Viewing cable 09VILNIUS696
Title: LITHUANIA PASSES BUDGET, FACES DEFICITS AND

IdentifierCreatedReleasedClassificationOrigin
09VILNIUS6962009-12-21 10:47:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
VZCZCXRO1725
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHVL #0696/01 3551047
ZNY CCCCC ZZH
P 211047Z DEC 09
FM AMEMBASSY VILNIUS
TO RUEHC/SECSTATE WASHDC PRIORITY 3997
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 VILNIUS 000696 
 
SIPDIS 
 
TREASURY FOR DWRIGHT IN OFFICE OF EUROPE AND EURASIA 
 
E.O. 12958: DECL: 12/21/2019 
TAGS: PGOV ECON EFIN LH
SUBJECT: LITHUANIA PASSES BUDGET, FACES DEFICITS AND 
PROTESTS 
 
REF: A. VILNIUS 678 
     ¶B. VILNIUS 645 
     ¶C. VILNIUS 459 
 
Classified By: Acting Deputy Chief of Mission John M. Finkbeiner for re 
asons 1.4 (b) and (d). 
 
¶1.  (C)  SUMMARY:  After weeks of negotiation and debate, the 
parliament passed the GOL's 2010 budget on December 11, one 
day after passing a social-security budget.  Both budgets 
contain deep cuts, but the government still faces billions of 
dollars in deficits and projected borrowing for the coming 
year.  Pensioners, businessmen and others have gathered 
peacefully to protest the budgets, and we have been told that 
the GOL expects more, and perhaps violent, protests.  The 
cuts in the budget make it less likely that the GOL will have 
to seek standby financing from the International Monetary 
Fund, a Finance Ministry official told us.  President Dalia 
Grybauskaite said on December 21 that she would sign the 
budget law.  End summary. 
 
¶2.  (U)  With a rare display of party discipline and some 
vital assistance from another faction, the governing 
coalition in the Seimas (parliament) passed the 2010 GOL 
budget on December 11.  Opposition parties also struck a 
united position in voting against the budget, which passed 
81-56, with two abstentions and two members absent.  One 
party that is in neither the coalition nor the formal 
opposition cast its 11 votes for the budget, and said later 
that it hoped to receive a Cabinet position for its stance, 
which was instrumental in passing the budget.  The four-party 
coalition holds 71 of 141 seats in the Seimas. 
 
¶3.  (U) The budget, when combined with the State Social 
Insurance Fund (SODRA) budget passed a day earlier, includes 
a deficit of 7.624 billion LTL (3.32 billion USD), or about 
9.1 percent of GDP.  The GOL's 2010 budget includes a deficit 
of 4.929 billion LTL (2.14 billion USD), a slight increase 
over the 4.822 billion LTL deficit in the 2009 budget.  In 
2008, however, before the economy soured, the GOL's budget 
deficit was only 1 billion LTL.  Spending for 2010 should be 
only 1.4 percent less than in 2008, but revenues will be 16.8 
percent below 2008 levels, according to the budget. 
 
¶4.  (C) The 2010 budget displayed cuts that we expected (ref 
B).  Darius Sadeckas, Deputy Director of the Ministry of 
Finance's Budget Department, said the national budget -- 
which includes all ministries as well as municipalities -- 
will be 911 million LTL (about 396 million USD) less than in 
¶2009.  Major cuts include an effective reduction of 33.8 
percent or 1 billion LTL (about 435 million USD) to 
non-investment and non-wage expenditures such as utilities, 
business trips and office supplies as well as additional wage 
reductions on top of those that apply from July 2009.  In 
addition, payroll funds for various classes of government 
workers are being cut up to 10 percent.  Overall though, the 
GOL budget will increase by 563 million LTL (245 million USD) 
next year, when 7.891 billion LTL in EU funds -- an increase 
of about 23 percent over this year -- are included.  Sadeckas 
also said that GOL borrowing, estimated at 13 billion LTL 
(5.7 billion USD) in 2010, will be slightly higher than the 
12.8 billion LTL (5.6 billion USD) previously reported (ref 
B).  The national budget deficit is forecasted to be 4.929 
billion LTL (2.14 billion USD) in 2010 or about 5.9 percent 
of GDP.  In the 2010 budget, the Seimas refused to cut 
defense spending, and approved a drop in the corporate profit 
tax from 20 to 15 
percent. 
 
¶5.  (C)  The most controversial reductions are not part of 
the national budget but are included in SODRA.  Sadeckas, 
although not an expert in SODRA, as this fund is managed 
under the auspices of the Ministry of Social Security and 
Labor, said that SODRA social expenditures will experience 
broad cuts.  He mentioned that monthly pensions that exceed 
650 LTL (283 USD) will be reduced by a minimum of 5 percent. 
State worker pensions will drop by 10 percent and those of 
widows by 5 percent.  Working pensioners could see their 
benefits cut by up to 70 percent, depending upon their 
earnings level.  In addition, unemployment benefits will be 
reduced.  Thanks to resistance from Grybauskaite, maternity 
benefits will not see cuts take effect until July 2010. 
Disability benefits also will remain static, despite 
allegations of significant abuse of that program by many 
recipients. 
 
