A. Brazauskas Social Democratic coalition was formed in 2000 and unites three political parties: the Lithuanian Democratic Labour Party, the Lithuanian Social Democratic Party, the New Democracy and the Union of Russians of Lithuania. The coalition's platform was announced online at http://www.lsdp.lt.

 

The platform is rather comprehensive and exhaustive but it is riddled with inner contradictions. All policies focus on provision of government aid and an increase in social benefits but measures that would provide adequate financing for the said objectives are not clearly defined. There is a lack of confidence in the operation of market forces in such areas as social safety, education, culture, science, basic social insurance, law and order, and national defence. A regulated market is preferred in other spheres.

 

 

Privatisation. The Coalition plans to halt harmful, incompetent sales and to retain objects of social and industrial infrastructure (railways, airports, postal services, water supply, and energy) as well as educational, healthcare and cultural establishments under state control. Buyers of state property will be required to assume heavy social obligations regarding the preservation and creation of jobs, etc.

 

Investment policy. The Coalition plans to boost state investments and promote local and foreign "green" field investments.

 

Taxation. The principal position is not to increase the tax burden but to redistribute it. It is projected to introduce progressive income taxation and a real estate tax for individuals as well as to reduce value added tax to 9 percent for food products, children goods and utilities.

 

Monetary policy. The programme stipulates the restoration of classical central banking functions and regulation of interest rates.

 

Business conditions. Business regulations will be expanded and targeted at selected business categories with a view to expanding exports, small and medium sized enterprise, and regional policy. A reduction of licensing is planned.

 

Agricultural policy. Plans are to preserve all forms of support and assistance for agriculture, to allocate for agriculture a fixed share of the national budget - no less than 10 percent, to complete land restitution, and to remove restrictions applied to the purchase of land by Lithuanian citizens and legal entities.

 

Foreign policy. Equal priority will be given to three main objectives: integration into the European Union, membership in NATO and maintaining of friendly relations with the neighbouring countries.

 

Social safety. A whole range of social guarantees is envisaged. Income from privatisation is to be used to promote the establishment of fully funded pension funds.

 

 

The implementation of the proposed policies will result in a budget deficit, which may force down the country's international credit rating. There is much likelihood that state debt will mount, which will also have negative effect on the country's credit rating. The state will become a strong competitor by investing in manufacturing and social infrastructure as well as the most progressive industrial sectors. The privatisation process will slow down, and priority will be given to local capital and foreign "green" field investments. Items of strategic infrastructure will be excluded from privatisation. Revision of privatisation deals may be initiated. Progressive taxes for individuals will be imposed, enterprises will take on an increased share of the tax burden, and a real estate tax will be introduced. The overall tax burden will be increased. The influence of the central bank will be enhanced. Interest rates are likely to be regulated, which may touch off a shortage of credit recourses. It is also likely that soft crediting of state institutions and investments will be used. The declared socially oriented budget expenditures will result in an eclectic and arbitrary redistribution of budget revenues in favour of commercial units. Restrictions imposed on the purchase of by foreign citizens will not be eliminated.

 

The Centre Union's election programme may be characterised as rather ambivalent and inconsistent. Measures that are intended to help achieve the goals of the programme are vaguely defined.

 

 

Privatisation. Privatisation issues are mentioned only as far as infrastructure is concerned. It is stipulated that state control will be retained in the Elektrėnai and Kruonis electric power plants which form a single complex with the Ignalina nuclear power plant. Privatisation of transportation companies - the Lithuanian Airlines and the Lithuanian Railway - will depend on economic and social effects of the privatisation. The programme also highlights the need to define what will remain under state ownership. It is likely that privatisation would not be halted; however, certain "strategic" enterprises would be either not privatised or privatised by requiring the buyers to assume heavy social obligations.

 

Foreign investments. The Centre Union will seek to attract capital and stimulate Lithuanian and foreign capital investments by creating "equal conditions for competition." Presumably, tax breaks that were granted to foreign investors in the past will remain in effect.

 

Taxation. The Centre Union proposes to reduce the tax burden, to increase the tax-exempt minimum wage and to differentiate value added tax charged for heating services, food products, rural businesses, and housing construction services. The corporate income tax is to be reduced to 15 percent, while a zero tax rate is to be applied for at least five years in order to stimulate the economy.

 

Business conditions. One of the main slogans of the Centre Union refers to the removal of excessive prohibitions, regulations, inspections and other constraints, but no specific measures that would help to achieve this are indicated. The platform advocates the development of small and medium sized enterprises and provision of state aid to selected business categories (regional, exporting, construction, etc.).

