Viewing cable 09VILNIUS505
Title: BUDGET CUTS AFFECT THE GOL IN A VARIETY OF WAYS

IdentifierCreatedReleasedClassificationOrigin
09VILNIUS5052009-09-30 09:34:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
INFO  LOG-00   EEB-00   AID-00   CEA-01   CIAE-00  CTME-00  INL-00   
      DODE-00  DOEE-00  DOTE-00  DS-00    EXIM-01  OIGO-00  E-00     
      FAAE-00  FBIE-00  VCI-00   FRB-00   H-00     TEDE-00  INR-00   
      IO-00    ITC-01   LAB-01   MOFM-00  MOF-00   M-00     VCIE-00  
      DCP-00   NSAE-00  ISN-00   NSCE-00  OMB-00   NIMA-00  PM-00    
      GIWI-00  SCT-00   ISNE-00  FMPC-00  SP-00    IRM-00   SSO-00   
      SS-00    STR-00   BBG-00   IIP-00   PMB-00   DSCC-00  PRM-00   
      DRL-00   G-00     SCA-00   NFAT-00  SAS-00   FA-00    SRAP-00  
      SWCI-00  SECC-00    /004W
   
R 300934Z SEP 09
FM AMEMBASSY VILNIUS
TO SECSTATE WASHDC 3764
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 000505 
 
 
TREASURY: PLEASE PASS TO DWRIGHT IN OFFICE OF EUROPE AND 
EURASIA 
USEU: PLEASE PASS TO MHARSAGGER IN TREASURY 
 
E.O. 12958: DECL: 09/30/2019 
TAGS: PREL ECON LH
SUBJECT: BUDGET CUTS AFFECT THE GOL IN A VARIETY OF WAYS 
 
REF: A. VILNIUS 482 
     ¶B. VILNIUS 336 
     ¶C. VILNIUS 171 
     ¶D. VILNIUS 166 
     ¶E. VILNIUS 135 
     ¶F. VILNIUS 97 
     ¶G. VILNIUS 95 
     ¶H. 2008 VILNIUS 1045 
 
 
Classified By: Charge d'Affaires, a.i., DLEADER for reasons 1.4 (b) 
and (d). 
 
 
SUMMARY 
------- 
 
¶1.  (C) The GOL has cut planned public expenditures three 
times in the last year and will make cuts to social benefits 
as well in the coming months.  These cuts, combined with the 
GOL's anti-crisis action plan and decisions by both the 
President's office and the parliament to limit their 
respective expenditures, have spread the pain of the present 
financial crisis across the GOL.  Cuts to Lithuania's more 
comprehensive version of Social Security, SODRA, and its 
variety of social benefits appear unavoidable because of the 
strain on the budget.  Such cuts could reverse increases to 
SODRA benefits that have been in existence for a relatively 
short period of time. The government's drastic budget cuts 
have shown its ability to take tough decisions, enabling it 
to maintain access to international credit markets. 
Nonetheless, the government could be forced to seek IMF 
assistance eventually. To date there has been little public 
protests of the budget cuts, and the government continues to 
express its commitment to key U.S. priorities, such as 
Lithuania's leadership of a PRT in Afghanistan. 
 
WHAT WAS CUT 
------------ 
 
¶2.  (U) Lithuania began 2009 with a 31.2 billion LTL (about 
13 billion USD) national budget (covering all ministries as 
well as national funds disbursed to municipalities).  By July 
government cuts had decreased the budget to 29.4 billion LTL 
(12.25 billion USD).  Without EU funds, the national budget 
would have shown a decrease from 25.7 billion LTL (10.8 
billion USD) at the beginning of 2009 to 23 billion LTL (9.6 
billion USD) in July.  The GOL cut planned public expenditure 
three times in the last year and will have a fourth round of 
cuts in the autumn. 
 
¶3.  (U) The first budget cut took place in December 2008 
during the government transition from PM Kirkilas to PM 
Kubilius.  Working from a draft budget proposed by Kirkilas's 
Social Democrats, the Kubilius government approved a 2009 
budget with 1.2 billion litas (500 million USD) in spending 
cuts. 
 
¶4.  (U) In May 2009, the Seimas (parliament) approved 
additional spending cuts of 3.05 billion litas (1.2 billion 
USD).  The cuts impacted public sector wages, infrastructure 
expenses, and a limited range of social welfare benefits 
(these fall mostly outside of the national budget but are 
included in Lithuanian social security or SODRA).  In July 
2009, expenditures were reduced by a further 242 million 
litas (101 million USD). 
 
