Vilnius, 25 August 1997 (RFE/RL) -- Lithuanian financial experts are complaining that their country is way behind Estonia in creating the right conditions for the emergence of investment funds.
They say the government in Vilnius has all the wrong sort of regulations in place, and that this is killing the prospects for what they see as a much-needed development in the financial marketplace. They point out that not a single investment fund has been established by Lithuanians, although such funds began to open in Estonia three years ago, and there are now reportedly 19 of them there. The biggest Estonian fund is worth some $31 million.
"There is a great demand for various investment funds in Lithuania because people have money but they do not trust banks," says Algirdas Bucas, President of the Investment Companies Association. He adds that besides, investment funds would offer higher interest than banks. After the banking crisis in 1995, Lithuanians have been mistrustful of commercial banks, and they are still uncertain about where to invest.
But several of the Estonian investment funds have branches operating successfully in Lithuania, despite the unpromising circumstances. Most of these are linked to Estonian banks.
Part of the reason for the failure to move forward in this field may be the lack of expertise of the Lithuanians themselves. The local finance companies which took part in the voucher privatisation process have neither the experience nor the capital to turn themselves into proper investment services.
An official of the Lithuanian Securities Commission, Irmina Judickaite, insists that conditions have been ripe for the establishment of investment funds for over a year now. But she admits things are far from perfect, and she says the Securities Commission will act to liberalise the regulations to help foster development in the marketplace.
She says the Securities Commission will ask the Finance Ministry to change the tax rule which disadavantages investment funds. At present, if an investment fund sells securities and earns profitably, it has to pay profit tax as a juridical person. Judickaite says this means that, at present, people would get more profit if they buy securities through a brokerage house, instead of through an investment fund, because then they would not have to pay profit taxes.
Another serious obstacle is the Securities Commission regulation requiring investment funds to be linked to an asset management company, which could be a bank or a brokerage house. According to this regulation, the asset management company is not allowed to buy into the same securities as its investment fund has already purchased or intends to purchase. Nor is the asset management company allowed to earn consulting fees from, or provide other services to, the companies whose shares are bought by the investment fund.
These restrictions are based on western models in order to protect investors' interests, but experts say they are not suitable for Lithuania because the financial services market there is so much smaller. In fact, to give the last word to the Estonian financiers already engaged in the Lithuanian market, it is they -- along with
local businessmen -- who have been pressing the Securities Commission to change the rules.