 

Agricultural policy. The Centre Union advocates the creation of "a network of strong, competitive farms that would provide high-quality products and create jobs in agriculture." Another aim is to stimulate alternative activities in rural areas. Various interventionist measures are proposed, from setting priorities in the agricultural sector to providing direct payments and compensations for expenditures for energy resources. The prospects of reforming the agricultural sector are questionable. The Centre Union also advocates the completion of land restitution, but the position on eliminating the division of and into agricultural and non-agricultural plots as well as on allowing legal persons and foreign citizens to buy agricultural land is unclear. Public utterances from the party leaders suggest that no steps will be taken in this direction.

 

Monetary policy. The programme does not define any position on monetary policy and the role of the central bank. The Centre Union lacks a clear position on this issue and would take over a position proposed by possible coalition partners, which, in its turn, would be affected by integration into the European Union and the preparation for membership in the Monetary Union.

 

Budget policy. The programme stipulates that programme budgeting should be mandatory and expenditures for programme implementation should be separated from expenditures for institutions' operational activities. A gradual transition to fiscal decentralisation by giving more leverage to municipalities with respect to tax policy is proposed. No specific measures are mentioned though.

 

Social policy. The Centre Union proposes a reform of the social security system and the establishment of a multi-level pension system. Concrete measures are described very vaguely. The aim is declared to create "an atmosphere of trust in pension funds and a system of guarantees," to create mandatory insurance funds and to stimulate activities of private insurance funds. As far as education, science and healthcare policies are concerned, the Centre Union provides declarative statements about their "priority role" and procedural recommendations. The party proposes increasing budget expenditures for education.

 

Foreign policy. The Centre Union supports integration into the European Union, highlighting the need to take into consideration public opinion about such issues as agriculture, job creation, the energy sector, and environment protection. The party is likely to negotiate for longer transition periods in these areas, especially for the closure of the Ignalina nuclear power plant and selling agricultural land to foreign citizens. They also advocate acceleration of integration into NATO, but at the same time they declare the necessity to co-ordinate the establishment of a national defence system with the needs in such areas as education, most likely referring to budget spending.

 

Policy Implications

 

It is likely that some barriers to business growth would be removed, but government aid for priority sectors would result in the establishment of new administrative institutions and an increase in budget expenditures. A budget deficit and the use of privatisation proceeds for various assistance programmes are very possible. Privatisation will be continued, but methods of privatisation are unlikely to be improved. Buyers of state property may be required to assume a number of social obligations. Conditions for foreign investors are unlikely to deteriorate, but indirect discrimination against them is possible by giving support to local enterprises. Economic policy, especially in areas in which no clear position is defined, will depend on such factors as coalition partners, bureaucratic inertia, the level of expertise, and international obligations and integration into the European Union.

 

The election platform of the Homeland Union - Lithuanian Conservatives "The New Wind" is presented as an entirely new document. It contains no links to, or explanations about, the results of the previously planned tasks or failed undertakings. The platform is presented in very general terms and confined to a description of values and goals without indicating specific steps to achieve them. The cornerstone of the platform is foreign policy and its priority - integration into the economic and military Euro-Atlantic structures.

 

 

Privatisation. Privatisation is mentioned indirectly by defining private property as "the basis of individual welfare and freedom." Recent proclamations from Prime Minister Kubilius and the general rhetoric of the Conservative Party suggest that privatisation will be continued.

 

Foreign policy. Foreign investments may be treated differently: while Western investors are likely to enjoy favours and privileges, discriminative attitudes may be displayed towards investors from the CIS countries. Also, investments from the West are likely to be treated more favourably than local investors. State investments are to be limited to those areas that "cannot be adequately addressed by private businesses alone."

 

Social policy. The Party has set defined a task of creating a private pension fund system. Drawing on the general rhetoric (Irena Degutienė), an increase in social insurance payments is not viewed as the most appropriate solution. It is recognised that social support depends directly on tax revenues, or on the state of the economy.

 

Currency and finance. The programme does not indicate any concrete provisions but the current position of the Conservative Party suggests that the present course will be continued. The party advocates "a foreseeable and consistent tax policy." Priority is likely to be given to financing national defence.

 

Foreign policy. Foreign policy is the bedrock of the Homeland Union's platform. The primary tasks - integration into the European Union and membership in NATO - are seen as the pivotal preconditions for the country's welfare, both in political and economic terms. The goal of the Conservatives is to join the EU with the first group of candidates (2004 - 2005) and NATO, with the second group of candidates (2002).

 

Structural reforms. The programme stresses the need to reform the energy sector. Although it does not specify how to achieve this, the initiated process of restructuring and privatisation of the energy sector will most likely be continued.

