Current economic situation and trends

Since achieving independence, Lithuania's chosen course has been that of full integration into the world economy on the basis of market economy principles. This has led and is still leading to enormous transformations in the local economy. After five years of decline, the first increase in the country's Gross Domestic Product (GDP) was registered in 1994 when it grew by one per cent. In 1995 this was followed by an increase of three per cent and there was a further increase of 3.6 per cent in 1996. It is projected that Lithuania's GDP will grow by five per cent in 1997.

Certain adjustments also could be distinguished in the labour market. For the last couple of years the prevailing pattern has been that of almost constantly rising unemployment. However, after peaking in March 1996, the unemployment level has begun to subside and as of May 1997 amounted to 5.6 per cent of the labour force. Another success story is the achievement of the Government of Lithuania in curbing inflation. As a result of strict monetary and fiscal policies, inflation fell from 1,163 per cent in 1992 to 13.1 per cent in 1996. Already in June 1997 the one year inflation rate fell to 7.2 per cent.

Table 1: Key macroeconomic figures in Lithuania

	1994	1995	1996
Nominal GDP (Billion US$)	4.245	5.95	7.78
GDP per capita** ($)	3804	4021	4646*
GDP growth (%)	1.0	3.0	3.6
Budget deficit (as % of GDP)	-2.0	-2.1	-2.5
Inflation (CPI % change p.a.)	45.1	35.7	13.1
Unemployment rate (%)	3.8	6.1	6.2

* estimations MFA
** purchasing power parity is taken into account
Source: Lithuanian Department of Statistics

One more vital contribution to the stabilisation of the economic situation in Lithuania has been made by the stability of Lithuania's national currency, the litas. Government policy has ensured that the Litas has been stable since its introduction in June 1993.

Among other positive economic developments should be counted the fact that Lithuania succeeded in restructuring the local economy without engendering sky-rocketing foreign debt. By international standards Lithuania's foreign debt is moderate, and currently accounts only for approximately one sixth of the country's GDP, which gives Lithuania one of the lowest foreign debt to GDP ratios in Europe. Clearly, with growth in GDP, controlled inflation and a stable national currency are pointers towards a general economic stabilisation in Lithuania. This would lead to the general description of the present economic situation in Lithuania as one of advanced preparation for steady growth. Moreover, it seems that this confidence is shared by the IMF, which expects Lithuania's economy to grow by five to seven per cent in 1997, and also by Standard and Poors, an American credit rating agency, who recently awarded BBB- and BBB+ credit ratings to Lithuania.

Foreign investments

The Lithuanian Government considers foreign investments to be an essential factor in its efforts to restructure the national economy and take a strong push in developing infrastructure. The main objectives of the policy which has been implemented since the middle of 1991 are to enhance the technical and technological level of enterprises, to help enterprises be competitive on the international market, to integrate the Lithuanian economy into the world economic system and to establish grounds for the effective operation of the free market economy in general.

As the largest country in the Baltic region, Lithuania has historically enjoyed the role of an intermediary between northern and southern as well as Eastern and Western Europe. This unique geographical location could be used to implement a great number of projects in transport, communications, warehousing, trade, banking and other sectors. With this in mind, Lithuania could become an attractive business centre in this region of Europe.

By 1 January 1997, 5,295 joint ventures and foreign capital enterprises were registered in Lithuania, and the total stock of foreign investments stood at more than $572 million.

Most of the investment came from the USA (28.9 per cent of the total), Germany (13.1 per cent), Sweden (12 per cent) and the United Kingdom (7.8 per cent). The major part (approximately 60 per cent) of the foreign investments in Lithuania originated from the EU countries. Investments from the EFTA countries amounted to 5.2 per cent of the total, while investments from the CIS countries made up some five per cent of the total. Investments have also been attracted from some distant countries such as Australia, China, Columbia, Panama, etc.

By now a number of multinationals have already made significant investments in Lithuania, including Philip Morris, Motorola, Kraft Jacobs Suchard, Shell, IBM, Siemens, ABB, Caterpillar etc. So far it seems that those who come to Lithuania not only stay there but also substantially increase their initial investments.

The Lithuanian Government comprehends the role foreign capital and technological know-how can play in the modernisation of the economy. This is why the Lithuanian authorities have decided to facilitate the inflow of foreign capital to the country. At present, foreign investors may be assisted by a number of specialised institutions such as the Lithuanian Investment Agency, the Privatisation Agency, and the Ministry of European Affairs.

Politics

The Republic of Lithuania is an independent democratic state expressing the common will and interests of its people. The foundations of the social system are enforced by the Constitution of the Republic of Lithuania (adopted in 1992 by a referendum) which also establishes the rights, freedoms and obligations of its citizens. Under that law, sovereign state power is vested in the people of Lithuania and is exercised by the Seimas (Parliament), the President of the Republic, the Government and the Courts.

The Seimas is a one-chamber Parliament which is composed of 141 members elected for a four-year term. The Seimas elects its Chair (the Speaker) and Deputy Chair. The last elections took place in October 1996; the next elections will take place in the year 2000. Most of the votes in the last election went to the Conservative party (66) and Christian Democratic Party (15) which formed a coalition.

Table 2: Representation of parties and political organisations in
the Seimas elected in October 1996

Party/political organisation	Members
Homeland Union-Lithuanian Conservatives	66
Lithuanian Center Union	14
Lithuanian Christian Democratic Party	15
Lithuanian Christian Democratic Union	1
Lithuanian Democratic Labour Party	11
Lithuanian Democratic Party	2
Lithuanian Farmer's Party	1
Lithuanian Nationalist Party 'Jaunoji Lietuva'	1
Lithuanian Nationalist Union	1
Lithuanian Poles' Electoral Action	2
Lithuanian Social Democratic Party	10
Lithuanian Women's Party	1
Union of Lithuanian Political Prisoners and Deportees	1
Independent	12
Total	139

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