¶5.  (SBU) In addition to budget cuts, Lithuania instituted an 
anti-crisis action plan in January 2009 that included cuts 
that are still being implemented, including a decrease of 12 
percent to federal and municipal salary expenditures along 
with 15 percent cuts to the operational budgets of state and 
municipal institutions (reftel H).  Jekaterina Rojaka, CEO 
Advisor at DnB Nord Bank, told us that most GOL ministries 
implemented payroll cuts included in the anti-crisis plan by 
not filling open positions.  Thus, in the first half of 2009, 
GOL pay did not decline at the same rate as their private 
counterparts.  Nonetheless, the cuts instituted in May will 
begin to be reflected in statistics for public sector pay for 
the third quarter and thereafter, according to Rojaka.  On 
average, Rojaka estimated that rank and file employees will 
see a cut of ten percent in their pay.  For senior officials, 
Director level and above, Rojaka estimates that the cuts from 
the anti-crisis plan combined with that from May equates to a 
greater than 25 percent decrease in pay. 
 
ALL PARTS OF THE GOL BEAR PAIN 
------------------------------ 
 
¶6.  (C) Below, listed in alphabetical order, is a list of GOL 
ministries and the effect of budget cuts on their operations, 
as related by embassy contacts within the ministries. 
 
AGRICULTURE:  The ministry began the year with a budget of 
2.3 billion litas (958 million USD) which was reduced only 
slightly to 2.287 billion litas by August (953 million USD). 
The budget for salaries was cut from approximately 44.9 
million LTL (19 million USD) to 41.5 million LTL (17 million 
USD), the Agricultural Administration Development/Improvement 
Program saw its budget cut about 14 percent and the biofuel 
program was cut about 25 percent. 
 
CULTURE:  The Culture Ministry saw an overall budget 
reduction of 15 percent with capital allocations decreased by 
21 percent and personnel expenses by 3.3 percent. Public art 
support shrank by 12 percent, libraries saw a 50 percent cut 
in funding, funds for restoration and preservation of 
national patrimony shrank by 37 percent, while funds for 
grants to artists and musicians remained static. 
 
DEFENSE:  The Ministry of Defense is suffering from a greatly 
depleted budget, with projections for next year even worse. 
The ministry's budget has been cut by 14 percent or 163.3 
million LTL (68 million USD) since December, with air force 
programs reduced by 22 percent, land forces funding by seven 
percent, military operations by 8.5 percent and special 
operations forces funding by 12.5 percent.  The initial 2009 
defense budget of 1.2 billion LTL (485 million USD) was 
already a reduction in absolute terms of nearly 7 percent 
from 2008 (although it was a slightly higher percentage of 
GDP).  In April the budget was revised down to 1.0 billion 
LTL (422 million USD), a real decrease of 19 percent from the 
2008 budget; with that cut the defense budget now equals 
approximately 1 percent of GDP.  The actual amount the 
ministry will receive by the end of the year will likely be 
several million LTL lower than that projection. 
Measures the ministry has taken to address the budget cuts 
include: canceling virtually all procurement that was not 
already under contract by the beginning of the year; 
negotiating extended payment and delivery plans for equipment 
already under contract; reducing the number of soldiers 
recruited during the year from a planning target of about 500 
to an actual number of about 100; cutting officer and 
civilian pay; requiring all personnel to take two weeks of 
unpaid leave; non-renewal of service contracts for some 
officers; divestiture of several ministry-owned commercial 
companies deemed not directly related to military objectives; 
cutting training to a point where there is little beyond that 
required to certify troops for overseas missions; minimizing 
participation in international training events; minimizing 
foreign schooling for military personnel; reducing flying 
hours for pilots to conserve fuel and reduce aircraft 
maintenance costs; closing at least two foreign Defense 
Attache Offices; and ending a platoon-level deployment to 
Kosovo. 
 
