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K. PRUNSKIENĖ: “The crisis hit the economy hard because business was lacking the support from the state”

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Kazimiera Prunskienė
K. Prunskienė: ‘’The key method promoting domestic consumption is business incentives and employment growth, along with the increase of residents’ earnings”.

Exclusive interview with the Head of the First Government of Independent Republic of Lithuania to Business & Politics             

Interviewed by Mindaugas MILIAUSKAS 

 Dear Professor, what is your opinion of the actions assumed by the Government in tackling the economic downturn, what would you change, for instance, what other measures would you assume to encourage domestic consumption?

I see the actions of the present Government as aggravating the crisis rather than combating it – due to inaction and inability; due to incompetent decisions and fluctuation. We came with the following conclusion in the discussions led by economists – the economic crisis emerged because the financial policy (banks, lending system) cast a shadow on the actual policy, i.e. the economic sphere: industry, energy sector, agriculture, services and people’s social life, their needs. However, we have to admit that the gravity and consequences of the crisis depend on the policy developed by the Government of the country. It is a shame thatLithuaniachose a rather controversial policy, as if required to withstand the crisis, which, unfortunately, made the crisis even worse.

The crisis hit the economy hard because business was lacking the support from the state. There were no investments to the transport infrastructure (roads, ports), housing renovation programmes: it would have been in the best interest of the state and the people in the future. When the Government proposed the residents to renovate housing at their own cost with the state support barely reaching 15%, there was not and could not have been any support from the people, therefore, the programme virtually collapsed.

Alleged anti-crisis actions – tax changes by increasing them, state borrowing from the banks with the interest rates twice as high as those of the IMF – were carried out irrespective of economic logic. It bred negative consequences: the crisis hit hard the sectors of construction, various industrial and service sectors; the crisis emptied hotels, restaurants, tourism objects. Thus, it resulted in more redundancies and reduced revenue to the state budget.

In three years, gross domestic product (GDP) slumped by nearly one fifth. In 2008 the unemployment rate amounted to 5%, whereas last year it skyrocketed to as much as 18%. The unemployment rate is lower this year (12–15%) because hundreds of thousands of the people emigrated from Lithuania. 

Lithuanians again go to Poland to shop because everything is much cheaper there. What economic measures should be taken to promote domestic consumption? 

The key method promoting domestic consumption is business incentives and employment growth, along with the increase of residents’ earnings. When economy grows, it does not only bring higher income to business and employees but also boosts the revenue of the budget and the State Social Insurance Fund Board (Sodra) – everyone will live better.

Three years ago the newly formed Government announced its programme – opposite to the programme which had been agreed upon by the economists at the international level. Now we can clearly see the consequences. First of all, the “overnight reform” disrupted the established taxation system; the VAT increase from 18% to 21% hit the economic sectors particularly hard.

Food industry, publishing, hotel services, rural tourism, art were severely shocked – these areas saw the lift of reduced-rate VAT of 5–9%. After all, not all manufacturers can compensate such a loss by reducing their income if there is none, or at the cost of the consumer, when he is offered cheaper goods from other countries. For instance, the average VAT rate inPolandis 11%; VAT for foodstuffs ranges from 4 to 7%. Finally, it is the consumer who has to pay more due to increased VAT. It reduces consumption, thus resulting in the reduced production. 

The heating season has already started, and everyone is well aware that heating prices depend on gas prices. The gas which comes from the neighbouring Russia… What the present Government should do to achieve lower gas prices, by not losing its self-esteem in the international arena at the same time? 

First of all, we need a normal rather than contentious dialogue withRussia. The inability to carry on normal diplomatic communication and beneficial cooperation with important economic partners, as required by the principles of good neighbourhood and equal partnership, does neither add more self-esteem nor improveLithuania’s standing in the world, but it makes the economic and social life far more complicated.

This Government can hardly amend what has been messed up and damaged at its own effort in three years. 

Energy independence of the country – this is the goal set by the Government. Do you see such a goal as realistic, bearing in mind that the construction of the Visaginas Nuclear Power Plant is now floundering? On the other hand, two more nuclear power plants are being constructed in the vicinity. Perhaps there is no point in starting the construction? 

I do not believe that the current “awakening” will be beneficial to consumers who expect more favourable electricity prices. I do not discount the possibility that the two neighbouring power plants will incur less investment and operation costs, thus, their electricity will be cheaper.

Depending on the situation in the market and the increased average costs of electricity production, the neighbours will have the opportunity to sell electricity in the market for a higher price and to earn more, which will also be at our cost. In other words, if all three power plants, including the Visaginas Nuclear Power Plant, produced cheaper electricity and the general energy capacities in the region significantly surpassed the demand, energy would become cheaper to the consumer. 

