On January 12, 2006 the Lithuanian Free Market Institute (LFMI) staged a round table discussion “Lithuania in the 2006 Index of Economic Freedom: whom to look up to?” which took place at the Presidential Palace in Vilnius. This was the first presentation of the Index of Economic Freedom in Lithuania, released by the Heritage Foundation and the Wall Street Journal. During the event, Lithuania’s President Valdas Adamkus delivered a welcome speech and Dr. Marc Miles, one of the Editors of the Index and director of the Centre for International Trade and Economics at the Heritage Foundation, presented a key presentation. Other speeches were delivered by Dr. Ramūnas Vilpišauskas, Advisor to President of Lithuania, Algė Budrytė, Deputy Chief Economist from the leading bank in Lithuania SEB Vilnius Bank, and Dr. Guoda Steponavičienė, Vice President, LFMI.

The discussion drew more than one hundred participants – MPs, ministers and high ministerial workers, ambassadors, business leaders and representatives from business associations, business and finance analysts, academics, students, and media representatives. In 2005 the Heritage Foundation, a pre-eminent US-based organization, invited LFMI to be one of the seven partners in Europe to help prepare and disseminate the Index of Economic Freedom, published and announced annually with the Wall Street Journal. In addition to this event, LFMI’s President Ugnius Trumpa took part in a meeting with Prime Minister Algirdas Brazauskas, January 20, and Speaker of the Parliament Artūras Paulauskas, January 19, and presented the book with the latest study in person. A leading business daily Verslo Žinios published an exclusive interview with Dr. Marc Miles, January 16, about the Index and lessons for Lithuania.

The goal of the LFMI’s discussion was to present the results of the latest study, the 2006 Index of Economic Freedom, and to debate which countries’ lead Lithuania should follow and what should be done to achieve higher ratings of economic freedom.

The 2006 study shows that economic freedom made impressive gains throughout North America and Europe in general; however, Lithuania’s situation remained unimproved, while Estonia and Latvia posted sharp declines.

According to the survey, the level of economic freedom in Lithuania remained virtually unchanged: Lithuania ranks 23^rd, the same as in the previous study, although the country’s score slightly improved, by four tenths to 2.14. Lithuania remains in the group of “mostly free” countries. The country’s overall score is higher in the current index as the figure for fiscal burden of government is better this year; however, it is still driven down by vast bureaucracies and corruption, insufficient confidence in courts and price controls.

Neighbouring countries suffered a sharp drop in economic freedom: Estonia moved from the 4^th place to the 9^th, but still remains among the “free” countries, and Latvia plummeted by 33 positions to 39^th place. According to the authors of the study, rising government spending and the adoption of EU trade policies worsened Estonia‘s Index score. Latvia was pushed down by increased fiscal burden and inflation.

In general, the regions of North America and Europe saw an impressive rise in economic freedom. From the western end of the region, where the United States rejoined the world’s 10 freest economies, to the middle, where Germany joined the ranks of “free” economies for the first time, to the eastern end, where Romania improved more than any other country worldwide except Pakistan, the North America-Europe region widened its worldwide lead in economic freedom.

In his welcome speech at the LFMI’s discussion, Lithuania’s President Valdas Adamkus rejoiced that in this year Lithuania managed to retain a high ranking at 23^rd among the 157 measured countries throughout the globe. “It is a very important achievement for our country and it should encourage us to be even more persistent in ensuring increasingly better results in the coming year,” - said Mr. Adamkus.

However, Lithuania’s President regretted that Lithuania remains in the group only of “mostly free” countries and has not yet entered the group of the twenty economically “free” countries. But he said he was optimistic about the prospects of the country’s economic freedom in the future and enumerated several reasons for that. First, in 2005 Lithuania launched a tax reform which incorporated a reduction of the personal income tax. Second, Lithuania is pursuing a sound monetary policy and envisages its overhaul by finally adopting a methodology of programme budget formation and evaluation. Third, the business community and the government have recently started a close dialogue to find ways to increase Lithuania’s competitiveness.

