Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
LITHUANIA
FY 1997 FY 1998 FY 1999 Actuals Estimate Request
Support for East European Democracy $7,200,000 $4,600,000 $2,200,000 Introduction
The U.S. recognized Lithuanian independence in 1991 after more than 50 years of illegal Soviet occupation. The United States never recognized this forcible annexation and after independence was instrumental in persuading Russia to withdraw its troops. Since 1993, U.S. policy has been to support Lithuania's integration into Western institutions, bolster its growing free market economy, support continued democratic reforms, and promote U.S. trade and investment. Excellent bilateral relations are expected to remain closely cooperative. Regional security is important and the United States promotes closer ties with Baltic and Scandinavian countries, while cooperation with NATO is of direct and material interest to the United States. Close ties to the United States, in the form of an extensive, technically qualified, Lithuanian-American community have facilitated the success of bilateral assistance. A banking crisis in 1996 shook national confidence in economic reforms and the Government of Lithuania (GOL). With USAID assistance, there has been progress since 1996 and a slow restoration of confidence. Lithuania's successful transition to a market economy closely integrated with the European Union (EU), based on democratic principles, is key to U.S. policy.
The Development Challenge
Since Independence, Lithuania has registered impressive progress towards building a democratic, market-oriented economy. Prices and most markets have been liberalized and now respond largely to the forces of supply and demand. Voucher privatization has put residences, agricultural land and small businesses into the hands of the private sector. Inflation has been tamed, largely by cutting back public spending and by diligent adherence to a fixed exchange rate and a currency board monetary arrangement. Investment focus has shifted from eastern to western markets, facilitated by bilateral and multilateral trading agreements. Because of this progress, FY 1999 will be the final year of SEED funding for Lithuania.
Lithuania's economy has begun to recover, completing its third straight year of growth, but it is only now starting to exhibit the "take-off" in inward investment of economic performance that has characterized the Czech Republic, Hungary, Poland, or Estonia. A large segment of the economy (large enterprises, energy utilities, agriculture) has yet to restructure to compete in international markets, though small and medium enterprises have done a reasonably good job of adapting to the market economy. Lithuania's current account deficit is widening, making the country vulnerable to speculative currency assault. In terms of trade, Lithuania is shifting westward but still remains highly dependent on Russia as the sole supplier of many critical raw materials, especially energy. Domestically, there is a great deal of disguised unemployment in state enterprises and the Government. Investor confidence has improved but still lags behind that in the "leading-group" of eastern and central European transition economies.
The challenge is for national leadership to continue tackling many of the most complex and contentious transition challenges -- rebuilding public finances, developing sound fiscal policy, restoring confidence in the domestic banks, privatizing the large scale enterprises (including the large energy utilities), eliminating energy subsidies, building a well-functioning commercial law system and rationalizing the public pension system. Failure to make progress in this set of transition reforms could cause Lithuania to lose macroeconomic stability and would slow private investment and growth. Lasting progress in these areas will not be easy to achieve. Administrative capacity in the core economic ministries is weak, and the Government faces a reform agenda that is technically and politically challenging.
Other Donors
USAID is a relatively small donor to Lithuania. The financial transfers of the World Bank, the International Monetary Fund and the EU have each exceeded U.S. $50 million per annum. In addition, the bilateral donors, and most notably the Swedish, Danish, German, and Japanese are providing large (more than U.S. $20 million per annum) combined aid flows to Lithuania. The International Bank for Reconstruction and Development (IBRD) is providing assistance through economic infrastructure efforts; EU's focus is investment and European integration; the International Monetary Fund (IMF) has provided balance-of-payments assistance; the Scandinavian donors have financed safety systems in the Ignalina nuclear power plant and a number of water treatment plants. Germany and Japan have focused on industry restructuring and the provision of trade credits to companies with a home-country foreign investment interest.
