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lithuania

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  LITHUANIA

REPUBLICAN REFERENCE

Area (sq.km)
65,200

Population
3,610,535

Principal
ethnic groups

Lithuanians 81.3%
Russians 8.4%
Poles 7.0%

Capital
Vilnius

Currency
Litas

President
Valdas Adamkus

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Background:
Independent between the two World Wars, Lithuania was annexed by the USSR in 1940. On 11 March 1990, Lithuania became the first of the Soviet republics to declare its independence, but this proclamation was not generally recognized until September of 1991 (following the abortive coup in Moscow). The last Russian troops withdrew in 1993. Lithuania subsequently has restructured its economy for eventual integration into Western European institutions.

Update No: 255

A political revolution may be on the cards in Lithuania, just as it is in neighbouring Latvia. Political configurations can change with a bewildering speed in countries with transition economies where no party or group, however prominent and successful for a while, can have the legitimacy of Western political parties, built up over decades of prosperity. Many are inevitably losing out in the formidably difficult task of moving from socialism to capitalism. 
One only has to think here of the swift eclipse of Solidarity in Poland, a country with a very special relationship to Lithuania. They were once part of the same empire. Solidarity, with a magnificent record of resisting and overcoming communism, now has been wiped out and ,after being the leader of the coalition government last year, no longer has parliamentary representation. The communists are back, although of course with very different pro-Western hats.
In Lithuania a new political force is emerging, the Liberal-Democratic Party, which will hold its founding congress in May. It is led by the charismatic figure, Rolandas Paksas, a former mayor of Vilnius, the capital, and twice premier. He is perhaps being influenced by the example of Einars Repse, former central bank chief of Latvia, who resigned in December and has founded a new party that is well ahead in the polls ahead of October elections.
Repse's appeal is competence at economic management. Paksas bases his on nationalism, as does Simeon II of Bulgaria, its new premier from last year after setting up a new national movement only months before the elections. Paksas cannot claim the charisma of a king. But he has been an effective mover and shaker in Lithuania for a long time now. In Lithuania the government for some time now has been the ex-communists under former communist president Algirdas Brazauskas, now premier again. Paksas thinks the Lithuanians like the idea of leaders with experience, but will want to ring the changes at the next elections, which, however, are not imminent.
Paksas has made the main strategic goal of his new party the retention of the Ignalina nuclear power station, which not only provides most of the republic's energy, but is a big export-earner. It is of the Soviet RBMK type, to which the EU experts object. Paksas says he understands their concerns for its safety and agrees to its eventual replacement, but not by 2009, as the EU wants.
Paksas is in an ideal position here because Lithuania intends to decide the fate of Ignalina this year. "Lithuania is expecting the EU to make a decision on financial aid for the shutdown of the Ignalina nuclear power plant," Petras Austrevicius, the Directot-General of the Lithuanian government's European Committee, said. The EU and other donors have already allocated 216m Euros on preparations for shutting down the first of the two power units. If the fate of Ignalina has been already decided by the time of the next election, still uncertain, but likely to be years away, then Paksas and his party can escape all blame for the immediate ill consequences, clearly higher electricity prices and power cuts.
Paksas gained popularity in 1999 when as premier he opposed the take-over of the Mazeikiu Nafta group's management by the US company, Williams International. His cabinet then had to resign. Within a year his popularity won him anther brief six-month stint in office. But he clearly feels the need of a power base of his own, from which to launch a bid for a more prolonged stay in government. He has several years in all probability to build it up before it will be put to the electoral test.
The events of 9:11 and its aftermath have made what was beforehand an unlikelihood, Baltic state entry into NATO, now a probability. 
But of more immediate moment is the issue of Lithuania's entry into the EU, which can really change its prospects far more comprehensively. The first half of 2002 in Lithuania will be a period of intensive integration into the EU. "As long as Spain presides over the EU, Lithuania will try to complete negotiations on such chapters as taxation, justice and domestic affairs, regional policy and structural measures, energy, financial and budgetary provisions and agriculture," Austrevicius said speaking at a session of his committee. 
Lithuania has already completed negotiations on 21 out of 31 chapters concerning its joining the EU and intends to wrap up the talks before the end of this year, so as to become a full EU member in 2004.

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BANKING

Last bank privatisation to go ahead


The Lithuanian State Property Fund announced an agreement with German bank Nord/LB to privatise the state-owned Zemes Ukio Bakas, the last privatisation of a public bank.
Under the agreement, Nord/LB will pay about US$18m for a 76.011 per cent stake in Zemes Ukio Bankas, as well as invest about US$16m. Zemes Ukio Bakas is the third-largest Lithuanian bank, holding about 16 per cent of the deposit market and about 12.5 per cent of the loan market.

