Economy — Baltics Baltic Neighbors Lithuania, Estonia Clean Up Their Own Economic Houses by Larry Luxner Latvia’s two Baltic neighbors — Estonia to the north and Lithuania to the south — appear to be weathering the global economic storm far better than Latvia, though the current clouds of gloom are likely to hang over Eastern Europe until at least the end of 2009. With 3.5 million people, Lithuania is the most populous of the three Baltic states. It also has the biggest and most diversified economy, a fact that has worked to its advantage, according to Audrius Bruzga, Lithuania’s ambassador to the United States. “Our population is more dispersed throughout the country than is the case in Latvia or Estonia, so we are better-positioned to handle the burden of economic difficulties,” Bruzga told The Washington Diplomat. “We have also developed more of a manufacturing industry. We didn’t let that slip away when the Soviet Union was disbanded. We didn’t sell everything off, or plunge into the financial services sector. We maintained manufacturing capacity, and now that policy is paying off because we still benefit from exports.” Lithuania is also distinctly proud of its long heritage. In the 14th century, Lithuania was easily the largest country in Europe. This year, in fact, its people celebrate the 1,000th anniversary of the first mention of the name Lithuania in written sources. Its capital city, Vilnius, has long been known as the “Jerusalem of Lithuania” for its tolerance of various nationalities and religions. This year, Vilnius was chosen by the European Union as one of Europe’s two cultural capitals for 2009 (the other is Linz, Austria). And Lithuania’s ambassador to UNESCO, Ina Marciulionyte, is currently being promoted as “the Baltic candidate” for director-general of that Paris-based organization. Lithuania is today a net exporter of refined energy products, fertilizers and minerals. Its factories churn out an array of products ranging from welding machines to electrical appliances; it’s also a leader in biotechnology. Yet all that hasn’t been enough to stave off a severe economic contraction that began last year, after nearly a decade of impressive gross domestic product growth averaging 7 percent a year. “Membership in the European Union gave us a tremendous boost,” said Bruzga, who was Lithuania’s ambassador to Finland at the time on May 1, 2004 — the day 10 countries were simultaneously admitted to the exclusive club. “It was a great night. The moment the clock struck 12 midnight, we were all of a sudden members of the EU.” Bruzga said that amidst the euphoria that followed, “we perhaps neglected the sustainability effect of that growth. There was a growing gap between productivity and available credit. What we did wrong was underestimate that the economy goes in waves.” The 42-year-old ambassador — who was also posted to Tel Aviv and London before coming to Washington — predicted that Lithuania will see a GDP contraction of at least 3 to 4 percent this year. But that could considerably worsen as the months pass. Unemployment is already at 10 percent and growing. “The situation is very fluid,” he said. “Revenues are decreasing, and there has to be an adjustment. We’ve had to restructure the energy sector, and we’re still struggling with that. We are now under way, but a little short of time. We should have done that two years ago.” In addition, he said, “our government under Prime Minister [Gediminas] Kirkilas is trying to push through badly needed reforms in health care and education, even in a time of crisis. It’s like what President Obama is trying to do: cope with the effects of the financial crisis, but pushing through big reforms. It’s not easy to manage both.” A tax reform package has also been introduced, as have a series of budget cutbacks that “will limit spending so we are more or less in line with our ability to generate revenues,” the ambassador said, noting that “to some extent, this embassy has been affected by the cutbacks.” In addition, a public-private stimulus package aimed at revitalizing the economy has been passed, giving extra help to businesses in the face of a credit freeze. “Money is one thing, confidence is another. We need to bring confidence back into the business community,” Bruzga said. “What the G-20 did in London was a good thing. So far, we haven’t had any bank defaults. Lithuania’s banking system is stable and credible.” He added: “The government is doing whatever it can to keep the situation from deteriorating further. To a large extent, we’ve been successful. We’re in a better situation than Latvia. We don’t have that big of a budget deficit. We haven’t yet asked for outside help, and Prime Minister Kirkilas is determined not to — unless it’s absolutely necessary.” But Bruzga said he would like to see Lithuania make the euro its official currency as soon as possible. “We have said that from the very beginning, adoption of the euro was in our interest. We came very close to introducing the euro two years ago, but we didn’t qualify on one criteria: inflation. The goal remains, and we still want and need to, the sooner the better.” Bruzga said that in the long run, adopting the euro would boost exports and ease external pressures. “We’re paying the price for not doing that earlier,” he told The Diplomat. “Keeping our currency pegged to the euro didn’t do anything for the economy. It brought overall stability, but Lithuania has little leverage over the money markets, so we’re totally dependent on the outside.” One problem Lithuania doesn’t have to worry about anymore is being bossed around by the communists in Moscow. Like Estonia and Latvia, Lithuania was an independent nation before it was occupied by the Soviet Union in 1940 and absorbed into the U.S.S.R. against its will. In 1990, according to a government fact sheet, “Lithuania was the first of the occupied states to hand the U.S.S.R. a fateful blow by reclaiming its independence.” So it’s understandable that Lithuanians bristle when their country is called a former Soviet republic. “We’re happy that the Soviet Union collapsed — good riddance!” Bruzga declared without hesitation. “You have to face reality. It was nonsense. The Soviet Union was not a sustainable entity at all. It was a criminal government based on force. It’s simply out of the question that anybody should feel any nostalgia.” Despite the mistrust that lingers between Russia and the Baltics, Bruzga said it’s “inevitable and important that we have a relationship with Russia based on trust and cooperation. There’s no other way. We have to be sure that all of us are on the same wavelength.” Next Page

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