FY 1999 Program
The priority management challenge during the 1999-2000 period will be to achieve program results and successfully close-out the USAID program in Lithuania. USAID's unfinished business is to assist the GOL to complete economic policy reforms in three crucial inter-related areas and to develop the capacity of the non-government sector to help sustain gains achieved in the democracy and economic sectors. It is also envisioned that the joint establishment of the Baltic American Partnership Fund with the Soros Foundation will sustain the development of a viable non-government sector and serve as a U.S. legacy in the Baltic Republics. The number of activities receiving funds will decline from the FY 1995 level of 55 to 6 in FY 1999. Program priorities are:
-- furthering the economic transformation: by putting public finances on a sound footing, assisting the government to manage central bank monetary and exchange rate policy, and removing fuel subsidies and facilitating the privatization of the energy complex; and
-- supporting development of a civil society: by endowing with regional funds a Baltic regional foundation that will: 1) strengthen the capacity of non-governmental organizations (Nos) to expand and deepen the gains achieved in the economic and democracy sectors; and 2) serve as a U.S. legacy in the Baltic Republics.
In coordination with other donors through a consultative process in Lithuania, FY 1999 funds will be used to:
1). continue and extend assistance in fiscal management (SO 1.2) by providing a senior policy team on fiscal policy (tax, budget, treasury) to the Ministry of Finance;
2). continue and extend assistance for a more stable financial environment (SO 1.4) by maintaining the U.S.Treasury senior bank and monetary policy advisor;
3). continue and consolidate improved energy safety and policy (SO 1.5) to improve nuclear safety and build the capacity of the new Energy Price Commission to set energy tariffs and establish the regulatory framework for energy investments; and to
4). continue the democracy commission program.
LITHUANIA
FY 1999 PROGRAM SUMMARY*
(in thousands of dollars)
Strategic ObjectivesEconomic Restructuring Democratic
TransitionSocial Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform 825 -- -- -- 825 Private Enterprise -- -- -- -- -- Financial Reform 250 -- -- -- 250 Energy 435 -- -- -- 435 Environmental Management -- -- -- -- -- Citizens' Participation -- 125 -- -- 125 Legal Systems -- -- -- -- -- Local Government -- -- -- -- -- Crises -- -- -- -- -- Social Benefits -- -- -- -- -- Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 565 565 TOTAL 1,510 125 -- 565 2,200
*Support for East European Democracy (SEED) Act funds
USAID Representative: Ronald Greenberg
ACTIVITY DATA SHEET
PROGRAM: LITHUANIA
TITLE: Fiscal Policy, 180-S001.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $825,000 SEED Act
I NITIAL OBLIGATION: FY 1992; ESTIMATED COMPLETION DATE: FY 2000
Purpose: To strengthen fiscal management
USAID Role and Achievements to Date: In the past, new legislation in fiscal management, tax policy, tax administration, and budget policy has been devised and successfully implemented with the assistance of U.S.-funded advisors. Work on fiscal management has been achieved through the efforts of the U.S. Treasury and Harvard Institute for International Development programs funded by USAID. U.S. Treasury advisors helped the Ministry of Finance (MOF) formulate fiscal policy and upgrade tax collection efforts through regular training. Private advisors have been successful in initiating macroeconomic modeling efforts, a new task in the market economy and in drafting income tax laws. Through efforts of Treasury advisors, the Tax Administration Law was passed and came into force from July 1996 and reorganization efforts have been initiated. With the Treasury advisors' active participation, a treasury system for cash collection and disbursement has been implemented and half of the Ministries are linked to the system.
To broaden the sustainability of the policy reforms, USAID has also initiated a policy dialogue with the Ministry of Finance to include policy think tanks. This dialogue allows for the Ministry to gain a better understanding of the needs in the country and raises their awareness of the continued need for fiscal and tax policy reform. The think tanks comment on various legislation initiatives and on many occasions have been successful in assisting the Ministry to define the problems and best approaches for resolution. A second related initiative is a series of policy discussions with Parliamentarians to educate them on the ramifications of different policy actions. This has resulted in a more informed legislative body that can better evaluate the economic impact of legislation. The achievements to date allow USAID to enter its last phase of assistance in Lithuania. The final areas of activity will move the Ministry of Finance into a self-sustaining level of policy formulation and implementation.
