By Dovilas Bukauskas
Exactly 22 years ago, on March 11th, 1990, the Lithuanian Soviet Socialist Republic declared independence from the Soviet Union. The fall of the USSR a year later ended 47 years of occupation. Although dissidents had fought bravely for Lithuanian independence, freedom brought its own set of difficulties. The removal of an entire economic system left chaos in its place. "More than 90 percent of Lithuania's trade was with the rest of the USSR, which supplied Lithuanian industry with raw materials for production and a market for its outputs,” reports the U.S. Department of State. “The need to sever these trading links and to reduce the inefficient industrial sector led to serious economic difficulties.”
Lithuania transformed itself in the decade after the fall of the Soviet Union but just as much has changed in the last decade. Lithuania joined NATO and the EU in 2004 and became a party to the EU’s border-leveling Schengen Agreement in 2007. The last two decades have seen Lithuania inch closer and closer to the rest of the European Community with increasingly liberal economic regulations. Before the global economic crisis, Lithuania appeared well on its way to becoming a member of the Eurozone.
The economic crisis in Europe, however, has put the brakes on two decades of unexpectedly strong growth. Today, many doubt that Lithuania will achieve the required currency convergence standards for inflation and deficit to enter the Eurozone by its stated goal of 2013. The economic recession has also left the country in a precarious political state. Lithuania’s GDP plunged nearly 15 percent in 2009 and, along with former Soviet states Latvia and Estonia, was among the hardest hit by the 2008-09 financial crisis. In documents published by international online whistle-blower Wikileaks, global intelligence analysts working for STRATFOR wrote, “The economies of these countries are completely collapsing … Lithuania is holding out, but it also had protests in January over the government’s economic crisis measures. Let’s see what happens here.” After an astonishing period of growth followed by a crushing economic crisis, economists and politicians alike are waiting to see if Lithuania will be able to once again cast off its economic hardship and join the ranks of Europe’s more economically developed Eurozone nations.
The “crisis measures” mentioned by the STRATFOR analyst are austerity policies that Lithuanian politicians implemented to avert the worst of the economic crisis. Commentators across the globe see these measures, which are highly unpopular amongst many Lithuanians, as a test-case for using budget cuts to counteract the economic crisis. Economists cannot agree whether or not the measures have even been successful, but as the dust settles, the world is looking to Lithuania for lessons. The harsh austerity measures include a two year freeze in public sector salaries; a 30 percent decrease in public spending; an 11 percent drop in public-sector pensions; and higher taxes on alcohol, pharmaceuticals, and corporations.
While the cuts have been largely succesful they also cut government investment, which some commentators predict will strangle future recovery. In an article by Jeffrey Sommers, Dr. Arunas Juska, and Michael Hudson, they wrote, “The extremely high social and demographic costs of such policies put the very future of sustainable economic growth in the region into question. Investments in education, infrastructure, and public services that are preconditions of the 'high,' knowledge-based and higher productivity-based economic development were slashed, while the brain drain intensified.”
Compounding the nation’s economic troubles are social problems, like the much-discussed “brain drain,” made possible in part by the very economic and political measures that drove Lithuania’s growth in the mid-2000s. Young professionals are leaving the nation at an increasing rate. The population decreased to 3.05 million in 2011, a decrease of 350,000 over the previous decade and a loss of almost 700,000 since it regained its independence two decades ago. The higher economic growth enjoyed in stronger Eurozone nations, coupled with the increased border fluidity allowed by the Schengen Agreement, allow young workers to leave Lithuania for better economic climes, where they are paid more for jobs that are easier to get. Significant populations of migrant Lithuanian laborers exist in the U.K. The only way out of this is to strengthen the country's economy and create more domestic opportunities for economic growth, which would make staying and working in Lithuania more attractive.
While trying to return its economy to pre-crisis growth rates, Lithuania has also taken new stances on a few key international issues, positions that it hopes will leave the country dependent on neither Europe nor Russia. The goal of constructing a nuclear power plant in the eastern town of Visaginas shows a push for energy independence. The construction of the plant, which is a partnership between Lithuania, Latvia, Estonia, and possibly Poland, is intended to decrease these nations’ reliance on Russian energy. In its current state, as proposed by Japan’s Hitachi Ltd., the power plant would generate 1,300 megawatts of energy, 34 percent of which would directly supply Lithuania. Valdemaras Sarapinas, Lithuania’s consul general in New York, said, “We are all aware perfectly well of the threats of our energy dependence. We know that the strengthening of our country’s energy independence is not only the road [to] the successful functioning of our economy, but I would even say [it is] one of the most important aspects of our national security.”
Prompting this newly found focus on energy independence is the Russian-Ukrainian conflict over the supply of fossil fuels. Over the past five to 10 years, Russia has repeatedly threatened to drastically reduce gas supplies to Ukraine (actually doing so in the winter of 2008), citing unpaid debts. In 2006, Russia temporarily cut off its oil supply to Lithuania, although the causes for this action are still debatable. Some analysts say that the shutdown, which was later made permanent, was motivated by Lithuania’s sale of an oil refinery to a Polish bidder rather than to a Russian one.
Lithuania has also sought to increase its cooperation with the Nordic states. President Dalia Grybauskaite has, on numerous occasions, underscored the importance of working together with Lithuania’s northern neighbors, citing the fact that Iceland was the first nation to recognize Lithuania’s post-Soviet independence. Although the grouping of cooperating nations, known as the Nordic-Baltic Eight (NB8), has drafted a set of economic, social, diplomatic, and environmental goals, some aspects of its actions are reminiscent of cold-war posturing, as the nations’ cooperative actions include defensive development. Should any of these military agreements be enacted, they would coincide neatly with NATO’s recent extension of the three Baltic nations’ air patrols. Since regaining their independence from the Soviet Union, none of the three small nations have ever maintained an effective air force, but NATO uses their air space. Sarapinas explained, “The main goals of Lithuanian foreign policy are to assure the security of the country from any outside threats and to cherish democratic values in the international arena.”
Despite its myriad difficulties, Lithuania has been here before and has already demonstrated that it can flourish in the modern economic climate. With new allies, economic reforms, and foreign policy goals, Lithuania can shoulder its way to a spot at the Eurozone table. The tiny Baltic nation of only three million was once on its way to becoming a fully developed nation, and now it’s on its way to reclaiming the reins of a suffering economy and resuming its pre-crisis growth.
Dovilas Bukauskas is an editorial assistant at World Policy Journal
[Photo courtesy of Wikimedia Commons]