IMF requisitions a Lithuanian deficit slashing

VILNIUS - In government financial circles, trimming Lithuanian's
fiscal deficit is the order of the day. The order originates from the
International Monetary Fund, which has all but demanded that
Lithuania knock its deficit down to less than 3 percent in order to
qualify for a $100 million stand-by arrangement from the IMF.

Last week, the Cabinet of Ministers approved a draft budget for 2000.
Revenues were estimated at 8.96 billion litas ($2.24 billion) and
expenditures were predicted to be 9.76 billion litas. So far, the
budget deficit has been reduced from 6.5 percent to between 3.2
percent and 3.6 percent, and the government is aiming to get it below
the 3 percent mark, to the delight of the IMF.

"On paper, it's certainly feasible," said Mark Horton, the IMF
resident representative. "Maybe the trickier part is in practice. I
think they've already made some good progress in budget deliberations
in government during the past few weeks."

This week an IMF mission comes to Vilnius, to discuss everything
relating to the 2000 national budget, as well as matters such as
energy issues, maintenance of the currency board, and SoDra, the
state insurance fund. But the IMF's main emphasis will be on the
national deficit. "That's the most important [issue]," said Horton.
"If we can't have agreement on that one then we wouldn't have
agreement on the standby. This is kind of the heart of the whole
agreement."

The IMF will be meeting with President Valdas Adamkus, Prime Minister
Andrius Kubilius, Governor of the Bank of Lithuania Reinoldijus
Sarkinas, Finance Minister Vytautas Dudenas, Economy Minister
Valentinas Milaknis and other Lithuanian representatives.

The standby arrangement would allow a $100 million loan to be used as
a credit line by the central bank over a 15-month period. If the
mission goes well, the money could become available to Lithuania in
February. Pending the IMF's thorough review, Horton sees the standby
arrangement as probable.

"I think we're fairly close, I think the two sides share the same
view of the situation, share the same objectives. They more or less
understand what the other side is expecting so I think we're fairly
confident that we can wrap things up this mission," Horton said.

Just how does the government intend to cut a budget deficit - which
originally was projected at 12.9 percent in the rejected first budget
- down further? For one, the government is currently discussing a
package of legal amendments that goes along with the budget.

"This package is crucial for the policy of the government in the
present difficult financial situation," said Vice Minister of Economy
Gediminas Miskinis. "It is important to say that these draft laws,
focusing on the reduction of excise duty taxes and the abolition of
various favorable terms are the principal rules of the government
crisis prevention and reform program."

Miskinis added that the government is indeed taking aim at the extra
budgetary expenses - treating them as one entity. "This time SoDra,
the public investment program and other, extraordinary expenses are
presented together. There will be no changes after the budget is
accepted. This means that there will be no alterations to the
business environment. It is an important step forward."

While the IMF acknowledges that much of the impetus for the country's
worsening economic situation and growing deficit has been the Russian
crisis, it does hold Lithuania accountable for excessive spending.

"The Russian crisis was a factor beyond the control of the
government," said Horton. "The second thing though, which led to an
increase in the deficit during the last two years, was discretionary
decisions taken in three areas: first in compensation-type spending
[such as the savings restitution program], second, an increase in
capital investments in the last two to three years, and third, in the
area of net lending by the government to enterprises. The classic
case in Lithuania is Maziekiu Nafta. It's been the view of the fund
that those three areas should be reduced in order to have a lower
budget deficit."

Horton also mentioned some concern about a stock of arrears that
built up in recent years, especially in 1999.

"The government needs to pay attention to how much of those arrears
can be or should be cleared in the year 2000," he said. "Perhaps
there is additional scope for measures in the national budget."