Description: The need for strengthened MOF policy leadership and control of public spending and borrowing, and a strengthened role in interministerial coordination, is becoming increasingly evident. Without greater MOF leadership and analytic capability, Lithuania's rising credit rating will allow it to borrow more than it can effectively manage. The widening current account deficit, escalating foreign borrowing by parastatal corporations, and slow growth in domestic savings are signs that Lithuania's economy is over-heating. Extraordinary fiscal measures may, in fact, be needed to restore external balance.
The Ministry needs to cope with the rapid increase in its responsibilities and to develop new capacities- the Treasury function, reorganizing the State Tax Inspectorate, consolidated budgeting, and performance-based spending. The need for policy analysis and leadership, improved organizational design and better finance system development devolves more fully upon the Ministry of Finance.
Future USAID assistance will enhance the MOF capacity for improving fiscal policy. With respect to the development of a macroeconomic and fiscal policy framework, the assistance will ensure that the macro-framework is adequate and takes into consideration the likely impacts of different fiscal outcomes. With regards to the public debt, assistance will be provided on developing a debt-management strategy that ensures that the level of debt is sustainable, and that the public and publicly guaranteed debt is taken for purposes consistent with sound external borrowing practices.
Assistance in the area of budget development is aimed at improving the legal framework for public expenditures, designing the consolidations and regularization of budgets and budgeting procedures from the national budgets, Social Security Fund (SODRA) and local budgets, improving systems for budget monitoring, designing integrating systems for automating the budget, treasury and debt-management systems.
Tax policy reforms will be implemented by increasing the MOF capacity to analyze and assess alternative tax policies and by establishing government policy setting guidelines at the MOF. MOF analytical capacity to assess alternative tax policies will be increased by developing databases and procedures for tax analysis, revenue forecasting and macroeconomic analysis, by developing recommendations for tax legislation and tax policy, and by improving the Ministry's skills through in-country and overseas training.
Host Country and Other Donors: USAID works directly with the Ministry of Finance in implementing the fiscal management program. The Ministry has identified weaknesses in its budgeting, policy making, and lending systems and is working on solutions to these problems. This involves formulating clear criteria and systems for decision making on fiscal issues. The U.S. is the primary bilateral donor working on fiscal policy reform and coordinates with other donors such as the IMF on reorganization of the Ministry and treasury system development, EU program on tax administration and customs, Denmark on treasury function development and Sweden on foreign debt management.
Beneficiaries: Primary beneficiaries of the program are the Ministry of Finance and the Government of Lithuania. The ultimate beneficiaries are the citizens of Lithuania and the emerging private sector that will benefit from fiscal policy reform leading to economic growth, improved income distribution, and a more fair and equitable tax structure that favors private business expansion.
Principal Contractors, Grantees, or Agencies: USAID's efforts in treasury systems and budgeting will be conducted by advisors provided under an interagency agreement with US Treasury. Assistance on fiscal reform has been started through work of a private consultant and will be augmented by USAID through new contracts to be competitively awarded in FY 98. Efforts to improve tax policy and legislation are being provided by Harvard Institute for International Development advisors and private consultants.
Major Results Indicators: Baseline (1995) Target (1998) Tax revenue as a percentage 24% 29% of official GDP
ACTIVITY DATA SHEET
PROGRAM: LITHUANIA
TITLE: Financial Reform, 180-S001.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $250,000 SEED Act
INITIAL OBLIGATION: FY 1992; ESTIMATED COMPLETION DATE: FY 2000
Purpose: To establish a more stable financial environment.