At this point ministry officials tell us the defense budget 
is adequate only for survival, and the ministry is struggling 
to maintain current capabilities, with little view to 
increasing competencies in the near future.  The top priority 
is maintaining the Afghanistan mission, with the NATO 
Reaction Force and European Battle Group commitments just 
behind.  Other priorities are maintaining host nation support 
for allies conducting the Baltic Air Policing mission, 
conducting air and maritime surveillance of Lithuanian 
territory, and maintaining search and rescue capabilities. 
The impact of the budget cuts is a derailed transformation 
process, an undermanned military, a declining readiness 
level, and reduced capability to deploy and sustain forces 
for international operations.  Our DAO predicts that if 
funding increases in 2011-2012 are not implemented, there 
will be long-term damage to readiness, as equipment and 
maintenance shortfalls get worse, and personnel, particularly 
in leadership positions, do not get the training and 
experience they need to face future challenges. 
ECONOMY:  Unlike other ministries, Economy saw an increase in 
its budget due to the inclusion of EU funds, from a January 
budget of 788.2 million litas (328 million USD) to 1.3 
billion litas (542 million USD).  Economic Development policy 
programs saw a 22 percent decline in funding while Economic 
Growth and Competitiveness saw a 70 percent increase. 
Unfortunately, initiatives such as the national stimulus 
plan, for which the ministry holds significant 
responsibility, show little real benefit on the ground with 
many private sector interlocutors expressing ignorance or 
skepticism in regards to the effectiveness so far of GOL 
economic stimulus measures. 
 
EDUCATION AND SCIENCE:  The GOL reduced teachers' salaries by 
about 4.7 percent.  Layoffs have not yet taken place but 
plans are in the works to reduce staff, mostly those who have 
already reached retirement age, in 2010.  Ministry employees 
saw their wages drop by about 15 percent since January 2009. 
Minister Steponavicius has said that wage increases for 
employees under his ministry's purview will not be considered 
before 2011. 
 
ENERGY:  This was a newly recreated ministry that began 
operations in February 2009, created from the offices that 
had pertinent functions within the Ministry of the Economy. 
The Ministry is still housed in the same building as the 
Ministry of the Economy and began the year with a budget of 
612 million LTL (255 million USD) and saw its budget cut to 
246 million LTL (103 million USD).  One ministry interlocutor 
told us that salary cuts have not had a large effect on work 
because the ministry began with a dearth of personnel that 
has not been corrected.  Vice Minister Romas Svedas said that 
the ministry is concentrating only on energy priorities for 
the Baltic region and will leave responsibility for 
non-Baltic geopolitical energy issues, such as Nabucco and 
other central Asian energy projects, to the Foreign Ministry. 
 
ENVIRONMENT:  The ministry began 2009 with a budget of 243 
million LTL (101 million USD).  By July 2009 the ministry's 
budget had been reduced to 190 million LTL (79 million USD). 
One interlocutor from the ministry told us that that the 
ministry is still implementing cuts such as a 50 percent 
reduction in the Common Environmental program, which covers 
climate change issues as well as other environmental 
initiatives.  This contact also said his salary had been 
reduced by 30 percent since January.  They added that many of 
the ministry staff recently received layoff notices and there 
is a major restructuring planned for December 16.  As we have 
heard elsewhere, employees are more concerned about surviving 
budget cuts than getting their jobs done. 
 
FINANCE:  The ministry began 2009 with a budget of about 6 
billion LTL (2.5 billion USD).  The budget was cut to about 
5.9 billion LTL (2.45 billion USD) in July 2009.  Most of the 
finance ministry's budget covers programs not directly 
related to ministry operations, such as transfers of funds to 
municipalities, payments to the EU, and debt management.  The 
ministry has cut about 30 positions this year and its 
operating budget of 109 million LTL (45 million USD) was cut 
by about 26 million LTL (11 million USD) or 23 percent. 
Daiva Kamarauskiene, the head of the ministry's budget 
department, told us that budget cuts have dramatically 
decreased ministry participation in training abroad as well 
as other business trips. 
 
FOREIGN AFFAIRS:  The Ministry started 2009 with a budget of 
227.8 million litas (95 million dollars).  In August, the 
budget was reduced by 10 percent.  Salaries have been cut, on 
average, by eight percent.  The foreign policy program 
implementation budget has been cut by 20 percent and the 
diplomatic service administration program budget by nine 
percent.  Layoffs have taken place and ministry employees 
have been required to take unpaid leave.  Ministry 
interlocutors told us compensation for overseas service has 
been cut by 20 percent, business trip allowances by 30 
percent, representational funds by 50 percent and overseas 
accommodation funds by 20 percent.  Simonas Satunas, Deputy 
Director of the Transatlantic Cooperation and Security 
Department, told the Charge that he expected a 25 percent cut 
in the MFA's operations budget next year and predicted the 
results would be "apocalyptic" for operations.  Satunas has a 
personal perspective on the cuts as he will be soon begin 
work as a Transatlantic Diplomatic Fellow at the Department 
of State and due to budget limitations will be living in the 
Lithuanian embassy's attic.  Minister of Foreign Affairs 
Usackas was quoted in the press as saying that the 2010 
budget for the MFA required Lithuania's diplomats to function 
in the 21st century with a 20th century budget. 
 