 

Agriculture. The need for establishing market relationships in the agricultural sector is recognised. Specific measures are not defined.

 

Business Conditions. The Homeland Union highlights the importance of creating favourable business conditions and reducing government involvement in business activities. In reducing bureaucratic constraints and rationalising the work of public governance institutions, special emphasis is placed on continuing the work of the Sunset and Sunrise Commissions (deregulation and de-bureaucratisation). The development of new technologies and e-businesses is promoted. There is much likelihood that these spheres will be defined as top priorities and treated more favourably than others. Various exemptions are also likely to be applied to exporting companies and "companies creating new jobs."

 

Policy Implications

 

The general rhetoric is in line with free market principles. Yet, practical decisions are often at odds with these principles. This is indicated by different treatment of economic entities depending on category of activity, number of employees, origin and amount of capital, etc. There is inconsistency between liabilities that are to be assumed by the state and intentions to decrease the tax burden. Too much importance is attached to the role of the state in the economy.

 

 

 

The platform of the Liberal Union, which is based on the ideas of individual freedom and limited government, is fairly comprehensive and consistent. It highlights areas that require immediate policy changes but in some cases does not specify concrete measures to achieve desired goals.

 

 

Privatisation. The Liberal Union advocates privatisation and does not set limits on the sell-off of strategic enterprises. Proposed restructuring of strategic enterprises may represent a drag on privatisation. The Liberal Union favours privatisation of state functions (education in particular) and restriction of state investments, although no explicit criteria or limits are stipulated.

 

Business conditions. The Liberal Union champions equal business conditions for all market participants, without granting special privileges for foreign investments. This suggests that conditions applied to foreign investments will be the same as those applied to local capital. An active stand of the party's leader on the Mažeikiai oil deal will most likely prevent the party from creating privileged privatisation schemes. Revision of valid exemptions and concluded transactions is unlikely. The Liberal Union proposes removing tax exemptions as well as simplifying the rules for tax computation and payment.

 

Taxation. The platform stipulates a reduction in the tax burden and indicates policy measures that would allow achieving this objective. These measures are the following:

The platform stresses the need to implement "proposals for business deregulation without delay," but these proposals are not specified. Another objective is to define strict limits of state control, supervision, and responsibility.

 

Agriculture. The aim is to treat agriculture as an ordinary sphere of business activity. Support to the agricultural sector should be treated as social aid. Inconsistencies exist with respect to proposed transition to direct payments and state support of investment programmes. It is proposed to complete land restitution without delay, to ensure conditions for a functioning land market, and to abolish division of land into agricultural and non-agricultural land.

 

Monetary policy. The Liberals support the currency board regime. The replacement of the anchor currency is not mentioned.

 

State finances. The platform proposes budget formation based on the expediency and effectiveness of state functions. It is stated that the budget should finance "only those measures that are projected to achieve a certain goal indicated in a concrete law, but not areas that are traditionally supported by the state." The Party intends to consolidate all revenues and expenditures into one budget, to balance the budget, and to reduce it both in absolute and relative terms (presumably, in terms of GDP) by privatising state functions and narrowing goals.

 

The platform of the New Union (Social Liberals), a party established in 1998, is excessively detailed in some areas, while too abstract in others. The platform may be characterised as rather incoherent. Proclamations of the Social Liberals are diverse and are often described as populist. The party's voter appeal rests mostly on the popularity of its leader, Artūras Paulauskas, and public discontent with the current ruling power. The New Union advocates a socially-oriented market economy.

 

 

Privatisation. The New Union advocates privatisation and recognises the need to improve privatisation procedures. The programme stipulates retention of state control in "natural" monopolies and increased reliance on the stock exchange in privatising other state assets, without granting privileges to foreign investors.

 

Monetary policy. The New Union is in favour of the current course of the monetary policy but promises to compensate exporters for losses incurred due to unfavourable exchange rates.

 

Taxation and state finances. Taxes are seen as a regulatory tool. Increased reliance on direct taxation is advocated through differentiation of value added tax on food products, technologies, exports, children goods, and the purchase of residential property. The need to simply the tax code is recognised. Programme budgeting is seen as the underlying principle of budget formation. The party proposes to privatise and commercialise certain state functions and to reduce excessive government liabilities. The limit on fiscal deficit is set at 3 percent of GDP.

 

Social safety. The programme stipulates the expansion of the pension system, with private pension funds operating alongside mandatory social insurance. It is pledged to increase social benefits and to preserve compensations at the current level.

