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TITLE: LITHUANIA ECONOMIC POLICY AND TRADE PRACTICES
DATE: FEBRUARY 1994
AUTHOR: U.S. DEPARTMENT OF STATE
Key Economic Indicators
(Millions of litas unless noted) /1
1991 1992 1993(e)
Real GDP (1992 prices) /2 5,247 3,269 2,710
Real GDP Growth (pct.) -13.4 -35.0 -17.1
GDP (at current prices) /3 39,105 3,269 11,189
Agriculture n/a 546 2,048
Energy and Water n/a 125 470
Manufacturing n/a 2,525 7,764
Construction n/a 225 582
Other Services n/a 282 1,074
Government n/a 811 2,030
Net Exports of
Goods and Services +38 +306 -159
Real Per Capita GDP ('92 BPS) 1,418 884 732
Labor Force (000's) 1,835 1,848 1,793
Unemployment Rate (pct.) 0.01 1.0 2.0
Money and Prices
(annual percent growth)
Money Supply (mill. litas) /4 412 351 160
Base Interest Rate (pct.) /5 10 120 95
Consumer/Retail Prices 225 1,021 160
Exchange Rate (litas per $)
Official (period avg.) 1.75 /6 3.79 4.50
Parallel (period avg.) 114 /6 3.79 4.50
Balance of Payments and Trade /7
(millions of U.S. dollars unless noted)
Total Merchandise Exports (FOB) 6,783 1,145 4,524
Exports to U.S. (FAS) n/a 5 27
Total Merchandise Imports (FOB) 4,937 1,084 4,683
Imports from U.S. (Customs) n/a 44 222
External Public Debt ($ mill.) 0 40 357
Debt Service ($ million paid) 0 5 25
Gold and FOREX Reserves ($ mill.) 107 232 253
Trade Balance -1,806 61 -159
Balance with U.S. n/a -39 -195
(e) = Estimate.
1/ The litas was introduced on June 20, 1993, and replaced the
then temporary currency, the talonas, at a conversion rate
of one litas per 100 talonas.
2/ Figures for 1991 are converted into litas from rubles that
were then actually in use.
3/ GDP at factor cost; 1991 figure is in USSR/Russian rubles.
4/ In "broad money" as defined by the IMF.
5/ Figures are actual, average interest rates.
6/ Figure is 1991 avg. rate for USSR/Russian ruble per dollar.
7/ Merchandise trade includes ruble zone. Source: For 1992,
IMF and U.S. Department of Commerce figures in U.S.
dollars. For 1993, U.S. Embassy estimates in Litas.
1. General Policy Framework
Since declaring independence in 1990, the Lithuanians have
been largely preoccupied with the political climate in their
emerging nation. It is only since the fall of 1991 that
attention has been focused on economic issues facing the
country. Lithuania has been experiencing a sharp economic
downturn and a decline in real income levels. However, with
the assistance of the IMF and other international institutions,
Lithuania has brought its soaring inflation under control and
hopes to stabilize its economy in 1994.
Lithuania is developing a market economy and eliminating
vestiges of the centrally planned Soviet system as quickly as
possible. The government is eager to encourage foreign
investments and open new trade ties, particularly with the
West. Trade ties with the former Soviet Union are expected to
continue, although at a reduced rate.
Lithuania has embarked on a series of price liberalizations
and most price controls have been abolished. The government
has established a central bank for regulatory purposes.
Lithuania has abandoned the Soviet ruble in favor of its own
currency, the litas. Many businesses have been privatized and
private citizens are allowed to own land for the first time.
Lithuania is seeking to further liberalize its foreign
The Lithuanian government is following a cautious, but
optimistic program of economic reform in banking and monetary
policies, price structure, tax laws, land ownership laws,
fiscal reform and foreign trade reform.
2. Exchange Rate Policies
On June 20, 1993, Lithuania introduced its own national
currency, the litas. It is convertible at floating market
rates of exchange. The litas rate against the dollar has been
fluctuating from 4.5 to 3.8.
3. Structural Policies
Patterns of industrial ownership: Lithuania is
implementing a privatization program which includes large and
small scale enterprises, agricultural land and housing units.
The program is based on distributing investment vouchers to all
citizens. Private ownership of land is permitted only for
Lithuanian citizens. Most large manufacturing enterprises are
still state-owned. The government has published a limited list
of companies which are open to foreign investment.
Price reform: The Lithuanian government has dismantled
most of the centralized price controls formerly imposed by
Moscow. Prices on most foodstuffs and manufactured goods have
been liberalized. However, due to market monopolies and
oligopolies in several sectors, the Lithuanian government has
imposed measures to control anti-competition price fixing.
Tax policies: Lithuania has begun to reform its entire tax
system. There is a new value added tax of 18 percent. The law
on taxes on profits of legal entities of Lithuania, adopted
July 31, 1990, established the taxable entities and regulations
for taxable profits, tax rates and tax deductions, taxes due
and payment rules, and the liability for proper taxation and
payment of taxes. The tax rate for legal entitles is 29
percent of the taxable profit.