USAID Role and Achievements to Date: USAID assistance has been instrumental in improving regulation of the banking sector, creating the Lithuanian bank training center, improving private financial sector services, strengthening the operations of the capital markets, and establishing the Lithuanian Environmental Investment Fund. The bank supervision department has improved the quality of its inspections by implementing standardized examination practices and building the capability to identify problems before they become a crisis. Through the department's improved examinations and increased regulation, seven banks have been closed in the past two years and all private banks meet prudential requirements, such as minimum capital requirements of $6 million USD and capital adequacy levels of 10%. The Government of Lithuania (GOL) is embarking on an orderly departure from the currency board and the Central Bank is developing ways of formulating and implementing appropriate monetary policy. Assistance is provided to the Central Bank to attain the capacity and skills to develop and implement an independent discretionary monetary policy. This has included developing a way of deciding on policy and assessing the impacts of a policy commitment to a fixed exchange rate and creating and using monetary policy instruments such as repurchase agreements to stabilize the level of money in circulation. USAID advisors have assisted in drafting the Securities Law, increasing transparency in the trading system, improving market regulation and safety, and ensuring the use of the Stock Exchange as the primary channel for privatization. This work has allowed the regulators to keep abreast of market developments and thus avoid structural problems and has led to continuously increasing activity and interest at the Stock Exchange. Although seven brokers were closed by the Securities Commission over the past year, no investors have lost their money and turnover at the Exchange increased by 300% in 1997. The efforts achieved to date allow USAID to advance into its final phase of assistance in Lithuania. The remaining areas of activity will complete the transition to self-sustaining reform in the banking sector.
Description: Banking assistance will focus on the structure of the banking sector, with emphasis on improved regulation and improved Central Bank operations. Policy assistance will ensure an orderly departure from the currency board and develop ways of formulating and implementing appropriate monetary policy. This will include developing additional tools and supporting systems for monetary policy, developing and implementing forecasting methodologies on monetary needs, preparing contingency plans to deal with international market movements, and strengthening policy linkages with the Ministry of Finance. Supporting technical assistance will be provided for improving banking laws and increasing transparency in operations of the Central Bank. By focusing on the structural level of the banking sector, the program will support a stronger and more transparent banking structure that can perform its intermediary functions more effectively.
Host Country and Other Donors: USAID works with the Bank of Lithuania, Ministry of Finance, National Stock Exchange, and Securities Commission. USAID has taken the lead in banking supervision efforts and works with the Danish program in this area. Monetary policy assistance to the Central Bank is provided in coordination with an IMF advisor working on technical issues. Other banking reform efforts are coordinated with the EU on legislative reform, capacity building and bank supervision and the World Bank on structural issues. USAID has taken the lead in bank supervision activities and monetary policy assistance at the Central Bank in coordination with other donors.
USAID is the only donor working in the capital markets sector and is building upon the foundation set by the French program in 1993-94. Other donors are likely to take up assistance after USAID to ensure continued safety and soundness in this sector.
Beneficiaries: The immediate beneficiaries of USAID assistance are the main players in the financial services sector such as the Lithuanian Stock Exchange, the Securities Commission, Central Securities Depository, the Central Bank and the commercial banking sector. The final beneficiaries will be people and enterprises with accounts in commercial banks and people investing in the Stock Exchange as well as companies raising funds through the Exchange.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through a combination of contracts, grants and Interagency Agreements: International Business and Technical Consultants Inc. (IBTCI) and the U.S. Treasury on banking sector reform, Pragma on capital markets, and the Lithuanian Free Market Institute and International Executive Service Corps on policy and awareness building.
Major Results Indicators: Baseline (1996) Target (1998) Turnover at the Stock Exchange $38M $150M Listed firms at Stock Exchange 0 30 Share capital levels in banks $95M $175M
ACTIVITY DATA SHEET
PROGRAM: LITHUANIA
TITLE: Energy Policy and Safety, 180-S001.5
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $435,000 SEED Act
INITIAL OBLIGATION: FY 1992; ESTIMATED COMPLETION DATE: FY 2000
Purpose: To improve safety and policy of the energy sector.
