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Baltic Report: January 24, 2000

24 January 2000, Volume 1, Number 1
Baltic Countries Protest Czech Border Regime
Estonia, Latvia, and Lithuania have filed protests with the Czech Foreign Ministry over alleged violations of the visa-free regimes between the countries. New Czech regulations place citizens of the three Baltic countries as well as some others in a category which requires their nationals to provide extra documentation at the border--including photos, proof of accommodations as well as sufficient funds for their proposed stay. Czech officials told their Lithuanian counterparts that some border guards took the new regulations "too straightforwardly," BNS reported.
* The Baltic and Nordic commanders met in Copenhagen 19 January to discuss future cooperation. Following the meeting, the three Baltic commanders visited Bosnia-Herzegovina to inspect BALTBAT.

Estonian Citizenship/Migration Head Dismissed
Interior Minister Tarmo Loodus on 14 January fired Andres Kollist as head of the Citizenship and Migration Department. Loodus accused Kollist for the bureaucratization of the citizenship process and said that the rules for gaining permits were "humiliating." Prime Minister Mart Laar commented that retaining Kollist would have caused an "international uproar."
* The Security Police arrested Pjotr Kalatshov in Tartu after he attempted to sell undercover officers 500 grams of plastic explosives. Kaltshov first came to public notice in April 1999 when he was detained by Russia's FSB for attempting to purchase military documents in Pskov.
* The Estonian CPI in 1999 grew by 3.3 percent, with prices rising 0.7 percent in the last quarter. Finance Minister Siim Kallas predicted that 1999 GDP would be lower than the year by 0.5-1.0 percent, calling it the "worst year" in economic terms for Estonia since the restoration of independence. The Central Bank also predicted a slight GDP decrease of less than 1 percent.
* Georgian Deputy Foreign Minister Merat Antadze met with Foreign Minister Toomas Hendrik Ilves and Defense Minister Juri Luik to discuss Baltic cooperation projects, including BALTBAT and the joint parliamentary body Baltic Assembly. Antadze stated he hoped to launch similar cooperation projects among the countries of the southern Caucasus.
* Deaths outnumbered births in Estonia in 1999 by 5,994, despite a small increase in the country's birthrate.
* A public information campaign has been launched to promote a PHARE-funded program that will refund half the fees for Estonian-language courses for those who eventually pass the language exam. An estimated 6,000 individuals are likely to take advantage of the scheme in 2000, getting back up to 1,200 kroons ($77.63) upon passing the exam.

New Envoy To U.S. Named Despite Opposition
Latvian President Vaira Vike-Freiberga informed Foreign Minister Indulis Berzins on 17 January that she has appointed Aivis Ronis as the new Latvian ambassador to the United States. The nomination of Ronis sparked controversy, largely because he is only 31, and the parliament's foreign affairs committee deadlocked on the nomination on 12 January. Committee Chairman Guntars Krasts asked the president not to make the appointment. But the vote of the parliamentary committee is only an advisory one, as the president makes all diplomatic appointments in consultation with the Foreign Ministry. Outgoing Latvian ambassador to Washington, Ojars Kalnins, said Ronis would be an excellent successor.

Latvian Parliament Adopts Statement On Chechnya
By a vote of 70 to 13, the Latvian parliament on 20 January called for Russia to end its military campaign in Chechnya. It states that Latvia "joins other states and international organizations' appeal to the Russian Federation to halt warfare in Chechnya immediately and enter into negotiations utilizing the mediation of international organizations," LETA reported. Moscow's "brutal war," the statement continued, creates "distrust in Russian democracy." Meanwhile, Prime Minister Andris Skele defended his accusations that Russia is committing "genocide" in Chechnya, after the Russian Foreign Ministry said his remarks should not have been made by a "key official of a neighboring state."
* Shareholders of Latvia's electricity utility Latvenergo approved a restructuring plan that would allow for the sector's privatization. The plan calls for the restructuring of Latvenergo into a state-owned holding company, breaking off various parts of the sector. The regional distribution networks are to be fully privatized, while the state will retain majority shares in the Riga combo plants. However, the hydroelectric plants and the national transmission network will remain state-owned. The plan still needs approval from the Latvian Privatization Agency and the government.
* Latvian authorities have detained Konstantin Nikulin, a former OMON soldier who is suspected of having murdered Russian politician Galina Starovoitova.
* The national budget deficit in 1999 was 147.038 million lats ($251.26 million), or about 3.5 percent of GDP.
* Nomura Securities and Hansabanka won the tender to organize the sale of 10 million of the state's shares in gas company Latvijas Gaze. The sale, to be held at the Riga Bourse in the near future, should bring in more than 18 million lats ($30.78 million).

