IMF figures alarming

  • 1999-01-21
  • Paul Beckman
VILNIUS - The Lithuanian mass media recently reported that an International Monetary Fund forecast put Lithuania's current account deficit as the largest in the world. Although the IMF office in Vilnius said such reports were tinged with exaggeration, Lithuanian economic analysts say there is cause to worry.

Lithuania's current account deficit, a reflection of the country's economical situation, was forecast by the IMF to be 13.5 percent of GDP in 1998. For 1999, the IMF is predicting an even gloomier picture of around 15 percent.

These figures, when compared to other countries around the world, are unappetizingly high. Lithuania's Baltic sisters, Estonia and Latvia, each ended up with more palatable 1998 forecasts of 9.1 percent and 5.5 percent respectively. The figures forecast for Lithuania even managed to make Nigeria's steep 11.6 percent appear somewhat cheery.

"I wouldn't say these forecasts [for Lithuania] are the highest in the world. They are, however, perhaps the highest among the transitional economies though," said one employee of the IMF Vilnius office.

Reinoldijus Sarkinas, Lithuania's central bank head, concurred that the country's current account deficit was a problem but also claimed there was no need to panic. In an opinion piece appearing in Veidas weekly magazine, the bank head said the problem called for "knowing, seeing and doing" rather than "crying."

"We've known about and understood this problem for a long time and have been working on it," Sarkinas said. "Even last spring, the government and the Lithuanian banking administration board had a plan for reducing this deficit. This present deficit is [largely] due to direct foreign investment, which helps create new work places and production. Larger export will gradually relieve the debt."

The head of the central bank is confident that the percentage will certainly be reduced in the near future, but this view is not necessarily shared by analysts. Euginija Martinaityte, director of the Lithuanian Banking, Insurance and Finance Institute said the IMF's figures were high enough to be considered "dangerous."

"Current account deficit is one of the most important economic indicators," Martinaityte told TBT. "We didn't expect such figures, which are really very negative and more dangerous than other statistics." Martinaityte suggested the state needed a strategy of decreasing its expenditures and using loans for economic growth rather than administration costs in order to reduce the projected figures.

"The situation is very complicated. Lithuania, it seems, can be [excused to some degree] because its economy is in transition," said Martinaityte. "But when compared to other such economies like Poland and the Czech republic, it looks bad."

Ruta Vainiene, financial expert at the Lithuanian Free Market Institute, echoed some of Martinaityte's suggestions with an added note of caution. The expert stressed that any measures implemented by government officials to reduce the current account deficit should in no way hamper the private sector.

"The medicine can sometimes be more dangerous than the illness," warned Vainiene. "Our institute does not want to deny this big deficit, but it should be treated carefully. Restrictions should be applied to the state financial sector, not the private sector."

The ghost of current account deficit future, portrayed by the IMF forecast, seems to have caused a great amount of concern in Lithuania. Unlike the message Scrooge received in "A Christmas Carol" by Charles Dickens, this specter offers an entirely different one: Lithuanian state officials should tighten up their belts and spend more prudently. But, as in the novel, there is still time to change.