USAID Role and Achievements to Date: Since 1995, USAID has assisted the Government of Lithuania (GoL) on the development of a capable energy regulatory body by drafting mission guidelines, advising on regulatory processes throughout the world, and developing tariff methodologies for electricity, heat, and gas. The GoL formation of a permanent National Control Commission of Prices for Energy Resources and Energy Activities (NCC) in 1997 provided the vehicle for further energy price reform in Lithuania. In July, the NCC authorized an increase in electricity tariff by 10%. The GoL also made a decision to separate electric utility and district heating operations, and local district tariffs, depending on the district, rose by between 10-40% across the country. All these actions have moved forward the energy sector's restructuring by cutting losses and eliminating cross-subsidization. USAID has continued to provide support to NCC on tariff implementation and improve public understanding and participation in regulation of the energy tariff setting process. At the regional level, USAID is helping Baltic countries to coordinate the planning and operation of their power systems to develop autonomous planning capabilities, and to develop a regional least-cost plan. USAID, together with other Western countries, is also working on safety improvements at the Ignalina Nuclear Power Plant (INPP) and assisting the local Nuclear Regulatory Body, VATESI, to strengthen its capabilities. Although more work needs to be done in improving the operational and physical conditions of INPP, the plant is now significantly safer than at the onset of independence. These achievements allow USAID to enter its final phase of assistance in Lithuania. The final areas of activity will complete the transition to self-sustaining reform in the energy sector.
Description: USAID assistance to Lithuania's energy sector will be focused on the NCC and the Ministry of National Economy in creating a sound legal and regulatory framework which is necessary to attract the amount of strategic investment required. Further assistance will be provided on energy price regulation, legislation and restructuring areas. In 1998, USAID will place a resident energy advisor who will work closely with the NCC to address a broad spectrum of questions facing the Commission including tariff policy, methodologies and implementation, public relations, restructuring and development of the energy sector. In the nuclear safety area, the U.S. Nuclear Regulatory Commission (NRC) will continue to provide VATESI the needed know-how to conduct a western-type regulatory licensing review of INPP and help VATESI make the transition to a modern, independent regulatory organization. This work will form the basis for the relicensing review of the INPP first reactor in early 1999.
Host Country and Other Donors: USAID works directly with the NCC, Ministry of National Economy, National Energy Company, and VATESI. Other primary donors are EU and World Bank on energy sector reform, EBRD and Sweden on nuclear safety.
Beneficiaries: Primary beneficiaries of the program are the NCC, INPP, VATESI and Baltic Energy Utilities. Improving the safety and policy of the energy sector will, in turn, make an important contribution to the improvement of Lithuania's public financing and ongoing attempts to forge a viable commercial financial sector. The work in nuclear safety will benefit the public health of Baltic citizens, Russia, and Nordic countries by reducing the risk of nuclear accident that could have significantly negative affects. The energy policy reform will establish the framework for improvements in the energy sector restructuring that will take into account the need to reduce green house gas emissions.The beneficiaries then will be worldwide citizens.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through contracts and Interagency Agreements: Bechtel on energy regulatory reform and restructuring, NRC on nuclear safety, and Electrotek on Baltic regional cooperation.
Major Results Indicators: Baseline Target Least cost plan developed for alternative No (1996) Yes (1998) energy sources in the Baltic Republics Ignalina Nuclear Power Plant relicensed No (1996) Yes (1999) Final energy tariffs set by No (1996) Yes (1999) Pricing Commission Percent of production costs are 70% (1996) 100% (2000)
ACTIVITY DATA SHEET
PROGRAM: LITHUANIA
TITLE: Citizens' Participation, 180-S002.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $125,000 SEED Act
INITIAL OBLIGATION: FY 1995; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Increased, and better informed citizen's participation in political and economic decision-making. In spite of substantial progress in overcoming the profound effects of fifty years under a Soviet totalitarian system, key structural and functional weaknesses continue to constrain the ability of civil society and the non-governmental organization (NGO) sector to exercise a meaningful, participatory role in the full spectrum of political and socioeconomic decision making. To support the development of a truly vibrant civil society, USAID continues to assist in strengthening the capacity of Nos to conduct effective advocacy on public policy and the provision of services in the public interest.
