GDP of Lithuania grew by 5% over three quarters of 2008

Statistics Lithuania informs that based on available statistical data and econometric models, GDP in III quarter 2008 totalled LTL 30 290.6 million at current prices and, as compared to III quarter 2007, grew by 3.1%. The results of III quarter 2008 were conditioned by the slowdown in the growth rates of production and consumption of goods, while the increase in the gross value added – by the growth in the value added generated by agricultural and service enterprises.

Over three quarters of 2008, GDP reached LTL 83 355.9 million at current prices and, compared to three quarters of 2007, increased by 5%. In general, in 2008, not a single economic activity could be distinguished as the one making the decisive impact on the growth in the gross value added in the country – the increase in the value added generated over three quarters 2008 was close to the national average in all economic activities.

Changes in GDP. Compared to the respective period of the previous year

^* First GDP estimate.

Over three quarters of 2008, GDP per capita made LTL 24 797.8 (in III quarter – LTL 9021).

In III quarter 2008, compared to II quarter 2008, seasonally and working day adjusted, GDP increased by 0.4%, while compared to III quarter 2007 – by 2.8%.

Changes in GDP

GDP at current prices

Lithuanian economy slows on weakening domestic demand

Lithuania”s economy expanded in the third quarter of 2008 at the slowest pace in nine years as domestic demand weakened after bank lending froze. Annual growth eased to a preliminary 3.1% from 5.2% in the previous quarter, the Statistical Department of Lithuania said in an e-mailed statement today.

The median estimate of five economists in Bloomberg survey was 3%. An economic boom sparked by entry into the European Union in 2004 ended after accelerating inflation curbed consumer buying power. Credit growth, real estate prices and domestic spending, key drivers of the expansion, are slowing. Increasing risk of a global recession also threatens to curb growth as demand wanes in export markets, reports ELTA.

“The forecasted slowdown has come,”” said Rimantas Ruckis, chief economist at Vilnius DnB Nord Bankas. “Domestic demand had been driven by strong credit growth and it didn”t correspond to reality,” added Ruckis.

Growth in the third quarter was driven by a good harvest and rising output at oil refinery Mazeikiu Nafta, the country”s biggest company, economists said. The outlook for exports is “worrying”” and a potential drop in consumption further raises the risk of a recession next year, according to analysts. “In reality, the outlook is even weaker, as the recovery of the oil refining capacity raises the growth figures of manufacturing output artificially,”” said Anssi Rantala, a senior analyst with Helsinki-based Nordea Markets. Growth averaged 5% through the first nine months this year, the Statistical Department said. The central bank estimates that growth may average 4.2% this year before slowing to 1.2% in 2009. “The slowing of the economy is occurring more suddenly, and will be deeper than expected,”” the Bank of Lithuania stated on October 23. “This is fundamentally based on worsening expectations by people and businesses about economic developments amid the global financial crisis.”” Lithuania”s economy continued to grow in the third quarter while its Baltic neighbors, Latvia and Estonia, slipped into recession in the second quarter. Domestic consumption is likely to weaken further in coming quarter as inflation, which accelerated to 11% in September, cuts consumers” buying power, the central bank said. Retail sales fell 3.3% in August, suggesting that consumption is weakening on tumbling consumer confidence. The rate compares with 27.1% growth in February.

Lithuanian centre right claims win

Lithuania’s main centre-right opposition party claimed victory in a parliamentary election, but faced tough talks to form a majority coalition as the former Soviet state heads for a sharp economic slowdown.

The vote in Lithuania, a European Union and NATO member since 2004, took place amid anger over double digit inflation and fears the global credit crunch and financial crisis could hit growth and jobs.

With votes counted in 1,739 districts out of 1,910 in the second round vote, the centre-right Homeland Union won a further 27 seats to add to 18 won in the first round two weeks ago.

This would give it 45 seats, well short of a majority in the 141-seat parliament and leading to the need for coalition talks.

Homeland Union leader Andrius Kubilius said the voting showed his party had won the vote and that it would lead talks on forming the new government.

“I see a very good chance to form a working government for the cause of change,” Kubilius told reporters.

Kubilius, prime minister in 1999-2000, was expected to woo two smaller centre-right groups – the opposition Liberal Movement and the Liberal and Centre Union, a member of the outgoing coalition.