Mr. Valdas Adamkus expressed his strong belief that Lithuania, while adopting laws and fixing rules, had to raise a question whether these decisions would make the country more competitive. “We cannot forget that increasing competitiveness is one of three priorities for our country. Competitive, free and advancing economy is an essential condition to achieve other priority goals,” - stated the President. 

While presenting the 12^th Index of Economic Freedom, Dr. Marc Miles, a co-author of the study, said that Lithuania had real opportunities to become one of the world’s “free” countries and that it was already leading other nations and setting trends for tax systems. According to the speaker, Lithuania should be proud of its low corporate profit tax rate and an ongoing reduction of the personal income tax.

Dr. Marc Miles highlighted at the discussion that creation of wealth is strongly dependant on economic freedom in the country. “A recipe for reducing poverty is clear and simple – the more economic freedom, the greater the well-being, the more economic freedom, the more rapid economic growth,”- explained the author of the research. The study shows that average income per capita is twice higher in “free” countries than in “mostly free” (Lithuania is in the group of “mostly free” countries). Countries with constricted economies are among the poorest ones.

According to the latest study, worldwide, the scores of 99 countries improved and 51 declined.

Algė Budrytė, Deputy Chief Economist from SEB Vilnius Bank, concluded that in terms of economic freedom, Lithuania was neither an outsider nor a winner. “The good news is that economic freedom in Lithuania has been increasing, albeit modestly, since the very launch of the index,”- she commented. Ms. Budrytė pointed that the stability of the financial sector, secured through one of Lithuania’s most successful reforms over the past fifteen years, the monetary reform, had undoubtedly contributed to this achievement. She also mentioned an important fact that currently Lithuania had one of the lowest inflation rates among the EU newcomers. 

However, Ms. Budrytė regretted that Lithuania still had unsolved problems which did not allow the country to break the barrier of “mostly free” countries and join the group of “free” nations. This shows that the country has much to accomplish yet. According to the analyst, economic freedom is being inhibited the most by such law-and-order-related phenomena as entrenched corruption, bureaucratic barriers to business and an insufficiently credible judiciary.

Banker Budrytė stated the Heritage Foundation’s Index of Economic Freedom is quite credible and representative because analogous studies of other authoritative institutions, such as the Fraser Institute in Canada and the Harvard Institute for International Development, give very similar trends. According to her, this Index pinpoint to the existing policy “cracks” in Lithuania and forces the country’s authorities to search for ways how to “cover” them.

Advisor to President Dr. Ramūnas Vilpišauskas agreed with Ms. Budrytė, as regards the credibility of the Index of Economic Freedom, and added that “such studies are useful as they help to look critically at both ourselves and others.” He noted that Lithuania had made the least changes in the fields where EU’s regulatory impact is minimal – the education and the health care systems and procedures of land use. In his opinion, a lack of reforms in these particular areas is a primary roadblock to enhancing Lithuania’s competitiveness.

As LFMI’s Vice President Dr. Guoda Steponavičienė said at the event, Lithuania could improve its results in the Index by reducing tax rates and the budget deficit. She pointed out that judging from the study there are no formal restrictions on foreign investments in Lithuania, but the statistics shows that the country manages to attract only very negligible investments. “It seems as if we were overestimated,”- she commented.

Ms. Steponavičienė highlighted that Lithuania has the poorest score in the category of “informal economy activity.” However, she pointed, a reduction of the shadow economy is a long-term process related with confidence, tradition, and business and administrative culture, therefore quick improvement can hardly be attained in this area.

Since 1995, this Index of Economic Freedom, prepared by the Heritage Foundation, an influential US-based non-government organisation, together with the Wall Street Journal, measures economic freedom in 161 countries throughout the world and analyses basic factors that determine economic growth. The Index ratings reflect an analysis of 50 different economic variables, grouped into 10 categories: banking and finance; capital flows and foreign investment; monetary policy; fiscal burden of government; trade policy; wages and prices; government intervention in the economy; property rights; regulation; and informal (or black) market activity. For 12 years the Index has been internationally acclaimed for its comprehensive, data-rich summary of prevailing economic conditions around the globe. An indispensable resource for investors, academics, and policymakers, it answers why some countries are rich, why some are poor, and why some are stagnant... The study can be found online at: www.heritage.org/index.