Viewing cable 09VILNIUS166
Title: ECONOMIC DISTRESS INTENSIFYING IN LITHUANIA

IdentifierCreatedReleasedClassificationOrigin
09VILNIUS1662009-03-27 10:23:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
O 271023Z MAR 09
FM AMEMBASSY VILNIUS
TO SECSTATE WASHDC IMMEDIATE 3386
INFO EUROPEAN POLITICAL COLLECTIVE
DEPT OF COMMERCE WASHINGTON DC
DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L VILNIUS 000166 
 
 
E.O. 12958: DECL: 03/25/2019 
TAGS: ECON EFIN LH
SUBJECT: ECONOMIC DISTRESS INTENSIFYING IN LITHUANIA 
 
REF: A. VILNIUS 97 
     ¶B. VILNIUS 95 
 
Classified By: Ambassador John A. Cloud for reasons 1.4 (b) and (d). 
 
SUMMARY 
------- 
 
¶1.  (C) The economic situation is worsening in Lithuania. 
Devaluation of the Polish zloty and Russian ruble, rising 
unemployment, and decreasing revenues are some of the 
challenges Lithuania faces.  Local analysts recently revised 
growth forecasts for 2009 to negative nine to ten percent. 
Unfortunately, the EU, according to our interlocutors, 
adheres to a rosier than reality picture of its eastern 
frontier and is unlikely to set aside sufficient funds to 
steady economies in Eastern Europe.  An IMF aid package may 
be in Lithuania's future and another round of budget cuts, 
including public sector layoffs, is likely by June. 
International borrowing is likely to be more difficult for 
the GOL with the recent downgrade of its sovereign debt by 
Standard and Poor's. 
 
THE NUMBERS DON'T LIE 
--------------------- 
 
¶2.  (SBU) The Polish and Russian currencies have devalued 
between twenty and thirty percent relative to the Lithuanian 
lita.  Lithuania is therefore losing exports in two of its 
largest markets, as well as VAT and excise revenue, as 
Lithuanians travel to neighboring countries to stock up on 
cheaper goods.  The discrepancy in prices is so great that 
Lithuanian trucking companies are instructing their drivers 
to fill up in Poland, Russia or Belarus.  In doing so, a 
company operating 10 trucks can save between 3,200 and 4,000 
euros per month, depending on where it fills its tanks. 
 
¶3.  (C) Unemployment continues to worsen.  A source told us 
that desperate job applicants are queuing in front of Labor 
Exchanges before they open at 7 a.m.  The Exchange reports 
148,900 job seekers in February 2009, 77.8 percent more job 
seekers in January 2009 than January 2008, and unemployment 
in the double digits in some regions. 
 
¶4. (U) The government's budget deficit is growing, despite 
earlier budget cuts and tax increases, as revenues decline. 
The GOL slashed spending by approximately 15 percent at the 
beginning of the year, and is now seeking another 3 billion 
LTL in cuts (about 11 percent of the original budget), even 
as analysts revised growth forecasts for the year to negative 
nine to ten percent.  The details are not yet clear, but cuts 
likely will include eliminating many public sector employee 
perks (bonuses, entertainment budgets, government owned 
vacation accommodations, etc.), reducing the number of state 
programs, consolidating government functions, and decreasing 
the salaries of the top management of state enterprises (by 
as much as 25 percent).  In addition, PM Kubilius recently 
said that the GOL would consider laying off 4,000 public 
sector employees or approximately twenty percent of total 
staff. 
 
¶5.  (SBU) External borrowing, already a challenge, should 
become more difficult following Standard and Poor's lowering 
its sovereign credit ratings on Lithuania to BBB/A-3 from BBB 
plus/A-2. 
 
EU NOT HELPING 
-------------- 
 
¶6.  (C) Mykolas Majauskas, economic advisor to the prime 
minister, told us that the EU is not likely to help Eastern 
Europe with extra aid and said that what is now set aside is 
insufficient for the prospective need.  Ramunas Vilpisauskas, 
economic advisor to the president, alleged that the EU has a 
"rosier view" than the economic situation in Eastern Europe 
warrants. 
 
¶7.  (C) Majauskas said that the EU is unlikely to advance 
Lithuania's euro accession.  He told us that PM Kubilius had 
not expected the requirements for euro accession to be 
lowered, even under the current extreme circumstances, but 
said that the GOL had at least hoped for some "positive 
signals" to come out of the March 1 Informal Meeting of Heads 
of State or Government in Brussels.  Instead, the President 
of the Euro Group, Prime Minister Jean Claude Juncker of 
Luxembourg, made a statement emphasizing that the euro 
aspirant countries should not expect anything different or 
unusual.  This, Majauskas said, sounded more like a negative 
signal. 
 
COMMENT 
------- 
 
¶8.  (C) Lithuania's economy hasn't driven off a cliff but the 
economic situation is worsening.  PM Kubilius still prefers 
to take tough measures without turning to the IMF to help. 
Lithuania continues "technical talks" only with the IMF. 
 
 
CLOUD