Economic slowdown

Another potential partner is the National Resurrection Party, led by a popular television talent show host, which came a surprise second after the first round.

Kubilius told reporters his party wanted the posts of finance minister, economy, defence and foreign affairs, with the rest being shared by coalition partners.

Kubilius is set to become prime minister as Lithuania’s economic growth is trailing off sharply and its public finances are worsening, both problems if the country wants to achieve its stated goal of adopting the euro in 2011.

Kubilius has said he would soften the blow of the slowdown by reducing personal income tax, at the same time closing other tax loopholes so budget revenues do not suffer too much.

He has said he would let the budget deficit rise, but keep it below the limit set by the European Union of 3% of gross domestic product (GDP).

Relations with Moscow could become cooler as the centre-right has reacted most sharply to what it sees as a newly aggressive Russia after the conflict with Georgia.

But the new government faces likely growing dependence on Russian energy resources after a planned shutdown of the Soviet-era Ignalina nuclear power plant at the end of 2009.

Current ruling party, the centre-left Social Democrats, were set to win a further 13 seats, bringing their tally to 23, a defeat for Prime Minister Gediminas Kirkilas.

President Valdas Adamkus has said he planned to start talks on the new government early next week.

 

Photo: Rolandas Paksas (R) of the political party Order and Justice’s and Europe’s only leader to be impeached and removed from office casts his votes during elections in Lithuania (Reuters)” title=”Rolandas Paksas (R) of the political party Order and Justice’s and Europe’s only leader to be impeached and removed from office casts his votes during elections in Lithuania (Reuters)

 

Source: Reuters

Bush announces visa waiver for 7 countries

President Bush, trying to eliminate a major source of contention with allied nations, has announced the United States is rescinding visa requirements for citizens of six European countries and South Korea.

Bush said Friday that Latvia, Lithuania, Estonia, Hungary, the Czech Republic, Slovakia and South Korea will be added to the U.S. visa waiver program in about a month. All of the nations allow U.S. citizens to visit without obtaining a visa. He said other countries also are on the path toward getting visa-free treatment.

The United States requires that the countries issue tamper-proof biometric passports that are difficult to forge.

Governments of Baltic states inert in fight against crisis

Government of Baltic states haven’t done enough to avoid the crisis, Bengt Dennis, former president of Swedish central bank said, aripaev.ee mediates Swedish business daily Dagens Industri.

The party is over and guests on their way home. Years of zero-growth are ahead.

“Baltics have driven off the road,” said Dennis, who predicted loan losses will be bigger for Swedish banks.

Dennis painted a gloomy picture of Baltic states in business seminar in Stockholm.

“It has been a success story, but now they’ve driven off the road,”  Dennis said.

Accoridng to him IMF’s prognosis, which predicts zero-growth for Baltics, is too optimistic. Signs of difficulties is large current account deficit, high inflation and labour costs.

“Governments haven’t reacted to correct imbalance in the economy. I believe next year’s GDP is falling in Estonia, Latvia and even in Lithuania,” Dennis said.

“Situation in Baltic countries is very difficult. The crisis showed that government wasn’t ready to act and secondly these are still poor countries. It will be especially hard for workless, sick and retired people,” Dennis said.

Political situation also helped to deepen the situation – weak coalition. Politicians didn’t want to make necessary, but unpleasant decisions to keep success. And necessary decisions will be harder since political insecurity is growing.

“That is seen now. On Sunday three populist parties will get 37 pct of the votes in Lithuania,” he added.
Dennis is convinced that Baltic crisis will hit Swedish banks Swedbank and SEB strongly.

“I suggest them to overlook their credit losses, so far estimates have been very moderate,” Dennis commented.

 

by Marge Tubalkain-Trell
marge.tubalkain-trellatchararipaev.ee

Opinion: Georgia is a danger to today’s Russia

Georgia presents a grave threat to the ruling class in Russia. They fear Georgia and are determined to undermine its growing success.

Russia has many deep problems that are not being addressed. The streets of Moscow and Saint Petersburg are filled with glitzy businesses and flashy automobiles. However, most of Russia is an impoverished country with crumbling infrastructure and a declining population.