The project of liquefied natural gas terminal is getting more and more realistic. Is it realistic for us to build it? What should politicians do to bring the project to life at the earliest possible opportunity? 

When any serious project is initiated, for instance, the gas terminal, it does not take long for competitive spirit to rise, when a new government tries to ruin the job done by the previous government. And we continue standing at the same place…

It is easier to forecast what the weather is going to be next year than to guess what will happen with the gas terminal. What stops the Government from bringing this project to life in communication with the business people inLithuaniarather than ignoring them? After all, that is what the industrialist leader B. Lubys was striving for and invested considerable efforts for “tilting at windmills”. Perhaps it even shortened his lifetime… 

You founded the Lithuanian People’s Party more than a year ago. Unfortunately, the first pancake was a flop. I mean the results of elections to municipal councils. Are you planning to participate in the upcoming elections to the Seimas? 

It is better not to talk about the ideas of the elections to the Seimas in advance, because someone will soon “take them over”, like it always happens. I can tell what will definitely be on our agenda – support and possibility for independent, professional and respectful individuals supported by the people to participate in the elections to the Seimas, to improve the situation in the government, to bringLithuaniaback from the downturn – economic, social, moral.

I am neither interested nor attracted by the position in the government; what I am interested in is the outcomes of its activities to all of us – the people ofLithuania, the present and the future generations. We should avoid incompetence and cynical disregard of the people’s troubles and expectations, as well as disastrous rolling downwards. 

The society in Lithuania is divided. What can be done to put it back to one piece and what jobs are most urgent? 

One side is blaming the other, which sometimes has nothing to do with it – another person or another party.  The parties and the ruling majorities point at one another blaming for undone jobs or bad decisions. The majority of the intellectuals keep silent by adjusting to the present government. A great evil is the unfair part of the media, which can bring one to the top and trample the other for a tidy sum of money.

Public education must be developed to make people aware of the national interests and values, responsibility for the fate of your own and future generations, to bring them together for good work rather than evil. Who will do that? Concerned members of the society, uncorrupted media, church, non-governmental organisations…

We need more beautiful examples providing more confidence in the good nature of man. The circumstance that many people are not going to vote at the elections, as if “punishing” bad politicians and being proud of it, shows the unawareness of the consequences of their indifference and lack of citizenship, absence of responsibility for their own fate and that of the country.

The public domain is full of the talks on your personal relations with Russian politicians. How would you comment on those relations?

In the past few weeks I have been hearing this question more than ever before.  People would like to know, or they are curious to know: Why, after many years of intensive cooperation with the West, in particularGermany, I have kept reminding by words and actions in recent years that we also have to communicate and pursue active cooperation with the neighbouringRussia.  I am not of those who prefer to conform, to keep silent, to count days until the end of the term of office.

And then, during their election campaign, a number of them – one-by-one or in chorus – will tell the nation what they think of the policy of the present government, including the relations with Russia, Belarus, Poland, or even with theUSA, and on the incapacity to defend our interests in the EU institutions. I do not think that we need much courage; we rather need more conscience and responsibility to say what is very important to everyone in public:Lithuaniamust survive and get stronger – in economic, social, cultural, national and moral terms.

Finally, it is high time to get rid of post – Soviet syndromes and to tell the representatives of a large neighbour – let’s communicate, trade, cooperate in the creation of a peaceful and viable Baltic region and let’s respect each other. We will not achieve any good results by isolating ourselves from the closest and strongest neighbours. 

The present Lithuanian – Russian relations are not particularly good; on the contrary, sometimes we are living our hard times. What actions should be assumed to improve the relations with our neighbours – both Russia and Poland? 

It is enough of post-Soviet syndrome and true or alleged shivering that Russia will come and occupy us. It is exactly such cries that encourage the rehabilitation of imperial mindset. Is this what the primitive commentators and their supporters allegedly “defending” Lithuania from Russia want? It is a paradox that those who secretly benefit from Russia spread the loudest alarm.

Who does not know that the treasury of the Conservatives generate the highest profits from the import of electricity under the circumstances of expensive gas? Perhaps, indeed, it is not in their interest to achieve cheaper gas for the sake of the public good, not to mention electricity?

It is time to show concern and responsibility for ourselves, i.e. for our country. No matter how much we want it, we cannot change our neighbours, thus, we should learn to co-exist and to create a safer and better life in cooperation with them. 

You have been at the outskirts of politics for three years: where is it better – in active politics or in a slightly more passive public life?

From my personal positions alone, it is far more meaningful to work independently by helping business, science, culture and the people in need of help – the spheres where I can make real contributions without wasting time in the Seimas. 

Freedom is a great advantage to a person, especially if you are not a conformist and can do meaningful jobs beyond the borders of the government – not only private but also public life. I definitely would not like to be in the present-day Seimas. Today, it would make me feel like a prisoner, I would feel bad about my lost years…

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