HEALTH:  The Ministry appears to be treating the budget cuts 
as an opportunity to streamline its operations, including 
cutting staff.  In September 2009, the Ministry will merge 
the National Drug Storehouse with the Center for Extreme 
Situations, with a resulting cut in 21 positions of the 100 
present in both institutions.  Wages for ministry staff have 
been reduced approximately 15 percent. 
 
INTERIOR:  Salary cuts have been wide and varied, with Vice 
Ministers losing 32 percent of their wages, Department Heads 
12 percent, Division Heads 24 percent, and Specialists four 
percent.  The ministry has plans to lay off 30 of its 
employees.  The Lithuanian police, who are a part of the 
ministry, have not been spared either.  In 2008, there were 
limited layoffs of approximately 60 persons due to 
reorganizations of police coverage.  As of July 1, 2009 there 
were 11,701 police officers with 1,392 openings.  The 
openings will not be filled due to budget limitations.  The 
police saw an eight percent decrease in their budget during 
¶2009.  Our interlocutors told us they expect a 15.2 percent 
decrease in the 2010 budget.  The Division Chief of the 
Organized Crime Unit told us that morale among police 
officers was at an all time low.  The Chief said that she 
hoped the GOL would opt for salary cuts during the next 
budget contraction rather than layoffs because cuts in the 
police force would slow down investigations due to fewer 
officers allocated to a larger case load.  Nonetheless, 
layoffs of up to 900 positions amongst the 75 percent of 
police who work in criminal investigations and public safety 
are likely next year due to plans to cut the police budget by 
116 million litas (48 million USD).   GOL Trafficking in 
Persons (TIP) efforts in the area of prevention, protection 
of victims and punishment of traffickers have also been 
severely affected.  In the past, the annual budget for 
anti-trafficking efforts in the TIP program has been about 
400,000 LTL (167,000 USD).  For 2009, the budget is zero. 
For 2010, it is expected to be 87,000 LTL (36,000 USD). 
 
JUSTICE:  From January to August, the ministry saw its budget 
decline by 23 percent, from 96.7 million litas (40 million 
USD) to 70 million litas (29 million USD).  Salaries have 
been cut, on average, by 14 percent.  The ministry laid off 
23 employees and one vacant position was eliminated.  Program 
funding has been slashed with monies to improve the legal 
system declining by 23 percent, training for judges by 16 
percent, and IPR protection efforts by 16 percent. 
 
SOCIAL SECURITY AND LABOR:  The ministry saw its overall 
budget drop by 1.7 percent but salaries were reduced by about 
13 percent.  Pensions and support for children were unchanged 
but a program to help handicapped persons integrate into 
general society saw a cut of 11 percent, money to pay for the 
infrastructure to deliver social services like labor exchange 
offices was cut by 15 percent, and youth program funding was 
cut by 20 percent.  The ministry may be able to alleviate 
some of the budget gaps with EU funding. 
 
TRANSPORT AND COMMUNICATIONS:  Most ministry employees have 
experienced 15 percent wage cuts.  The overall wage budget 
was cut 14 percent and property acquisition saw a 40 percent 
decline.  The ministry's Roads Supervision and Development 
Program that provides for the renovation of roads and 
streets, prevention of road accidents, safety prevention, 
etc., experienced a 30 percent budget cut.  The ministry 
anticipates replacing some of the cuts with a 411 million LTL 
(171 million USD) allocation of 2009-2013 EU structural funds. 
 
¶7.  (U) The President's office was not spared budget cuts, 
with press reporting that President Grybauskaite restructured 
the office and slashed some privileges for staff to save 
about 3 million litas (1.25 million USD).  Fifteen percent of 
the jobs in the President's office are being cut, government 
owned automobile usage has been restricted to trips to and 
from the office and not for the staffs' commute, employees 
have been ordered to reduce their mobile telephone usage by a 
third, promotional spending will be slashed from 2.5 million 
litas to 557,000 litas (1 million USD to 232,000 USD), and 
business trips will be cut by a factor of four. 
 
