Viewing cable 09VILNIUS97
Title: CHAIRMAN OF LITHUANIAN BUDGET AND FINANCE

IdentifierCreatedReleasedClassificationOrigin
09VILNIUS972009-02-18 13:54:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
VZCZCXYZ0001
RR RUEHWEB

DE RUEHVL #0097/01 0491354
ZNY CCCCC ZZH
R 181354Z FEB 09
FM AMEMBASSY VILNIUS
TO RUEHC/SECSTATE WASHDC 3304
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
C O N F I D E N T I A L VILNIUS 000097 
 
SIPDIS 
 
DEPT FOR EEB/IFC/OMA:ASNOW 
COMMERCE FOR ITA:LMARKOWITZ 
TREASURY FOR DWRIGHT 
WARSAW FOR FCS:JMCCASLIN, LCARUSO 
 
E.O. 12958: DECL: 02/18/2019 
TAGS: ECON EFIN RU LH
SUBJECT: CHAIRMAN OF LITHUANIAN BUDGET AND FINANCE 
COMMITTEE PAINTS PESSIMISTIC OUTLOOK 
 
REF: A. 2008 VILNIUS 1045 
     ¶B. 2008 VILNIUS 993 
     ¶C. 2008 VILNIUS 766 
 
Classified By: Ambassador Cloud for reasons 1.4 (b) and (d). 
 
SUMMARY 
------- 
 
¶1. (C) The Chairman of the parliament's Budget and Finance 
Committee, Kestutis Glaveckas, painted a bleak economic 
picture when he met with the Ambassador on February 9. 
Unemployment is rising and Lithuania might have to ask for 
IMF help later this year, according to Glaveckas.  Swedish 
parent banks are unlikely to release a significant amount of 
funding to their subsidiaries in Lithuania which will 
translate into a continued dearth of credit.  The GOL has few 
policy options with which to address the financial crisis and 
even less money.  He said Russian parliamentarians have 
informally inquired if Lithuania would want financial help. 
 
IT'S NOT PRETTY 
--------------- 
 
¶2.  (C)  Glaveckas said unemployment is now 8 percent and 
will grow to between 11 and 12 percent this year.  He added 
that tax collections are down, borrowing costs are rising, 
loans are difficult and expensive to obtain, consumption is 
contracting and exports, particularly to major markets like 
Russia and Poland, are declining.  He also predicted a GDP 
decline of 5 percent this year.  Glaveckas cautioned that the 
economic situation might take a turn for the worse in April 
or May at which time Lithuania might have to turn to the IMF 
and other states, the U.S. included, for help.  In addition, 
Glaveckas predicts electricity will increase in cost by 
between 50 and 200 percent after the closure of Lithuania's 
nuclear power plant on December 31.  Also, Glaveckas said the 
GOL faces declining VAT revenue because Lithuanians living in 
border regions are taking advantage of lower excise taxes and 
weaker currencies and shopping in neighboring countries.  He 
also claimed food imports from Poland are denying the GOL VAT 
revenue. 
 
SWEDES WON'T RIDE TO THE RESCUE 
------------------------------- 
 
¶3.  (C)  Funds from Swedish parent banks for their Lithuanian 
affiliates are drying up and constricting overall credit 
throughout Lithuania.  Glaveckas said the Lithuanian branches 
of Swedish banks can only expect, at best, a small injection 
of funds from their parent groups.  He added that small and 
medium enterprises are feeling the brunt of this dearth of 
credit with many likely to fail. 
 
FEW ARROWS LEFT IN THE QUIVER 
----------------------------- 
 
¶4.  (C)  The GOL has no monetary measures to address the 
crisis due to its link via currency board to the Euro and on 
the fiscal side has had to borrow four billion Litas (about 
1.5 billion USD) from the EIB to co-finance programs tied to 
European Structural Funds.  Glaveckas said that borrowing in 
the private markets is expensive and difficult for Lithuania 
to do successfully.  He said "the world doesn't want to 
lend."  In 2009, the GOL will continue to seek out ways to 
decrease expenditures and the size of government; in addition 
to its austerity play (ref B), it has decided to eliminate 28 
agencies and give these functions to other institutions. 
Glaveckas recognized the rise in unemployment that will 
accompany these actions.  Unfortunately, only one billion 
Litas (about 366 million USD) are available in Lithuania's 
contingency/stabilization fund and Glaveckas predicted these 
monies would be completely used in the first or second 
quarters of this year to cover gaps in the SODRA (like Social 
Security) budget and fulfill other social obligations. 
 
RUSSIAN HELP? 
------------- 
 
¶5.  (C)  Glaveckas said that recently he and some of his MP 
colleagues had received calls from Russian MPs asking if 
Lithuania would like to borrow money.  He said Lithuania 
would look to the IMF and USA instead.  He added that some 
medium sized firms might seek to sell themselves to the 
"East," i.e., Russia.  Glaveckas clarified, however, that he 
 
does not have any proof that Eastern investors have bad 
intentions. 
 
COMMENT 
------- 
 
¶6. (C) Glaveckas paints a dire picture.  However, his 
predictions for GDP decline this year track with those of the 
Finance Ministry.  In addition, exports to Russia, 
Lithuania's largest export market, are likely to continue to 
decline, with the weakening ruble as well as recent 
protectionist trade measures implemented by Moscow. 
 
CLOUD