Rampant inflation, corruption and a hostile business environment are stifling economic growth in the vast expanses of Russia outside Moscow and Saint Petersburg. Russia’s gross domestic production has grown more slowly than Georgia, and about the same rate as Ukraine. This is staggering when one considers the massive oil profits Russia has that its neighbors do not.

Small businesses find it almost impossible to operate. In advanced economies like the United States, businesses with fewer than fifteen employees account for half of the gross domestic product. Recent opinion surveys by the Levada Center in Moscow show that more than 70% of young people in Russia would prefer to be a state bureaucrat than an entrepreneur.

Former KGB agents, oligarchs and corrupt government officials are good at seizing assets of political enemies or businesses they covet. However, they are not very good at running competitive companies that spread wealth to the vast majority of Russians who have none.

The KGB alumni and oligarchs in Russia use nationalism to mask their inability to improve the standard of living for most Russians. They stoke a nationalistic fervor by editing text books, inventing “Western conspiracies,” and portraying Russia as a grand victim. They can’t improve most Russians’ quality of life, but they can make Russians feel proud of their “strong” leaders.

Putin’s Russia is good at killing journalists, poisoning political enemies and growing corruption. The lack of political debate and freedom of the press gives Russians few alternatives to ponder.

The new Georgia threatens those falsehoods. Georgia is fast becoming an example Russia’s leaders fear. That’s why Russia is doing all it can to stifle Georgia’s growth away from the old Soviet mentality.

In a recent trip to Ukraine, many young professionals I met in Kiev could not imagine driving a few kilometers without being stopped by police panhandling for bribes. They said Ukraine would never change. They were amazed when I told them about Georgia, where policemen are helpful and not corrupt. It opened their eyes to what their country can someday achieve as well.

Countries like Russia and Belarus are moving back towards their authoritarian roots. They are relying on a series of falsehoods to take them there. The Checkists fear a former Soviet Republic making progress against the problems they thrive upon.

Georgia’s free press and open debate contrasts sharply with the political system evolving behind closed doors in the Kremlin. Georgia’s refusal to gloss over the atrocities of the NKVD and KGB threatens the Checkists of today. Georgia’s progress towards better roads and police underscores Russia’s inability to do the same. Georgia’s success at creating a growing tourism industry and culture of small businesses highlights the lack of progress in Russia.

Georgians often ask themselves why their mighty neighbor to the North sees their tiny country as a threat. Georgia may be small, but it has the potential to set big examples and spread big ideas that would overwhelm those ruling Russia today.

 

Thomas Blue

is a corporate and investment banker in the United States. He is married to a Ukrainian journalist and travels frequently in Eastern Europe. You may contact him at ThomasBlue@aol.com.

EU leaders urge reforms as recession signs mount

European leaders called Wednesday for a new world financial order to prevent future financial crises, as growing signs of global recession dampened optimism over government efforts to bail out banks.

The United States reported its biggest monthly decline in retail sales in more than three years, and Europe offered negative economic data and outlooks of its own. Markets around the world fell.

At a meeting of European leaders in Brussels, Britain and Germany joined France in calling for an international summit this year to draw up a new world financial system.

Earlier this week, governments around the world pledged $3.2 trillion US to take stakes in banks to help them stabilize, which led to a rally in world markets on Monday.

But that optimism was quickly overshadowed by fears that major economies are headed for recession despite the government intervention.
“By restricting flows of credit to households, businesses, and state and local governments, the turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth,” U.S. Federal Reserve chairman Ben Bernanke said on Wednesday.
It will take some time to restore normal flows of credit, he said. The dollar rose against the euro after his comments.

The Dow Jones industrial average fell 3.3 per cent and the S&P 500 index was down 3.4 per cent.

European shares shed six per cent. Oil fell more than $3 US per barrel.
In Brussels, British Prime Minister Gordon Brown and German Chancellor Angela Merkel backed a proposal by French President Nicolas Sarkozy to hold a meeting to revamp financial structures set up at the Bretton Woods conference in 1944.

“I believe a forum to decide on big changes in the international economy can be held in the next few months,” Brown told a news conference just before a two-day summit.

Dutch Finance Minister Wouter Bos said a stronger role for the International Monetary Fund was needed, “in the absence of American leadership at the moment.”