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CREDIT RATINGS

Outlook on foreign currency for bonds and bank deposits raised

The international rating agency, Moody's, has raised the outlook on Lithuania's Ba1 foreign currency for bonds and bank deposits to positive from stable.
Moody's stated that Lithuania made improvements within the past year in terms of fiscal consolidation and structural reforms. The 2001 government deficit was cut by half with respect to the previous year, despite revenue shortfalls. The improvement in fiscal management has been underpinned by reforms either implemented or under way with respect to tax structure, administrative procedures and municipal finance. In addition, privatisation has been accelerated, some headway has been made in social security and labour market reform and EU negotiations have continued to advance. However, Lithuania remains vulnerable to external developments. The positive outlook assumes above all that Lithuania will continue to consolidate its fiscal position even as spending pressures mount as the result of the high level of unemployment, EU and NATO accession and pension reform.

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ENERGY

E.ON-Ruhrgas JV sole bidder for Lietuvos Dujos

A joint venture between Germany's E.ON AG and Ruhrgas AG is the only potential investor to submit an initial bid for a strategic 34% stake in the Lithuanian gas distributor, Lietvos Dujos, the Lithuanian State Property Fund said. It said privatisation authorities were reviewing the initial bid's adherence to tender criteria. Final bids are due on April 2nd.
Gaz de France had also announced plans to take part in the tender in November but reportedly decided not to bid as it was dissatisfied with the Lithuanian government's plan eventually to sell an equal 34% stake in the company to a Russian gas supplier. The French company was also reportedly unhappy with the utility's financial condition and the mechanism that regulates gas prices in Lithuania, the 'Lietuvos Rytas' daily quoted unnamed Gaz de France officials as saying.
The government will retain 24% of shares which it may later sell on the local stock exchange, where eight per cent of the company is already listed.

LUKoil, Mazeikiu Nafta to work out cooperation deal

Russian oil major, LUKoil, intends to reach a final decision on cooperation with the Lithuanian oil company Mazeikiu Nafta in the near future, LUKoil president, Vagit Alekperov, told journalists in Perm. Russia's largest oil company is considering the options of being an operator, setting up a joint venture or acquiring Mazeikiu Nafta shares, Interfax News Agency quoted him as saying. At the same time no agreement has been passed on this issue, he added.
Alekperov also said that the company is interested in acquiring additional refining capacities. In response to questions from journalists, he said the company is involved in negotiations to receive a licence to carry out geological exploration at a number of fields in Columbia.
Talks are also underway with Venezuela, but there are not yet any concrete projects, he said. Alekperov also announced that LUKoil has confirmed to Transneft and Transnefteprodukt that its wishes to participate in the construction of new export capacities on condition that construction will be carried out with the company as a shareholder, including its participation in managing projects.

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FOREIGN ECONOMIC RELATIONS

Tashkent, Vilnius to expand economic cooperation

Uzbekistan and Lithuania have signed several documents to expand cooperation in the economy and security during Lithuanian Prime Minister, Algirdas Brazauskas' official visit to Tashkent recently, reports New Europe.
Brazauskas held talks with Uzbek cabinet members. The talks were crowned by intergovernmental agreements on the encouragement and protection of investments, a convention on the prevention of dual taxation and the prevention of income and capital tax evasion. Brazauskas signed the documents for Lithuania and his counterpart, Utkir Sultanov, signed for Uzbekistan. An agreement an resisting crime was also concluded.

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FOREIGN LOANS & AID

EBRD approves new operating strategy in Lithuania

The board of the European Bank for Reconstruction and Development (EBRD) on 26th February approved a new operating strategy in Lithuania, which provides for granting loans to private enterprises and municipalities without a state guarantee, BNS News Agency reports.
The new strategy is aimed at the development of the country's private sector, transport, infrastructure, energy sector and capital markets, the Finance Ministry reported after the meeting with the EBRD representatives.
Another issue discussed was the project on energy saving strategies in budgetary institutions, under which the bank would grant a €20m loan to the country's hospitals.
According to the statement, the Finance Ministry seeks more favourable project financing conditions. If EBRD agrees to improve them, an agreement could be signed as soon as May or June.
Lithuania has been a member of EBRD since 1992. The previous operating strategy of EBRD was approved in 1999.
Lithuania and EBRD have signed 27 investment agreements worth €366.7m, with the total value of projects on the public sector reaching €98.4m.

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