Resignations At Lithuanian Public Radio And TV
The management of the financially troubled Lithuanian Radio and Television (LRT) resigned on 17 January. LRT acting Director Algirdas Trakimavicius, as well as the director of the radio service, Laima Grumadiene, both submitted their resignation. In the meeting of the LRT council following the resignations of the managers, its chairman, Algimantas Maciulis, also resigned, saying the cause was the inability to guarantee normal operations for the public radio and television service. The council elected Petras Dirgela as the new council chairman and appointed Vaidotas Zukas as new acting director. LRT has been experiencing serious financial problems, with debts at the end of 1999 of around 13 million litas ($3.25 million). Since 15 January, Radio-2 and Radio-3 have been off the air and national television broadcasts have been trimmed (see "RFE/RL Newsline," 4 January 2000). The new leadership of LRT is also exploring the possibilities of a licensing fee for television, following countries such as Great Britain, to help fund public television.

Lithuanian Defense Minister Adamant On Spending
Defense Minister Ceslovas Stankevicius said he stands by this year's budget allocation for national defense and criticized opposition politicians calling for its immediate reduction. The New Union (Social Liberals), led by former presidential candidate Arturas Paulauskas, announced on 19 January that they have begun collecting signatures for a petition drive to force the parliament to debate the motion. The proposal would transfer about 148 million litas ($37 million) from defense spending to education. Stankevicius angrily called it a "lack of respect for the constitutional system." The Defense Minister also pointed out that the situation in the defense sphere remains difficult, as debts of about 49 million litas accrued in 1999 due to budget cuts and the shortfall will have to come out of the 2000 defense budget. He added that in 1999 only about 1.2 percent of GDP was actually allocated to defense instead of the planned 1.5 percent. Lithuanian law requires the parliament to debate a measure if 50,000 citizens sign a petition in support of the measure within two months.
* Former Minister for Administrative Reform Kestutis Skrebys was expelled from the ruling Conservative Party. The party's monitoring committee accused Skrebys of making statements in opposition to the party platform, a charge denied by Skrebys. Skrebys is known to be a supporter of ex-Premier Gediminas Vagnorius, who has been embroiled in a public feud with party leader Vytautas Landsbergis.
* The sentence of jailed parliamentary deputy Audrius Butkevicius was reduced from 5.5 years to 3.5 years by the Vilnius District Court. Butkevicius, who still holds his parliamentary mandate, was convicted of bribery in 1997 and has exhausted all appeals in Lithuania.
* The Finance Ministry reported that final data on the 1999 budget showed the state failed to collect 12.3 percent of anticipated revenues. VAT collection was off by 11.7 percent, while corporate income tax collection fell short by 22.5 percent.
* The government has decided to build a European-standard railway line from Kaunas to the Polish border. This would enable faster transit and be a part of the infrastructure project Via Baltica. The projected cost is 738 million litas ($184.5 million).

In Lithuania, No Escape From Debt Or Taxes

By Asta Banionis

Lithuania's current fiscal crisis--highlighted by the adoption of a "poverty budget" for the year 2000 after a large government deficit in 1999--reflects the deeper problems Vilnius faces in making its transition to a free market economy.

