Viewing cable 09VILNIUS95
Title: ECONOMY SLOWING, BUT STIMULUS PLAN ON THE WAY

IdentifierCreatedReleasedClassificationOrigin
09VILNIUS952009-02-17 11:40:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
R 171140Z FEB 09
FM AMEMBASSY VILNIUS
TO SECSTATE WASHDC 3301
INFO EUROPEAN POLITICAL COLLECTIVE
DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L VILNIUS 000095 
 
 
E.O. 12958: DECL: 02/17/2014 
TAGS: ECON EFIN LH
SUBJECT: ECONOMY SLOWING, BUT STIMULUS PLAN ON THE WAY 
 
REF: A. 2007 VILNIUS 1045 
     ¶B. 2007 VILNIUS 993 
 
Classified By: Ambassador John A. Cloud for reasons 1.4 (b) and (d). 
 
SUMMARY 
------- 
 
¶1.  (SBU)  Lithuania's economy is clearly slowing, and the 
GOL's poor job explaining the necessity of its austerity plan 
has aggravated the situation.  The austerity plan, designed 
to address the budget deficit left by the previous 
government, was not clearly explained and implemented so 
quickly that business and the tax authorities alike had 
little time to respond.  The GOL appears intent not to repeat 
the same mistake with its stimulus plan, discussing it at a 
roundtable with business representatives and economic 
analysts and intending to implement the plan as soon as 
possible.   In addition, latest figures show a declining 
current account deficit and an increase in bank deposits in 
December. 
 
UNEMPLOYMENT UP, LIQUIDITY DOWN 
------------------------------- 
 
¶2.  (U)  The pace of layoff announcements has increased in 
¶2009.  The Lithuanian Labor Exchange, an agency that provides 
aid to job seekers, reported January 23 that 142,000 people 
were looking for jobs in Lithuania.  This is 20,000 more than 
on January 1.  European Commission interim forecasts in 
January 2009 for Lithuania predict an unemployment rate of 
5.4 percent for 2008, 8.8 percent for 2009 and 10.2 percent 
for 2010.  Swedbank has grimmer forecasts:  a rate of about 
9.5 percent in 2009 and 12 percent in 2010. 
 
¶3.  (U)  This negative news tracks with what we are seeing 
and hearing, with retail businesses on some of the main 
thoroughfares in Vilnius going out of business in recent 
weeks.  The owner of a Vilnius restaurant, popular with 
locals and tourists alike, told us that this winter holiday 
season, unlike last, he had customers who attempted to 
bargain with him for catering and that these same customers 
wanted extended payment options stretching up to 30 days or 
more. 
 
¶4.  (U)  Exports, manufacturing and internal demand are 
sinking, according to Nerijus Udrenas, a Senior Economist at 
SEB bank.  Jekaterina Rojaka, a Senior Analyst at DnB Nord 
bank, told us that overall credit has constricted in 
Lithuania.  This is mostly due to the wariness of Swedish 
parent banks that have discovered problematic loans 
throughout the region, not just Lithuania.  In addition, 
press reports show a 1 billion Litas (about 375 million USD) 
decrease in demand deposits of Lithuanian businesses in 
December.  The result of this may be declining consumption 
according to Giedrius Miliauskas, a local economist. 
 
¶5.  (U)  Lithuania's challenges aren't just related to 
internal factors but in large export markets as well.  A 
representative of a large cement producer in Lithuania said 
the drop in value of the Ruble is affecting its ability to 
export to Russia (the biggest single market for Lithuanian 
exports).  Latvia's economic challenges also cast a pall over 
Lithuania, as it is the country's second biggest export 
market. 
 
AUSTERITY PLAN WASN'T SOLD TO THE PUBLIC 
---------------------------------------- 
 
¶6.  (C)  Both Finance Minister Semeta and Economy Minister 
Kreivys told the Ambassador that the GOL hadn't done enough 
to explain to the public the need for an austerity plan (ref 
C), a fact echoed by Udrenas and Rojaka.  Semeta also 
conceded that delivering the grim news about austerity 
simultaneously with news of a coming stimulus package might 
have meant both would have been better received.  The 
ministers said that the new government planned to do a better 
job in the future, and this has been borne out so far. 
Kubilius has already met with some large business owners to 
discuss the stimulus plan, held a January 30th roundtable to 
discuss GOL ideas for stimulus with representatives of 
business and bank economic analysts, and plans to meet with 
more business leaders over the coming weeks. 
 
STIMULUS PLAN COMING 
-------------------- 
 
¶7.  (SBU)  Now that the GOL has implemented (and started to 
revise) its austerity measures, it is working on a stimulus 
plan which may cost between 4 and 5 billion Litas (1.5 
billion USD - 1.9 billion USD).  On January 30, the PM held a 
roundtable discussion to solicit businesses' and economic 
analysts' opinion of different stimulus ideas.  Kubilius will 
use the information gathered to fine tune the package that 
should be presented to parliament by the end of the month. 
The plan will likely include measures to:  simplify the 
application and distribution of EU funds for Lithuanian 
businesses; revive credit markets through the creation of a 
holding fund with up to 1.9 billion Litas (about 700 million 
USD) to aid SMEs via micro credits of 20K - 30K Litas (about 
7,500 - 11,000 USD) as well as ordinary credit instruments 
that will be administered by commercial banks; assist the 
construction sector by providing approximately 3 billion 
Litas (about 1.1 billion USD) to subsidize energy efficiency 
projects (e.g., insulation) in public and residential 
buildings; reduce the bureaucratic burden on businesses; and 
improve the business, export and investment climate. 
 
SOME POINTS OF LIGHT 
-------------------- 
 
¶8.  (U)  Press reports show that deposits held by private 
individuals rose in December from November.  This may show an 
increase in confidence in the banking sector or a renewed 
interest in saving.  We were told by one American IT firm 
representative with large operations in Vilnius that the 
global economic slowdown would benefit him, as companies seek 
to outsource IT services such as his, rather than keeping 
them in house.  Lithuania's current account deficit was 9.4 
percent of GDP in Q3 of 2008 as compared to 14.6 percent in 
¶2007.  Finally, Udrenas predicts that productivity increases 
combined with a focus on core competencies will make for 
stronger surviving industries in Lithuania. 
 
COMMENT 
------- 
 
¶9.  (SBU)  Many of our Lithuanian interlocutors recognize 
that the new GOL was in a corner when it came into office due 
to profligate spending by it predecessor.  Yet, none of these 
same interlocutors feel the new GOL has done a good job of 
explaining its austerity plan.  The GOL is making an effort 
not to repeat the same mistake with the stimulus plan and is 
indicating that it will implement these measures as soon as 
possible. 
 
CLOUD