The Lithuanian government explains the move by the necessity to reduce the current account deficit which amounted to 13 percent of the country's GDP in the first nine months of 1998. The annual current account deficit is forecast not to exceed 13 percent.
Baltijos Automobiliu Technika, a subsidiary of Germany's Siemens, which produces wire sets for Renault, has already changed its investment policy for this year, the Lietuvos Rytas daily reported.
The company scrapped its plans to buy a building it currently leases from Sirijus and to invest another 65.6 million litas ($16.4 million) in the construction of a new production facility.
Gitanas Nauseda, director of the policy department at the Bank of Lithuania, said it was necessary to tax foreign loan interest because it was aimed at curbing foreign borrowings and solving the problem of the current account deficit.
The interest taxation does not apply to direct investment. The tax is levied mainly on short-term loans which account for around one-fifth of the total foreign investments in Lithuania, Nauseda said.
Foreign investments in Lithuania totaled 5.749 billion litas as of Oct. 1, with short-term and long-term loans standing at 1.332 billion litas.
Nauseda said it was high time to slow down the pace of investment as the Lithuanian economy was facing a risk of overheating.
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