Prospects for a quick escape from this immediate crisis are poor because the economy is contracting with unemployment having grown to 10 percent of the workforce. The country's GDP fell by 4.9 percent in the first nine months of 1999 and the trend is likely to continue in the fourth quarter.

Some of the economy's problems last year are unlikely to be repeated. The forced shutdown of the state-owned oil refinery at Mazeikiai for several months when Russia's LUKoil refused to sell oil to Lithuania contributed to the economic slowdown. Indeed, some analysts attribute 30 percent of the GDP decline to this event alone.

But the problem is far broader. Private sector industries, such as food processing and light industry--which still remain oriented to the East--have not recovered their markets. Part of the reason for this is Lithuania's overvalued currency--the litas by law is tied to the U.S. dollar--and part reflects the fact that Russian producers have filled that market as the Russian economy recovers from its financial collapse in August 1998.

Moreover, the current fiscal crisis has its roots in 1991, when a decision was made to keep state industries on the government books and to provide government guarantees for foreign loans to partially privatized state enterprises. This arrangement grew dramatically in size during the period (1993-96) when reform communists controlled the government. Over the years, most state industries as well as many of the private companies have defaulted on their loans, leaving the Lithuanian taxpayer with a heavy debt that must be paid. Instead of reversing this practice, the Conservative Party government, which took office in 1997 merely rolled over the debt into new foreign borrowing. Indeed, the problem is now so severe that several commentators have suggested that the government does not even know how large its liabilities are.

The Conservative Party's much heralded privatization program further did not move quickly enough to remove state industries from the backs of Lithuania's taxpayers. Nor did the Conservatives prevent those industries from accumulating further indebtedness. The Mazeikiai oil refinery is a good example of where local managers were allowed to continue unsound business practices even when the plant was in the midst of a privatization process. With a $350 million working capital deficit by mid-year 1999, the plant would have long been out of business if it had not been able to rely on the government's guarantees, as well as infusions of public monies over the last eight years.

Another problem concerns the inability of the Conservatives to bring under control various government agencies which have been off-budget with their own funds and borrowing authority. Unfortunately, this borrowing authority is nonetheless backed up with central government guarantees to the lenders. One public report cited 27 such separate funds; but others suggest that there may be as many as 43 off-budget government entities. One of the largest and best known is SoDra, the social insurance fund, which cannot meet its obligation of monthly pensions without borrowing--$10 million in December alone. Its accumulated debt is now 470 million litas ($110.7 million), mostly owed to foreign banks, and guaranteed by the Lithuanian taxpayer.

Some credit analysts believe that Lithuania has reached its credit limit and will have a difficult time rolling over its debt this year. The Finance Ministry has announced that it will seek to float bonds worth 300-500 million euros ($302-504 million) on the capital markets in the first quarter of this year. Some 200 million euros will be used to cover this year's budget deficit and the balance will be used to consolidate existing debt.

The debate over this fiscal crisis has not been encouraging. A major reason for this is that taxpayers have no organized group to defend their issues against businesses interested in subsidies and others seeking a flat tax. A few voices have surfaced in the business publications questioning how much government can the Lithuanian taxpayer afford. And because a third of Lithuania's population draws some kind of cash benefit from the government either as pensions, disability or hardship payments, there appears to be little interest in creating an organization that might limit state revenue.

With political parties maneuvering for position as they enter this year's national election cycle, the left-of-center parties are already decrying the slashing of government services and honing their populist appeals without regard for the fiscal implications of their lofty rhetoric. The right-of-center parties are largely in disarray, in part discredited by the fiscal crisis. The self-described center parties have a grab bag of political slogans which lurch from issue to issue--one day denouncing foreign investment and privatization and on another lauding the benefits of private enterprise. In this election cycle, Lithuania appears unlikely to heed the one group that might make a difference: the many hard-working, imaginative, and energetic entrepreneurs of their country. They're out there. Now, if they could simply be heard.