Aspiring to the good life

Date: 21/11/1996

WHEN the Baltic states sang their way to freedom, Lithuania celebrated with avant-garde rock.

One of the first great acts of defiance by citizens of the largest Baltic state was to erect a monument to Frank Zappa in a hospital park.

At the same time, statues of Lenin and Stalin were pulled down throughout the country and placed in large cages in a field - now celebrated as an open-air art museum.

It is impossible to underestimate the delight with which Lithuanians broke free from the Soviet era and the optimism they felt for the future.

Unfortunately, the creative energy unleashed by the end of Russian occupation has not reaped rewards in the market-place.

Lithuania was the last of the three Baltic republics to apply for Union membership, and could well be the last to have its wishes granted.

Its economy shrank rapidly following the transition to independence (by 34&percent; in 1992), and has only recently begun to pull back. Even optimistic forecasts for gross domestic product growth in 1996 do not go beyond 3.5&percent;, while the International Monetary Fund (IMF) and analysts such as the London-based think-tank, the Nomura Research Institute, put it closer to 1.5&percent;.

Lithuania suffers from a huge trade deficit (more than 700 million ecu in 1995, according to revised figures), and public confidence is still tender due to continued difficulties within the banking sector.

Although the government claims that the crisis which struck the country's banks at the end of 1995 is firmly in the past, analysts suspect that the approach adopted to combat it - large cash subsidies - has only prolonged deep-seated problems.

Whether the recent election turn-about will change matters remains seriously in doubt.

In early November, the Homeland Union, which led Lithuania to independence in the first place, defeated the incumbent ex-Communists with great relish.

But the man who now chairs the parliament, Vytautas Landsbergis, made few friends in the international banking community during his election campaign.

The only way to turn around annual inflation of some 25&percent; and avoid a possible financial crisis, he argued, was to devalue the lita - currently pegged at four to the dollar through a currency board system.

This particularly worried the IMF, which felt a drastic change could result in a flight to the dollar, more inflation, a fallen credit rating and further heartache for the banking sector.

Following the election, Landsbergis appears to have taken a more pragmatic tack, but it is proving difficult to predict his exact direction with any certainty.

“I would say he will devalue; the only question is exactly when. At a guess it could be around spring next year,” says Adam Slater of Nomura Research.

In the meantime, the western world is playing a game of wait and see.

Not least on its wish-list is for Lithuania to privatise some of its coveted infrastructure sector. Selling off the family silver was clearly not a high priority for the former Communists and where privatisation did occur, western investors were often unimpressed with the offerings. Much of it was conducted through a voucher system which, in practice, allowed old company managers to retain control of their enterprises - hardly a recipe for vigorous change.

And Lithuania's prize infrastructural jewels, such as its large energy sector, were put on a restricted list not to be sold until well after the end of the millennium.

It is far from clear exactly what Landsbergis intends to do about this. He has shown some signs of lifting the restrictions, but analysts believe that a populist streak in the government continues to stand in the way of foreign investment.

That streak is bolstered by continued fears of economic colonisation by Russia, but it has also proved a major obstacle to liberalising real estate laws under Lithuania's Europe Agreement.

Even if infrastructure is put on the market, warn analysts, investors might think twice before taking on potentially poor-quality merchandise.

One major problem is that information coming out of the country is rather poor. A recent revision of economic figures raised the budget deficit for 1995 from 1&percent; of GDP to 10&percent; - an extraordinary change which would have sparked a massive upheaval had it occurred in a Union member state.

President Algirdas Brazauskas is well aware of the damage these factors are doing to Lithuania's bid for EU membership and is keen to move the goalposts away from pure economics.

“We would commit a vexing error if we were to entrust the Union's expansion in the hands of accountants alone,” he told Euro MPs last month.

Brazauskas would much rather focus on Lithuania's cultural ties with Europe and, in particular, Poland. Close association with the main central European success story is seen as a useful ticket to early accession.

“Together with Poland we comprise a geopolitical unit,” claims Brazauskas. “We therefore seek to integrate into the European transatlantic structures together.”

Lithuania's stance is not surprising, given the recent string of statements by western leaders supporting Poland's early accession.

But while confirming close relations with Lithuania, a spokesman for the Polish mission to the Union stresses that “each country's bid for accession will be judged on its own merits”.

Meanwhile, the Lithuanians will need to satisfy their cravings with less dramatic demonstrations of western warmth, such as financing and grants from Phare and the European Investment Bank (EIB).

The EIB, for example, recently lent the country's development bank 5 million ecu to boost industry, tourism, services and energy-saving schemes.

These types of cash injection appear to be enough to ensure the country's continued enthusiasm for joining the EU. A recent Eurobarometer showed that 86&percent; of Lithuanians would vote for membership in a referendum.

But such consistency is not evident in other policy areas.

The Homeland Union's parliamentary win marked another stage in a game of political ping-pong between the Lithuanian left and right, and has provoked some fears of a political split at the heart of Lithuanian politics.

President Brazauskas - though professedly neutral - is a former Communist and could lean away from any far-reaching reforms.

Despite promises that stability will be his major concern, commentators are watching with interest to see how things will turn out.

On balance, then, few would herald Lithuania as a shining example for other central and eastern Europeans to follow.

But it would be profoundly unfair to assess the country only on its economic and political performance.

Lithuanian culture, for example, is extremely dynamic - a flick through local publications reveals a plethora of vehicles for enthusiastic self-expression.

This is more than a reaction to Lithuania's new-found freedom. It lies at the very heart of the last country to accept Christianity in Europe and is celebrated with fervour through festivals, art, music and sport.

While Lithuanians have a mountain to climb before achieving the quality of life and sense of security (both internal and external) they yearn for, they are not about to give up trying.

Perhaps their predicament explains why mountaineer Vladas Vitkauskas has become something of a national hero.

Although not the first climber to scale the highest peak of every continent of the world - Mount Everest in 1993 and six others between June 1994 to July 1995 - he is reputed to be the only one to have carried the same national flag to the summit of each.

“The flag for me is a symbol of Lithuania's freedom,” he said in a recent interview. “I remember life under the Soviets well. Back then, it was more difficult for Lithuanian climbers to get permission from Moscow functionaries than to actually climb the mountains.”

In many ways, Lithuania has already climbed further than anyone might have imagined ten years ago.

But although of a different kind, the challenges it faces today are every bit as difficult as those it has faced in the past - and wishful thinking is unlikely to be enough.