The United States on Tuesday offered to take up to $250 billion US worth of equity in its banks, an astonishing move in the home of free market capitalism.

President George W. Bush stressed that the move was temporary. “I’m confident in the long run this economy will come back,” he told reporters before a cabinet meeting Wednesday.

The U.S. move followed an agreement by European leaders on Sunday to undertake a 2.2 trillion-euro ($3 trillion US) rescue of European banking giants, which have been hit by a credit crunch brought on by defaulting mortgages in the United States.

Signs of a looming recession abounded Wednesday.

The U.S. government said retail sales dropped 1.2 per cent in September, the biggest monthly drop in three years, and wholesale prices dropped 0.4 per cent. Manufacturing activity in New York state fell in October.
U.S. bank JPMorgan Chase said third-quarter profit plunged 84 per cent, while Wells Fargo reported a drop in earnings of 25 per cent.
British unemployment rose to 5.7 per cent, its highest level in eight years, official data showed.

German economic growth will only be slightly above zero in 2009, Finance Minister Peer Steinbrueck said. And two U.S. Federal Reserve officials noted risks to the world’s biggest economy.

Also on Wednesday, the European Central Bank said it would allow banks to swap a larger range of their assets for central bank funds and offer extra U.S. dollar liquidity through foreign exchange swaps.
Southeast Asian nations, backed by $10 billion US from the World Bank, were the latest to join the rescue effort, agreeing to create a multibillion fund to help banks.

The fund will buy up toxic debt and support banks in the region, Philippines President Gloria Macapagal Arroyo said.
Iceland, driven close to bankruptcy as frozen credit markets caused its banks to fail, cut interest rates by a staggering 3.5 percentage points as its officials pursued efforts to get help from Russia via a multibillion-euro loan.

The economy is dominating the U.S. presidential campaign, which sees a final debate between the candidates on Wednesday.
Democrat Barack Obama has accused Republicans of presiding over unfettered financial deregulation while John McCain has sought to regain his footing on economic issues after drawing criticism for saying U.S. fundamentals were strong.

Women Call Up for Military Service in NAF

Latvian women are going to be included into the reserve of the National Armed Forces. This way, they will be provided with the equal chance to serve in the Army with men. The amendments to the law for the military service have been supported by the Parliamentary Commission for Defense and Internal Affairs on October 15.

The women wishing to serve to the Country will be accepted in reserve and will go through the trainings into the Army. They have to be the citizens of Latvia, at least 18 years old and fit to the military service.

NATO split over Baltic defense

A recent request by the highest military commander of the North Atlantic Treaty Organization (NATO) for the authority to draw up full defense plans for Estonia, Latvia and Lithuania, could lead to a serious rift in the alliance as it wars over how to deal with Russia.

The move comes just two months after Russia’s invasion of Georgia, and at a time when Russia constitutes the only conceivable military threat for the three Baltic members.

When Estonia, Latvia and Lithuania joined the alliance in 2004, Afghanistan and terrorism were NATO’s top concerns, whereas Russia was seen as an aspiring strategic partner.

The alliance therefore did not draw up “contingency plans” or full defense strategies for the three Baltic states, a shortcoming which now looks like an anachronism after the events in Georgia exposed NATO’s soft underbelly.

Recognizing this, NATO’s top commander, General James Craddock, has written to the allies seeking approval to draw up the necessary plans. But getting the go-ahead may prove less than straightforward, as NATO sources say Germany and France have informally opposed Craddock’s request.

The issue of contingency planning is extremely sensitive within NATO, not least because the plans are classified. NATO spokesman James Appathurai told Radio Free Europe/Radio Liberty on October 7 that he is not allowed to publicly discuss contingency, and reiterated the alliance’s standard pledge to defend all of its members from all threats.

“What I can say is that NATO has had an extremely robust, flexible system in place for 59 years, with hundreds of planners at [NATO headquarters] and elsewhere to develop the necessary plans for the defense of this alliance in any type of situation,” Appathurai said.

Most exposed allies
Since their accession to NATO, the Baltic countries have made no secret of their disappointment at the absence of concrete plans to defend them against the Russian threat.

