Lithuanian foreign trade continues to suffer

VILNIUS - Against a backdrop of rising unemployment, worker demonstrations, and falling salaries, the government last week released a report that may cut to the core of Lithuania's economic woes: falling foreign trade.

A report by the Institute of Economics and Privatization noted that Lithuanian foreign trade, equal to three-quarters of the country's gross domestic product, is crucial to the well-being of the economy. In the second half of 1998, total Lithuanian export and import levels were 91.4 percent and 97.2 percent of what they were in the first half of 1998, respectively.

The loss of the Russian market has been a staggering blow to Lithuanian exporters. In the first quarter of 1998, exports to Russia comprised 21.9 of total Lithuanian exports. By the second quarter of 1999, that level plummeted to 6.4 percent. Using that same comparison, export levels to the Commonwealth of Independent States dropped from 41.5 percent to 17.5 percent, respectively.

Juozas Bivainis, director of the Institute of Economics and Privatization, thinks the trade setbacks suffered in Central Europe as a result of the Russian crisis are just as compelling. "The most important reason for the decrease of Lithuanian export was the Russian finance crisis and it's impact on the markets not only of the CIS, but of Central Europe countries - our largest foreign trade partners as well," he said.

Negative trends in trade have continued throughout 1999 into 2000. According to a report by the state Department of Statistics, exports from Lithuania fell by 19.3 percent in 1999, as Lithuania seeks new Western trading partners to replace lost markets in Russia. Russia, it can be added, which used to be Lithuania's most important trading partner, fell to number three, behind Germany and Latvia.

"Exports to Russia decreased by more than 60 percent [since their peak levels]. The increase in trade to the West is not enough to compensate for that decrease," said Audrius Baciulis, spokesman for Prime Minister Audrius Kubilius.

Government officials have admitted that regaining those markets may be an almost impossible task for Lithuanian exporters.

"The main problem is that after the crisis in Russia, production costs in Russia are falling down terribly. Costs are extremely low so Russian producers are gaining markets in Russia. And Lithuanian products may be of better quality, but are much more expensive. Russian domestic products are very cheap," Baciulis said.

The institute report said that the drops in export levels to countries in the CIS states have not yet been compensated by trade to the European Union countries alone. In the first quarter of 1999 exports to EU countries crossed the symbolic 50 percent threshold, to 52.2 percent, although they fell back to 47.9 percent in the second quarter.

"This drop in exports was compensated not by CIS countries but by trade to other world regions," said the report.

However, Bivainis thinks that accelerating the revival of the former positions in the Eastern market, starting first on the Russian market, may help.

Corroborating that is a statistic: in January this year export to Russia had increased by 14.4 percent.

The institute report listed several reasons for Lithuania's ailing trade levels. First was the Russian economic crisis, which diminished the buying capabilities of CIS countries and halted the speed of economic growth in western and central European countries. Second was the strengthening of the US dollar in respect to the euro and the Russian ruble, which was decreasing the competitiveness of Lithuanian exports in eastern and western markets.

The report also blamed the protectionist policies of CIS countries, which created obstacles for Lithuanian goods flowing into those markets, as well as Russian export tariffs for imports of oil and gas into Lithuania. Those expenses manifest themselves as increases in the prices of Lithuanian goods.

The only category of goods not to experience a drop in exporting power was textiles, which comprise 36.3 percent of the export market, a share which shows the tendency to grow, the institute said. However, all other categories of exported goods fell, although export levels in food products to CIS states have grown.

"In speaking about food products and textiles, Lithuania needs a more-flexible economic policy and to have a wider and more subtle spectrum of market protection policies," the report said. "In this case we need more effective implementation of laws about anti-dumping, and compensation tax laws."