What’s worse than compulsory leave without pay? No pay, but no leave either. The government asked its employees to work without pay the last week of 1999.
It was more than a symbolic gesture. The government is seriously short of money. The budget deficit is 9 percent of gross domestic product. In the United States, a deficit that size would be close to $800 billion. Lithuania has been mired in recession since the Russian devaluation of August 1998. Gross product fell 5 percent in the third quarter of 1999, and unemployment is 9.5 percent and rising.
Lithuania pegs its currency to the Deutsche mark. By law, the central bank must exchange litas for marks at a fixed rate. As a result, unless it earns or borrows more hard currency, the government cannot expand the money supply. The fixed-rate policy should lead to fiscal discipline, which means keeping government revenues and expenditures in near balance over a reasonable period of time. But outside events like the Russian collapse, and internal politics that resist spending cutbacks, have pushed the country’s finances out of whack.
The result is bad news for ordinary citizens, and bad news for the government too. Public approval of the main governing party, the pro-West, center-right Fatherland Union/Lithuanian Conservatives, has fallen below 5 percent. Despite its unpopularity, the party is holding firm on the main elements of its economic policy: a fixed exchange rate, privatization, openness to foreign investment and membership in the European Union. A courageous stand, to be sure, but party leaders would like to rely less on courage and more on success. Without a turnaround in performance, a turnaround in policy will be hard to avoid.