Viewing cable 08VILNIUS766
Title: LITHUANIAN FINANCE MINISTER SAYS ECONOMY IS

IdentifierCreatedReleasedClassificationOrigin
08VILNIUS7662008-09-16 10:04:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
VZCZCXRO3649
RR RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVL #0766/01 2601004
ZNY CCCCC ZZH
R 161004Z SEP 08
FM AMEMBASSY VILNIUS
TO RUEHC/SECSTATE WASHDC 2822
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000766 
 
SIPDIS 
 
DEPT FOR EEB/IFD/OMA:ASNOW 
COMMERCE FOR ITA:LMARKOWITZ 
TREASURY FOR HHUBER 
WARSAW FOR FCS:JMCCASLIN 
 
E.O. 12958: DECL: 09/16/2018 
TAGS: ECON EFIN LH
SUBJECT: LITHUANIAN FINANCE MINISTER SAYS ECONOMY IS 
"DEVELOPING" BUT CHALLENGES LOOM 
 
REF: 2007 VILNIUS 620 
 
Classified By: AMBASSADOR CLOUD FOR REASONS 1.4 (B) AND (D) 
 
¶1.  (C) Summary.  On August 28, Lithuanian Finance Minister 
Rimantas Sadzius told the Ambassador that Lithuania's economy 
is not weakening, but developing, albeit at a slower pace 
than in the recent past.  Inflation will be higher this year 
than last, but has stabilized according to Sadzius.  Higher 
Eurozone inflation may help Lithuania's entry into the common 
currency but Sadzius does not expect Lithuania to cross this 
threshold by 2010.  End summary. 
 
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Go GDP! 
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¶2.  (C)  Sadzius insisted that Lithuania's economy is not 
weakening but developing.  Sadzius said he expected a 5.5 
percent GDP growth rate for 2008, which he described as 
impressive.  For 2009, Sadzius expected a growth rate of 
around four percent. 
 
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Inflating Into The Euro 
----------------------- 
 
¶3.  (C) Inflation has stabilized by itself according to 
Sadzius.  He said the GOL has little influence on this 
economic factor, presumably referring to the lack of monetary 
policy in Lithuania due to the Litas being pegged to the 
Euro.  Sadzius added that food prices in Lithuania were 
finally beginning to stabilize at seven to nine percent 
growth, similar to the rest of the EU.  He also said that 
gasoline and oil prices remain high.  He acknowledged that 
Lithuania had experienced growth of 18 to 20 percent in food 
prices in the recent past but added that Lithuania's food 
prices were still only 75 percent of the EU average.  Sadzius 
predicted that the cost of services as well as public 
transport would increase. 
 
¶4.  (C) Sadzius said that EU-wide inflation might benefit 
Lithuania's entry into the Eurozone, as the Maastricht 
criteria now include four percent inflation and likely to go 
higher next year; when Lithuania's Euro bid was last 
rejected, the allowable inflation rate was 2.6 percent. 
Sadzius said, however, that although entry into the Eurozone 
was of crucial importance for the Lithuanian economy it was 
unrealistic to expect it would happen by 2010. 
 
¶5.  (C) Sadzius had difficulty explaining the source of a 
recent resolution in the Lithuanian parliament to remove the 
Litas peg to the Euro, which he and most GOL officials who 
have economic policy in their portfolio are against.  Sadzius 
described the resolution as the first official doubt 
expressed about the currency board.  Yet, he noted that the 
resolution only received 26 votes in parliament and was not 
signed by the Speaker.  Sadzius added that export industries 
in Lithuania are not pushing for the de-linking of the Litas 
from the Euro. 
 
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Getting Growth Going 
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¶6.  (C) Sadzius acknowledged that stifling bureaucracy makes 
it difficult for many businesses in Lithuania to pay their 
taxes.  He said that making taxes easier to pay will make 
Lithuania more competitive in the EU.  He also mentioned an 
existing R&D tax exemption for companies and how this could 
attract greater FDI. 
 
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Comment 
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¶7.  (C) In the short term, there is little the GOL can do to 
encourage a return to the heady 8.8 percent GDP growth of 
¶2007.  The recent passage of a law indexing social benefits, 
including pensions, to inflation is likely to increase fiscal 
pressures on the GOL.  The Fiscal Responsibility Law, a.k.a. 
the Balanced Budget Law, which took effect in 2008, may 
constrain future GOL expenditures but we have heard from some 
economic experts that this legislation could intensify 
economic peaks and troughs and was passed more for public 
 
VILNIUS 00000766  002 OF 002 
 
 
image than a true desire to reform spending.  Other economic 
concerns include a consumer confidence drop to its lowest 
level since the end of 2001, a slowdown in the real estate 
market, a jump in heating prices and an expected rise in 
electricity prices with the shutdown of the remaining 
Ignalina reactor on December 31, 2009.  Nonetheless, 
Lithuania's situation may yet be better than its Baltic 
neighbors; according to Sadzius, Lithuania is neither in nor 
likely to enter a recession. 
CLOUD