USAID Role and Achievements to Date: Since the restoration of its independence in 1990 Lithuania has made dramatic progress in its transition to an open, democratic society, reflected in a full complement of essential institutions. The protection of basic human rights and guarantees of free speech are in place, along with an independent judiciary supporting the rule of law, and free, independent mass media. Peaceful transitions of power have followed free and fair multi-party elections. Training programs of the International Republican Institute for the majority of Lithuanian parties significantly contributed to the development of campaigns based largely on platform, rather than solely on personality, and to creating an environment of tolerance for opposing views. The National Democratic Institute's support of citizen participation in local government (completed in Dec. 1997), has resulted in “Citizen Advisory Committees” in four Lithuanian cities, enhancing the capacity of these municipalities for an open consultative, process with local citizens and community groups. During FY 1994-97, an annual $100,000 in grants was disbursed by the interagency Democracy Commission to individuals and Nos for one-time activities in areas which promoted democracy in Lithuania.
Since 1995, USAID's regional Democracy Networks (DemNet) program has increased the impact of Nos on the development of specific laws, policy and advocacy in all aspects of political, social and economic life. As a contributor to this effort, the International Center for Not-for-Profit Law has contributed to the drafting of several laws concerning non-profit law influencing the status and taxation of Nos. The U.S. Baltic Foundation (USBF) has stimulated the development of basic public advocacy skills and their application to broad policy and service delivery agendas on national, regional and local levels. Since 1996, USBF awarded 41 competitive grants, valued at over $450,000 to as many Nos, and provided targeted training to over 400 individuals. The result has been an increase in NGO activism, an increase in public awareness of Nos, and a significant increase in the participation of Nos in public advocacy and public policy development. Examples include participation in drafting and amendment of laws in a wide range of societal concerns, including human rights, taxation, provision of social services, environmental protection and development of private enterprise.
Description: USAID will close-out in September 2000. Achievements described above are self-sustaining in nature. As USAID assistance nears completion, continued support will strengthen NGO efforts to rationalize the body of non-profit laws and regulations constraining the operations and sustainability of Nos in Lithuania. Also, anticipating USAID close-out from the region, and to demonstrate the continuing strong commitment of the United States to democracy and civil society in the Baltics, USAID plans to establish the Baltic American Partnership Fund (BAPF) to strengthen the non-governmental sector in the Baltics for at least eight years beyond the close-out of formal assistance. USAID plans to launch the Fund early in 1998 with a $15 million endowment, contributed equally by USAID and the Soros Foundations. The Fund will have an independent Board of Directors
in the US, and manage its country-specific programs through local Program Councils, in close cooperation with the existing National Open Society Foundations in each Baltic country. Designed as a ten-year sinking endowment, the Fund will seek other contributions with the hope of becoming a perpetual endowment to the benefit to Nos in the three Baltic states. In FY '99 USAID will provide support to ensure that BAPF operations are working smoothly before the USAID mission closes. Through the U.S. Embassy's Democracy Commission Small Grants program, USAID will continue to fund the Commission to support grass-roots democracy at the community level.
Host Country and Other Donors: USAID is coordinating with key donors in these areas, through an organized Strategic Objective Team, including the Open Society Fund-Lithuania and the United Nations Development Program (UNDP). The EU has committed 2 million European currency unit (ECU) through 1999 for its Civil Society Development Programme, to support the Lithuanian NGO Support and Information Center, and a grants program for other Nos.
Beneficiaries: USAID civic participation programs are targeted to benefit the citizens of Lithuania through the empowerment of the more than 2000 registered Lithuanian Nos to enable them to successfully lobby the government on behalf of special interest groups, and through the training of local governments to incorporate citizens' concerns in their decision-making processes. It is estimated that over 700,000 citizens (almost 20% of the country's population) will benefit from current programming in three to five cities.
Principal Contractors, Grantees, or Agencies: United States Information Service (USIS), for democracy small grants. The implementor of the proposed Baltic American Partnership Fund will be a new, American private foundation with the same name.
Major Results Indicators: Baseline Interim Target (1996) (1997) (1998) Number of registered Nos 1000 2000 5000* % of population affiliated with an NGO 20 25 30* Joint public-private projects** 0 12 20* NGO-sponsored public outreach forums 50 124 150*(*)estimated
(**) in cities with USAID supported sites and/or DemNet recipient Nos
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