NATO officials privately concede that the three Baltic nations are the most exposed among all 26 allies. Although none of the eastern European allies have full contingency plans drawn up for their defense, some amount of planning has been done for all – except Estonia, Latvia and Lithuania.

Ronald D Asmus, a former senior US diplomat closely involved in NATO’s post-Cold War expansion, noted in the Wall Street Journal Europe on August 18 that the alliance “unilaterally refrained from such steps partly as a confidence-building step toward Russia.” Asmus now says NATO should reconsider.

All formal defense planning – “for a specific area against a specific threat,” as one NATO official put it – requires the unanimous backing of all allies. In the parlance of the alliance, it is a political decision.

The United States and Britain has strongly back contingency plans for the Baltic countries. A senior US official said in Brussels on October 7 that NATO must carry on with its “day-to-day” activities – including contingency planning.

London’s Daily Telegraph, which first broke the story, said Craddock recommends Estonia, with its large Russian-speaking minority and increasingly fraught relationship with Moscow, be the first Baltic beneficiary of a NATO military risk-assessment study.

But many continental European allies, led by France and Germany, feel any such move would threaten open confrontation with Russia.

This divergence of views threatens the alliance with a serious rift. After the conflict in Georgia, many analysts see US and European interests parting ways when it comes to Russia, and Germany in particular seems to conclude it cannot afford to alienate Moscow.

Berlin’s reasons are complex, stretching from Germany’s dependence on Russian energy to strategic balance of power calculations. Chancellor Angela Merkel on October 3 publicly ruled out quick NATO Membership Action Plans (MAPs) for Georgia and Ukraine, saying at a joint press conference with Russian President Dmitry Medvedev in St Petersburg that the two countries’ immediate integration with NATO is not in German interests. NATO foreign ministers are scheduled to debate the issue in December.

Baltic countries meanwhile fear that the trend towards accommodating Russia could materially affect their security, and that political considerations could begin to erode NATO’s commitment to mutual defense.

Lithuania government approves draft budget for 2009

Lithuania’s government said on Tuesday it approved a draft 2009 budget with a deficit of 2.3 percent of projected gross domestic product (GDP), as tax revenues were expected to fall from this year.
All three Baltic states are struggling to balance their public finances as their economies are rapidly cooling, with Latvia and Estonia already in technical recession.

“I think it is a realistic budget, based on sound calculations,” the Finance Minister Rimantas Sadzius told a press conference after the cabinet meeting.
The finance ministry on Tuesday cut its economic growth forecast for 2009 to 1.5 percent from 4.5 percent in April, two days after the centre-right and populist opposition led in the first round of general elections on Sunday.

Sadzius said falling revenues, especially from the value-added tax (VAT), were behind the planned budget deficit.
The budget proposal set spending for next year at 28.2 billion Lithuanian litas ($11.2 billion), up from 26.6 billion litas planned in 2008, while revenues were seen falling to 25.5 billion litas from 25.6 billion litas estimated for this year.

The national budget, which includes state and municipal budgets, had spending and revenues set at 30.2 billion litas and 32.8 billion litas respectively.

BUDGET SCARES OPPOSITION

“The situation with the budget is scary… We would seek to cut the deficit,” Andrius Kubilius, a leader of the opposition Homeland Union-Lithuania Christian Democrats, which might become the biggest party in the parliament after the second round of the election, due on October 26.
“The main question is whether we would be able to borrow enough in the current global financial situation,” he added.
The finance minister declined to comment on the plans to launch a 400 million euro ($550 million) eurobond issue, which was postponed several times this year due to global financial turmoil.

Sadzius only said the government was planning to borrow both at home and abroad, with the general borrowing requirement, including refinancing of maturing loans, to amount close to 6 billion litas next year.

Prime Minister Gediminas Kirkilas tried to downplay worries about the budget deficit.
“The situation is not tragic since our deficit will be among the lowest in the European Union,” he told Lithuania state radio.
Kirkilas said deficit was unavoidable due to the need to raise wages for public sector employees, including a long-term agreement reached with teachers’ trade unions.

Neighbouring Latvia said it planned to have a deficit of 1.85 percent of GDP, while the Estonian government said its next year’s draft budget is a balanced one, a claim disputed by media in the country.

Reporting by Nerijus Adomaitis