NEW GOVERNMENT FACES DIFFICULT EARLY TESTS.

Lithuania’s new government, headed by Rolandas Paksas, had its program and composition approved by the parliament on November 9 and took office on November 10. The minority government won the vote of confidence by a comfortable margin of 72 to 48, thanks mainly to deals it has made with the small, left-of-center New Democracy and Farmers’ Party. The government itself is based on an alliance of Paksas’ right-of-center Liberal Union with the left-of-center New Union/Social Liberals (NU/SL). Substantial elements within the NU/SL and the two small supportive factions share some of the views of the opposition’s forty-eight-strong Social-Democratic Alliance on a number of issues, including the privatization of state property. The existing parliamentary arithmetic lays the government’s policy in general, and the Liberal Union’s in particular, open to pressures on the left flank.

Adding to the complexities of this coalition, Paksas and the NU/SL leader Arturas Paulauskas–chairman of the new parliament–have made clear their intention to run against each other in the 2002 presidential election. The dictates of political competition and those of sound policy may not always be easily reconcilable between now and 2002.

Receiving the members of the outgoing and incoming cabinets of ministers together, President Valdas Adamkus underscored the merits of the outgoing Conservatives in accelerating economic reforms under especially difficult conditions of economic recession, laying the foundation for economic growth. Adamkus cited the high marks earned by the outgoing government’s policies from the European Union and the successful completion of negotiations for Lithuania’s accession to the World Trade Organization. Conservative Prime Minister Andrius Kubilius, for his part, observed that the outgoing cabinet had “done what the country needed, without regard to cheap popularity.”

The new government’s will and ability to continue on that course face immediate tests on several fronts. Constrained by intracoalition compromises, the Paksas cabinet seems about to revise some of the predecessor government’s boldest reform measures. It proposes, for example, to raise the budget deficit in 2001 to between 2 and 3 percent of the gross domestic product, instead of the 1.4 percent written into the Kubilius government’s draft 2001 budget and agreed upon with the International Monetary Fund. The IMF’s representative in Lithuania, Mark Horton, has already expressed reservations over the proposed deficit increase. The Standard & Poor international rating agency has also recommended adherence to the Kubilius government’s fiscal targets.

The new government has announced its intention to reconsider and, pending that, put on hold several privatization decisions of the predecessor government. The privatization of Lithuania’s state maritime shipping company LISCO is a landmark case. Last month, the Dutch-Danish-Israeli consortium B.B. Bredo B.V. bought a 75 percent stake in LISCO for US$48 million and a commitment to invest at least US$76 million in modernizing the fleet and harbor installations company in the next five years. But the new government, citing the State Control agency’s report, questions both the terms of the transaction and the reliability of the strategic investor, and has launched an investigation into the matter. Meanwhile, the ambassadors of the countries concerned are trying to reassure the government and, in particular, Paulauskas that the companies in the Bredo consortium are reputable and well established in this business.

The terms of the partial privatization of the country’s oil sector by the American company Williams International are also coming under renewed critical scrutiny by the new parliament and government. The Conservatives chose Williams as a strategic investor last year in order to forestall Russia’s LUKoil from taking over Lithuania’s oil complex. But the Constitutional Court recently found the several provisions in the 1998-99 legislation on privatizing the oil sector contravened the Constitution. The court’s October ruling–coinciding with State Control agency’s report on LISCO and with the change of governments–has furnished arguments to those who oppose or seek to limit privatization as such.

In a parallel development, the new parliament has cancelled the predecessor government’s decisions on the preprivatization restructuring of the state-owned power generating company Lietuvos Energija. Elements in the new government are also questioning the privatization plan for the state-owned Lietuvos Dujos (Lithuanian Gas) company. The views of NU/SL and of the opposition Social-Democratic Alliance tend to be fairly close on these issues.

The Social-Democratic Alliance consists mainly of the formerly governing (1992-96). Democratic Labor Party and the Social-Democrat Party. The Alliance’s leader, former (1993-97) President Algirdas Brazauskas, did not run for a parliamentary seat in the recent elections because he had aimed for the prime minister’s post in anticipation of electoral victory. That miscalculation removed his moderating influence and allowed the Social-Democrat Party’s leader Vytenis Andriukaitis to be elevated to the post of opposition leader. Andriukaitis is an ideological critic of privatization, and his party’s electoral campaign–according to its financial disclosure returns, filed last month and confirmed on November 10–has been funded by a local oil-trading company closely associated with LUKoil.

Andriukaitis is the only major political figure in Lithuania to propose recognizing the parliament which President Alyaksandr Lukashenka recently created in neighboring Belarus. Lukashenka’s ambassador in Vilnius, Uladzimir Harkun, approached the parliamentary leadership last week with a proposal to establish a Lithuanian-Belarusan parliamentary group. Palauskas waffled: He declared that such a group might be formed if some deputies are willing. With Andriukaitis willing, it was left to Foreign Affairs Minister Antanas Valionis–a NU/SL nominee–to remind the legislative branch that the European Union and the other major international institutions refuse to recognize the new Belarusan parliament while treating the pre-1996 one as legitimate. The chairman of that parliament, Syamyon Sharetsky, resides in Vilnius (see the Monitor, November 8).

The Liberal Union is having some difficulty in resisting NU/SL demands to slow down the planned increase in defense spending. During the electoral campaign, Paulauskas supported both the goal of accession to NATO and cuts in defense spending–a familiar case of the populist politician wanting to have his cake and eat it too. The new government proposes to do two things which do not very often go together: increase the budget deficit (see above) and simultaneously reduce planned defense spending in 2001. The predecessor Conservative government had committed itself by law to raising defense spending to the NATO benchmark level of 2 percent of the value of the gross domestic product, with an intermediate target of 1.95 percent in 2001. The new government, however, now suggests revising that law and aiming for a lower target in 2001. It would aim for 2 percent in 2002, but that target would be more difficult to reach if the 2001 level is lower than planned. Yet the top national goals remain constant: getting an invitation to join NATO in 2002 and actually joining the European Union by 2004.

The new government’s response to the tests just ahead will set Lithuania’s course in foreign and internal policies until at least the 2002 presidential election and the crucial summit of NATO that same year (BNS, ELTA, Reuters, Vilnius Radio, November 8-11; see the Monitor, October 6, 9, 20, 26, November 7).

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