Publication: Eurasia Daily Monitor Volume: 1 Issue: 149

A left-of-center coalition government took office in Lithuania on December 15, capping complex power-sharing negotiations in the wake of the October parliamentary elections. The coalition includes two mainstream, “establishment” parties, the Social-Democrats and New Union/Social Liberals, governing jointly since 2001; and two populist parties, Labor and the Farmers’ Union/New Democracy.

The coalition parties control 82 of the 140 parliamentary seats. Fatherland Union/Conservatives and the business-oriented Liberal and Center Union, with 26 and 19 seats respectively, have gone into opposition.

Within the governing coalition, Labor holds 41 seats, the Social-Democrats 20, New Union/Social Liberals 11, and Farmers’ Union/New Democracy 10 seats. Thus, upstart populist parties clearly outnumber the traditional parties in the parliamentary coalition. In the executive branch, the two traditional parties control seven ministries, including foreign affairs and defense, while the newcomer parties control six ministries, mainly in the sphere of economics and administration.

At age 72, the Social-Democrat Prime Minister Algirdas Brazauskas hinted when sworn in on December 14 that he might not serve the full four-year term. Brazauskas, one of the founding fathers of the restored Lithuanian state in 1990, head of state in 1993-98, and prime minister since 2001, is primarily responsible for the Social-Democrats’ and Social Liberals’ post-election decision to break off negotiations with the Conservatives and the Liberal Centrists. Although voters had been led to expect the formation of a right-of-center, value-based government of these four parties, Brazauskas steered the Social-Democrats toward forming a left-of-center, expediency-based government.

Labor Party leader and business tycoon Viktor Uspaskikh, 45, is the government’s most colorful and controversial figure, as well as potentially most influential. Uspaskikh’s personality and political agenda was also one of the central issues in the elections. Born into the family of a forest worker in Russia’s Arkhangelsk region and employed as a welder on gas pipelines, he first came to Lithuania in 1985, settled there in 1988 as a foreman on a pipeline construction site in Kedainiai, and became a citizen of Lithuania in 1989. Uspaskikh made his first fortune as an exporter of metals from Russia and other ex-Soviet republics to the West, then became one of Lithuania’s leading businessmen as an importer of Russian gas, apparently through insider deals with Gazprom. Trading operations with Russian metals and gas were part of the shadow economy at that time, and Uspaskikh’s activities were therefore controversial, but there was no evidence of wrongdoing. In recent years he diversified his business interests, which now focus primarily on food processing. His first foothold in Lithuania, Kedainiai, has become his main operating base. Uspaskikh obtained a graduate degree in economics from Kaunas Polytechnic in 1999, entered Parliament as an independent deputy — as well as the parliament’s wealthiest deputy — in 2000, took over the parliament’s Economics Committee chairmanship amid accusations of conflict of interest, and set up the Labor Party in October 2003 as personal vehicle.

Within months, the left-populist Labor Party was topping the popularity polls, reflecting voters’ fatigue with the traditional party leaders. Labor captured five out of Lithuania’s 11 seats in the European Parliament elections in May 2004. It then placed first, albeit scoring less than expected, with 41 seats in the October national parliamentary elections. Its populist appeal notwithstanding, the Labor Party boasts more wealthy businessmen and successful independent professionals than any other Lithuanian party. Uspaskikh reported personal assets worth 43 million euros in 2003 (down from 46 million in 2002). One of Uspaskikh’s key personal motivations appears to be the quest for acceptance and respectability in Lithuania, by the country’s political and business establishment, and now on the international level as well. Despite being tagged as a populist, Uspaskikh attended the founding congress of the European Democratic Party — a federation of Europe’s conservative parties — on December 10 in Brussels, and was elected as one of its vice-presidents.

Antanas Valionis, Minister of Foreign Affairs since 2000, nominated by the Social Liberals, continues in that post in the new government. The new Defense Minister, Gediminas Kirkilas, a Social-Democrat parliamentary deputy since 1992, chaired the parliament’s Foreign Relations Committee since 2000, also serving as the presidentially appointed special envoy for negotiations on Kaliningrad transit since 2002. Kirkilas takes over from the long-serving defense minister Linas Linkevicius, who played a major role in bringing Lithuania into NATO.

Finance Minister Algirdas Butkevicius, Social-Democrat chairman of the parliament’s Finance and Budget Committee since 1996, took over that ministry in June 2004 from Dalia Grybauskaite, the free-market, fiscal-conservative economist who became the European Commissioner for Budget and Financial Planning this year. Butkevicius has promised to continue Grybauskaite’s policies. The new Agriculture Minister is Kazimiera Prunskiene, a Soviet-trained economist with a reputation for persistent Russian connections and leader of the left-leaning Farmers’ Union/New Democracy.

The four ministries that will administer the bulk of European Union structural funds and other financial assistance are: Economics under Uspaskikh, Agriculture under Prunskiene, and the Social-Democrat-controlled ministries of Transport and of Environment.

In parliament, Social-Democrats will chair four committees, including Foreign Relations; and the Social-Liberals only one committee, National Security and Defense. The Labor Party now chairs six committees, mostly for economic and administrative affairs. Farmers’ Union/New Democracy takes over two key committees: Economics and European Affairs.

The government’s program, approved on December 14, envisages: raising the minimum wage (one of the few electoral campaign promises incorporated into the government’s program); maintaining high GDP growth rates (these averaged almost 8% in the last few years); adopting the Euro currency by 2007; and rebalancing the personal and the corporate income taxes at the recommendation of the International Monetary Fund, by cutting the personal tax (currently one of the region’s highest at 33%) and raising the corporate tax (currently one of the region’s lowest at 15%).

The energy sector poses special challenges. The government will seek Western investment for construction of a new reactor at the Ignalina nuclear power plant, to replace the two Soviet-era reactors there. Lithuania has pledged to close down them down in 2004 and 2009, respectively, as part of the conditions of its accession to the EU. Prunskiene proposes moving immediately to use French technology and funding.

In the oil industry, Lithuania wants to avoid a Russian takeover of the Yukos company’s majority stake in the Mazeikiai oil refinery and related enterprises. The refinery, its supply pipeline, and maritime loading terminal form Lithuania’s largest economic entity and top taxpayer. Yukos holds a 53.7% stake and the operating rights since 2002, it guarantees stable supplies of crude oil, has upgraded the equipment and product quality, and turned Mazeikiai into a highly profitable enterprise. The Russian government’s destruction of Yukos threatens Mazeikiai as well. The Lithuanian government still holds a 40.6% stake in the enterprise. Uspaskikh proposes a plan to regain Lithuanian state control over Mazeikiai by purchasing a 10% stake from Yukos.

In foreign policy, the government’s program envisages: support for democracy in Ukraine; anchoring Georgia and Ukraine to Western institutions, possibly through a continuing process of the Vilnius-Ten type; supporting reforms in Belarus and Russia; and promoting economic development, investment and social projects in the Kaliningrad region.

(BNS, ELTA, December 13-16; see EDM, October 12, 26, November 2, 11).