Social-security head steps down 
------------------------------- 
 
 
VILNIUS 00000696  002 OF 003 
 
 
¶6.  (C)  Shortly after the SODRA budget was passed, the 
director of the SODRA board resigned, apparently at the 
request of the Minister of Social Security and Labor.  The 
director, Mindaugas Mikaila, had held his position since 
¶2003.  He declined to comment to the media, saying, "Ask the 
minister.  The decision shall be taken by the minister."  No 
reason was given for his departure, but we have been hearing 
rumors in recent months of dissatisfaction with his 
management, as well as of possible mismanagement.  We also 
think it quite likely that the ruling Conservative Party 
wanted to put its own person in charge of the large and 
important SODRA operation. 
 
GDP contractions 
---------------- 
 
¶7.  (C)  Sadeckas said that Ministry of Finance predictions 
for GDP contraction in 2009 and 2010 remain officially 
unchanged from September 11:  18.2 percent contraction in 
2009 and 4.3 percent contraction in 2010.  He added that the 
2010 budget was calculated using a 4.3 percent contraction in 
GDP.  This differs from the 15.2 percent contraction 
prognosis for 2009 and 1.5 percent for 2010 that we heard 
from the Bank of Lithuania in late November (Ref B). 
Positive growth, however, is not far off according to 
Giedrius Miliauskas, a member of the President's Economic and 
Social Policy advisory staff.  He asserted that the economy 
has hit bottom and will begin to grow in the second half of 
2010 (Ref A).  Nonetheless, he said the budget will not 
experience any benefit for 1.5 years.  Sadeckas divulged that 
the GDP growth reported for the Lithuanian economy from the 
second to the third quarter this year was probably an 
anomaly, likely the result of an economic model recording an 
excessive drop in growth in the second quarter balanced out 
by growth in the third.  Sadeckas added that the Statistics 
Department, however, is unlikely to issue a revision to the 
figures. 
 
¶8.  (C)  Sadeckas said that the cuts to GOL expenditure make 
it less likely the GOL will seek IMF standby financing.  He 
also mentioned that the official line of the GOL is that euro 
entry cannot be considered as a policy option until 2013, 
with 2014 likely being the earliest Lithuania will enter the 
European currency union. 
 
Reaction 
-------- 
 
¶9.  (C)  Several peaceful demonstrations occurred around the 
time of the budget votes, primarily to protest pension cuts. 
Small-business owners, pensioners and a few minor political 
parties fond of joining protests have participated in the 
various demonstrations.  The protests were watched over by a 
large number of police, but about 300 law-enforcement 
officers also participated in one protest.  The three 
demonstrations, all on different days and with different 
organizers, ranged in size from 800 to 2,000 participants. 
One Conservative Seimas member told us before the budget 
passed that the GOL was expecting and preparing for numerous 
protests, with a strong possibility of violence, in the 
aftermath of the budget vote.  Fortunately, no such violence 
has been seen. 
 
¶10.  (U)  On December 21 Grybauskaite announced that she had 
agreed to sign the budget.  She earlier had praised the 
Seimas for summoning sufficient political will to pass a 
budget, and said that even an imperfect budget was better 
than no budget at all. In the end she noted that her decision 
reflected the need for Lithuania to meet its obligations to 
its pensioners, and to ensure the government's continued 
access to international credit markets to finance the budget 
deficit. 
 
Coalition reshuffle? 
-------------------- 
 
¶11.  (C)  Lithuania United, whose 11-member parliamentary 
faction split from the National Revival Party a few months 
ago (ref C), is not part of the four-party governing 
coalition (though National Revival, with seven Seimas 
members, is).  But after all 11 members supported the budget, 
faction leaders said they hoped they would be given the 
opportunity to name a Cabinet member.  Media have reported 
that Prime Minister Andrius Kubilius has said he will find a 
"proportionate position" in the coalition for Lithuania 
United.  While Kubilius gave no details, media have said 
talks have focused on the possibility of Lithuania United 
naming a replacement for Interior Minister Raimundas 
Palaitis, Culture Minister Remigijus Vilkaitis or Economy 
 
VILNIUS 00000696  003 OF 003 
 
 
Minister Darius Kreivys.  National Revival is now one of the 
smallest coalition members, but was able to name Vilkaitis 
and one other minister when the Kubilius government was 
formed in late 2008.  The Liberal and Center Party, also with 
seven seats in the Seimas, named Palaitis along with one 
other minister. Kubilius' Conservative Party, with 46 Seimas 
members, named Kreivys and six other ministers, in addition 
to the Prime Minister himself.  The Liberal Movement Party, 
with 11 Seimas members, named three ministers. 
 
¶12.  (C)  Comment:  The Seimas and GOL have had little time 
for anything except budget matters in recent weeks, and 
passage of the budget was so uncertain that there was talk of 
the government collapsing over the issue.  The ruling 
coalition forbade its members from leaving town at times when 
budget votes were expected, and managed, when the final 
budget vote came around, to enforce a level of party 
discipline rarely seen in this Seimas.  Lithuania United's 
negotiations on joining, or at least aligning with, the 
coalition appear to have paid off for them as well as for the 
Kubilius government, though how the Cabinet reshuffle will be 
handled remains to be seen.  Most importantly, the government 
-- which had to make budget cuts and raise taxes within weeks 
of assuming power just over a year ago -- found the political 
will and the allies needed to push through even more 
difficult and unpopular measures such as pension and 
social-benefits cuts necessary to help Lithuania through its 
current economic crisis. 
DERSE