 

Agriculture. Protection, regulation and support of the local market are favoured. A centralised system for purchasing agricultural output is envisaged. Subsidies are proposed as payments per hectare of cultivated land, cattle, etc.

 

Business conditions. The New Union advocates the removal of bureaucratic barriers to business activity. The improvement of the business climate is also related to tax breaks and corporate welfare programme for selected business categories. The party promotes greater opportunities for mutual agreement between employers and employees but stipulates the creation of a regulated labour market system.

 

Foreign policy. The Union upholds the continuity of Lithuania's foreign policy and membership in NATO. However, the party criticises the high level of defence spending, which is set by law at two percent of GDP, and proposes reducing it in favour of education and healthcare.

 

Policy implications for the business environment and investment climate

 

A budget deficit and state debt are likely to mount, which may negatively affect the country's international credit rating. Privatisation will be carried out in order to generate government resources and to attract capital. The pace of privatisation will slow down. The situation in monopoly areas will remain stagnant, but privatisation may be resumed in a year or so. Value added tax breaks will further complicate the tax system. Tax collection will deteriorate, which (along with growing budget expenditures) is likely to lead to an increase in direct taxation and introduction of progressive income taxes. There is much likelihood that business conditions will be improved in certain areas, but no watershed will be reached in business deregulation. Corporate welfare programmes are likely to expand, favouring selected branches or enterprises. Foreign policy will be continued, but integration processes may slow down due to incompatibility of certain domestic policies with integration requirements.

 

The programme of the Peasants Party may be characterised by its main slogan: "Strong agriculture - strong Lithuania." The biggest importance is attached to agricultural policy. Other policy areas are described in a fragmentary manner and from the point of view of farmers and rural dwellers.

 

 

Privatisation. Privatisation issues are not mentioned directly in the programme. It is likely that the privatisation process would not be halted, especially because of the need to generate revenues for the implementation of proposed assistance programmes for the agricultural sector and rural areas.

 

Foreign investments. Investment and foreign policy are not discussed in the programme. General provisions suggest that investment in industrial enterprises or into the creation of new production and service facilities would not be halted. However, in rural areas priority would be given to the manufacturing and sale of local production

 

Taxation. Proposals include a progressive tax on annual income exceeding 200,000 litas, the abolition of value added tax on food products and services rendered to employees of agricultural companies, an increase in the tax-exempt minimum wage, a reduction of the excise duty on diesel fuel used in agriculture, the abolition of taxes administrative costs of which exceed collected revenues; and setting a limit on taxes, state levies and all mandatory payments with respect to GDP.

 

Business conditions. Business conditions are contemplated only with regard to employees and rural dwellers.

 

Agricultural policy. The Party proposes an intensive interventionist policy based on direct and indirect measures of state regulation and aid: protection of the local market, direct payments, regulation of the volume of production, price controls, interventions, tax concessions, etc. It is proposed to allocate 10 per cent of the national budget to the agricultural sector. The party advocates the completion of land restitution by 2002 and allowing ownership rights of agricultural land by Lithuanian legal entities. The Party recommends debating the issue of selling agricultural land to foreign citizens only after the agricultural reform has been completed, not earlier than 2008.

 

Monetary policy. The Party stresses the need to stimulate economic recovery by monetary measures (by restoring the central bank's classical functions).

 

Budgetary policy. Budget formation or the size of the budget is not discussed. Judging from the proposed measures of agricultural support, a budget deficit and a complicated system of budget administration are in store.

 

Social policy. The Peasants Party advocate a reform of the social insurance system, favourable terms of farmers' insurance, state support for large and young families and families that buy residential property. According to the platform, conditions should be created for insurance in private pension funds. Social services should be decentralised and children, the homeless, elderly people, drug addicts, released prisoners and the like should be supported by various means. Education and science are seen as priority areas.

 

Foreign policy. With regard to integration into the European Union, the Party stresses the need to protect farmers' interests, most likely with the intention of negotiating for the largest possible quotas for agricultural output and for receiving direct support from the EU. They state that the EU acquis communautaire should be adopted gradually, taking into consideration the effects of its implementation on the country's interests. The Party favours the acceleration of integration into NATO, but at the same time states that national defence spending should not exceed expenditures on education and healthcare.

 

 

An increase in the tax burden and a budget deficit are likely as a result of the implementation of envisaged aid programmes. Privatisation will be continued but privatisation methods will not be improved. Privatisations deals will entail heavy social obligations for buyers. Conditions for foreign investors should not deteriorate; however, there is a possibility that they will be discriminated against through increased support for local enterprises, especially in the food sector. An overall result of such policies would be a temporary upturn of agriculture at the expense of the rest of the country.