to act with more caution.

With nearly a quarter of all Lithuanian exports heading to Russia, Kvainauskas added that Lithuanian companies involved in the production of goods which are exported to Russia may feel a bigger influence from the crisis.

"Dairy and meat companies which export their products to Russia will have to be careful," said Kvainauskas. "Special protection against this crisis would come in the form of settling agreements in dollars with Russian companies."

Kvainauskas also mentioned furniture and textile producing companies, which tend to export largely to Russia, as another group which needs to show caution. According to the Baltic News Service, a furniture fabric company called Audejas, which exports 18 percent of its products to Russia, has yet to feel any adverse effects resulting from Russia's situation. Nevertheless, Jonas Karciauskas, the company's general director, reportedly refuted statements which claim the impact on the Lithuanian financial market and economy will not be very significant.

Kvainauskas said the banking sector, which does not have strong links to Russia, is unlikely to be very affected.

Eugenija Marinaityte, President of the Banking, Insurance and Finance Institute, described Russia's financial and political crisis as a "very serious situation" for Lithuania.

When asked how Lithuanian banks would weather the crisis, the institute's president reflected on the Lithuanian banking crisis a few years earlier.

"Of course there were many differences in the two situations," said Martinaityte. "The major one is that Lithuania resolved its banking problems from internal sources, which has made the sector stronger. Russia on the other hand, will attempt to solve their situation with an injection of funding from the outside."

Martinaityte said the trade balance could be affected by the crisis as well as the money supply. She stated if events escalated, the central bank would be forced to devaluate the litas earlier than expected.

It would be beneficial on an international scale if Russia could experience old-fashioned, annoying Mondays, instead of the shocking ones of the past couple of weeks.