¶8.  (U) Parliament as well voted cuts to its salaries on 
January 20, from an average of 8,000 litas (3,300 USD) per 
month to 6,800 litas (2,800 USD).  The new speaker of the 
Parliament, Irena Degutiene, proposes to cut monthly 
parliamentary representational expense funds from 1.7 of 
Lithuania's monthly average salary, presently 3,693 LTL 
(1,539 USD), to the level of the average monthly salary 
(presently 2,173 LTL or about 905 USD). 
 
WHAT MAY BE CUT DURING THE FALL 
------------------------------- 
 
¶9.  (C) In 2007, SODRA (Lithuania's more comprehensive 
version of Social Security) expended about 9.3 billion LTL 
(3.9 billion USD).  In 2008, this rose to 11.2 billion LTL 
(4.7 billion USD).  If nothing is done to rein in SODRA's 
expenses, Rojaka estimated it would add a deficit equivalent 
to 4 percent of GDP.  On August 18, Mindaugas Mikaila, 
Director of SODRA, told us that the agency faced a debt of 
380 million litas (158 million USD) for bank loans and 900 
million litas (375 million USD) to the GOL budget.  Mikaila 
predicted a debt of 2.2 billion litas (917 million USD) by 
the end of 2009 if SODRA does not cut its various benefit 
payments, including maternity and pensions.  He predicted a 
deficit of 3.6 billion litas (1.5 billion USD) if no action 
is taken next year.  Mykolas Majauskas, an economic advisor 
to the PM, told us on July 24 that the GOL would consider 
cuts to SODRA's benefits in the fall including benefits for 
family units with children, working pensioners and maternity 
benefits.  Press reports that these cuts would likely take 
effect on January 1, 2011 and be on average, 4-5 percent 
(excluding proposed cuts to maternity benefits), with a goal 
of saving 2.5 billion litas (1 billion USD).  A cut in 
maternity benefits was already passed by the parliament but 
vetoed by President Grybauskaite because it failed to 
grandfather those beneficiaries who had become pregnant or 
begun receiving benefits under the more generous system. 
Grybauskaite proposed and parliament is considering maternity 
benefits cuts from the current 100 percent of salary in the 
first year of maternity leave and 85 percent of salary in the 
second to 90 percent in the first year and 75 percent in the 
second that would take effect in July of 2010. 
 
YOU HAD IT GOOD 
--------------- 
 
¶10.  (C) Generous maternity and increased pension benefits 
have not been present in Lithuania for a long period of time. 
 Mikaila reminded us that in November 2007 the GOL budget had 
a 1.3 billion LTL (542 million USD) surplus.  After the 2008 
budget passed, the parliament increased SODRA allowances 
including an increase in maternity benefits for recipients 
from one year at 80 percent of previous salary to two years 
with 100 percent of previous salary in the first year and 85 
percent in the second.  This added 800 million LTL (333 
million USD) to national expenditure.  Parliament also 
increased pension benefits after the 2008 budget passage with 
an added cost of 360 million LTL (150 million USD) according 
to Mikaila. 
 
COMMENT 
------- 
 
¶11.  (C) The GOL is, undoubtedly, facing some tough but 
unavoidable choices.  The IMF is visiting Lithuania again 
from September 28 through October 5, following which it may 
become clearer whether the GOL is moving closer to 
considering standby financing.  Nonetheless, for the moment 
the GOL plans another Eurobond issue and appears to be able 
to still borrow domestically, thus it likely will continue to 
avoid IMF assistance.  The wild card remains devaluation, 
which if it took place could drastically increase the 
Euro-denominated mortgages of many Lithuanians.  This is one 
important factor in the GOL's wariness of any IMF package 
that might result in the elimination of the currency board. 
As for civil unrest, we are not predicting any in the short 
term, in part because a fair number of Lithuanians have moved 
their activities into the gray economy:  Rojaka estimated up 
to five percent of the 20.2 percent second quarter GDP 
contraction may be taking place in the gray zone.  In 
addition, many Lithuanians still enjoy extended family 
networks and a relatively recent memory of living with 
limited creature comforts under Soviet rule. 
 
LEADER