IMF renews support

VILNIUS - The new $111 million standby arrangement that the International Monetary Fund approved for Lithuania on Aug. 30 is intended to keep the country economically stable, to ensure future growth and to assist preparations for European Union accession, Mark Horton, of the fund's Lithuania office told The Baltic Times.

The 19-month deal replaces a similar 15-month, $79-million stand-by credit that expired in early June. The credit is precautionary, meaning Lithuanian is expected to avoid actually drawing on the funds.

"The IMF is giving a vote of confidence to the new Lithuanian government's plans to continue the macroeconomic policy framework that has been successful over the past year and a half,"said Horton.

The government is expected to be disciplined and to respond to top-notch policy advice, he said, adding that this will be a key support to the Lithuanian authorities from now until the end of 2002, especially as regards the repegging of the litas exchange rate to the euro in February and the ongoing EU accession process.

The IMF has praised Lithuania for drastically shrinking its fiscal deficit under the previous standby agreement, from 8.5 percent of gross domestic product in 1999 to 2.8 percent in 2000. It has thus reduced external vulnerability, renewed confidence in the national currency and laid the foundations for economic growth.

The new program commits Lithuania to continued fiscal restraint, to maintaining the currency board that underlies its fixed exchange rate and to advancing remaining structural reforms.

The policy program was awaiting review by the fund's executive board when Prime Minister Algirdas Brazauskas took office in July. The new government rapidly endorsed the deal, making no objections at the time to key provisions like a pledge to bring the fiscal gap down to 1.4 percent of gross domestic product this year and 1.3 percent next year.

But Finance Minister Dalia Grybauskaite has since said the government hopes to renegotiate the fiscal deficit targets. The issue is to be discussed with an IMF team due in Lithuania Sept. 11-21.

Horton said the fund would try to be flexible. "The mission will be ready to listen to any good arguments the Finance Ministry wants to present. But for the time being we would like to see commitment to what has been agreed."