Profit taxes of joint ventures are determined by the amount
of foreign investment in the authorized capital and its type of
activity (industrial and commercial activity). The minimum
rate of profit taxes is 20 percent and the maximum is 35
Foreign investment: The law on foreign investments was
adopted on December 29, 1990. This law allowed for three forms
of foreign investment: ownership interests in a joint venture;
firms with foreign capital; and, other securities. The intent
was to encourage foreign investment mainly through joint
ventures with Lithuanian companies.
Joint ventures are exempt from profit tax for a term of
three years from the date of the receipt of the profit.
Dividends to foreign investors received in Lithuania are exempt
from taxes. Income received legally by foreign investors and
upon which a profit tax has been paid may be repatriated
without additional tax.
The law on prohibited and limited spheres for foreign
investment adopted on May 2, 1991, determines the areas of
economic activities where foreign investment is prohibited or
limited. Foreign investment is prohibited in areas of defense
and security. Foreign investment is also prohibited in state
enterprises holding a monopoly in the Lithuanian market. These
are defined as enterprises producing more than 50 percent of
their goods in the Lithuanian market. Enterprises which
exploit existing communications, electricity delivery, gas, oil
and water supply, heating and sewage systems are also
considered to be monopolistic.
The law also provides for the right to seek international
arbitration and permits 100 percent foreign ownership. Foreign
representations are not legal persons and thus not foreign
investors. The law gives foreign investors the right to lease
land for 99 years, but bars foreigners from owning land. The
Lithuanian government is working to liberalize the laws
affecting foreign investment and has sought guidance from the
international donors including those from the United States.
4. Debt Management Policies
Lithuania has acknowledged only that portion of the Soviet
debt incurred by Lithuanian entities for uses in Lithuania.
Negotiations on this matter are in progress.
5. Significant Barriers to U.S. Exports
The objective of Lithuanian trade policy is to move toward
European and world markets but without sacrificing access to
markets in the former Soviet republics. The current task is to
reorient some exports to the West by raising the quality and
competitiveness of Lithuanian goods and services. There are
few direct barriers to Western imports.
Lithuania has high overall levels of trade, which is a
result of the centralized planning process which led to extreme
specialization. A factor of overriding importance has been the
economic dependence of Lithuania on the then Soviet Union. Due
to existing quality differentials between Lithuanian consumer
goods and world class products, as well as transport costs and
market familiarity factors, the natural market initially will
remain in the countries of the Commonwealth of Independent
A significant barrier to U.S. exports is the decline of
Lithuania's domestic economy since 1991. This has resulted in
lower effective demand for commercial imports, including
potential imports from the United States. Noncommercial
imports funded by aid donors are expected to increase. Another
barrier is the absence of a solid infrastructure for trade,
such as telecommunications and banking facilities.
6. Export Subsidies Policies
Lithuania has become concerned about maintaining sufficient
scarce goods. Therefore, the government has exercised controls
on certain exports. There are no export subsidies.
7. Protection of U.S. Intellectual Property
Upon regaining its independence, Lithuania declined to
assume formally any binding international legal obligations
undertaken for Lithuania by the former Soviet Union. In the
area of intellectual property protection, Lithuanian policy has
been to observe international standards and to consider
subscribing to international conventions beyond those accepted
by the independent Lithuanian governments before World War II.
In 1990 Lithuania joined the World Intellectual Property
Organization (WIPO) and there are plans to join the Paris
Convention for the protection of industrial property.
8. Worker Rights
While under Soviet control there were no Western style
trade unions operating in Lithuania. There was little interest
in the creation of safe and clean working conditions.
a. Right of Association
Prior to the August 1991 coup attempt, Lithuanian workers
remained largely subject to Soviet labor law which did not
permit the right to associate freely in practice. Since the
failed coup, Lithuania has adopted legislation reconfirming the
rights of workers to form independent unions and, with certain
restrictions, to strike. Lithuania has been readmitted to the
International Labor Organization.
b. Right to Organize and Bargain Collectively
Lithuanian legislation, passed since its independence,
confirms the right to organize and bargain collectively. The
Lithuanian branch of the USSR's all union Central Council of
Trade Unions has renamed itself the Confederation of Free Trade
Unions and it continues to function unhindered. A genuinely
free trade union called the Lithuanian Workers Union (LDS)
emerged in 1990 and by 1992 it claimed a dues-paying membership
of 50,000. A separate white collar Association of Professional
Workers has been established. During 1992 there were scattered
strikes by hairdressers, photo studio operators and teamsters.
But as production declines, the fear of losing jobs limits the
inclination for wage demands or other agitation.
c. Prohibition of Forced or Compulsory Labor
A regime of paid labor is a standard feature of some
Lithuanian prisons. Maximum security prisons generally do not
have compulsory labor.
d. Minimum Age for Employment of Children
The minimum age for employment of children is 16. Twelve
years of schooling is compulsory. These requirements are
enforced through a system of inspections.
e. Acceptable Conditions of Work
By law, white collar workers have a 40 hour workweek. Blue
collar staff have a 48 hour workweek with premium pay for
overtime. There are minimum legal health and safety standards
for the work place. However, worker complaints indicate that
these standards frequently appear to be ignored.
f. Rights in Sectors with U.S. Investments
There is only a minimal level of U.S. investment in any one
sector. Worker rights are applied uniformly throughout the
economy and there are no known differences in conditions among
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