On the News radio (“Žinių radijas”) show, Lithuania‘s bank board‘s director Vitas Vasiliauskas said that whilst the world economic scenario is being portrayed dramatically in Lithuania, the visible signs of ambiguity are preventing from making concrete predictions about the country‘s future, Aurimas Perendnis wrote in lrytas.lt
In the show ‘Position of Business’ („Verslo pozicija“), the Lithuanian bank board‘s director, together with journalist Aurimas Perednis, discussed the idea of founding a bank, the government‘s attempt at decreasing his pay, the future of Lithuania‘s economy, and the possible future of taking out loans.
Let‘s start with this: have the Farmers decreased your paycheck yet?
The parliament declares my paycheck. As I mentioned time and time again, Vasiliauskas is not management. This is the volition of the Parliament.
What is the purpose of solidifying this question?
I believe that this is a sequence of a fight with independent institutions. It appears strange to me, however, it’s probably the third continuous year when in May something is solidified – the fight with the central bank, now including other institutions as the target. I believe these are the steps that make us think about what is happening.
Do you believe that this is an attempt to make these institutions more dependent on political conjunction?
I don’t know what the goal is. I believe that the strength of a state lies within the independent institutions, this is an intrinsic part of the democratic process. Especially as the independence of the central bank, without mentioning the independence of the judicial system, is the axis of a republic.
When one works in politics, one probably sees everyone as either enemies or friends. The present government could see you as an ex-staff director of Dalia Grybauskaitė, as one of her ‘people’. Sometimes people think like that: this – one of us, that – not one of us, that is why it is best to have your ‘person’, who wouldn’t ask uncomfortable questions day in and day out.
This – is more of an interpretation. I believe that having a different opinion is always a strength. I tried to promote this discussion in the Lithuanian bank because this is the only way that you can move forward and progress.
Economics after quarantine
What is awaiting Lithuania’s economy after the quarantine?
Our base scenario says that this year we should expect a little less than a 10 per cent decrease, and the following year a similar rebound. However, according to our present calculations, the rebound will not be enough to compensate for the decrease this year.
So far, the prognosis is more-so based on assumptions. The data of the first quarter of the Lithuanian economy has been a shock; the Department of Statistics has stated that in the first quarter, Lithuania’s economy was still growing. I believe this will influence next year’s calculations as well. April, however, in my opinion, has been a complete downfall. I would suggest waiting for autumn – now this information is still very ‘unclean’.
Also, the second wave has been the subject of many questions raised. The domestic consumption should stabilise faster, however, what it’s going to be like in regards to the export markets is still unclear.
Our prognosis for exports this year are decreased by about 14 per cent. I would also note that this is a more optimistic prognosis than what was believed reported? in March.
In regards to the domestic consumption… based on the assumption that the salaries in Lithuania will most likely decrease (according to our prognosis the decrease should be between 2-3 per cent), the domestic consumption should not show any great results. Some of the ‘soft’ indicators, for example, the consumption of electricity, stabilisation of the job market, and people’s mobility indicate a more optimistic outcome than what was proposed in March.
The economists say that the official unemployment is masked by the downtime.
We’ve seen a very big decrease in insured citizens. Our numbers show that this decrease was bigger than 30 thousand – these are truly big numbers. However, May data shows the stabilisation of this parameter.
The government is dividing the money between different interest groups. How does this division seem to you?
Without a doubt, the reaction towards the present crisis is different, because we have different tools to deal with it. The planned measures look impressive, however, using them is a different thing. According to our measures, the use of planned measures is about 10 – 12 per cent. There’s still a lot of reserves, however, I agree that we shouldn’t ‘pour’ over everything with money as we still don’t know how much we’re going to need until the end of the year, or if there’s going to be the second or third wave of coronavirus.
However, the concerning fact is that we aren’t discussing the budget corrections. Simple maths – the state’s budget (if I remember it correctly) consists of about 10 billion euros. At this point already we have planned measures to decrease the outcome of the crisis. The planned measure includes both dealing with the near future as well as measures which we will have to take after the crisis. Both of these constitute about 6.5 billion euros. Already, we have numbers that could potentially be bigger than the budget. I have no idea how it ‘goes’ alongside the budget.
The minister of finance says that with every following draft law, we’re going to start correcting the budget. To have actual solutions could take months, and we could have a slowed response towards the economic situation. Is such an argument convincing enough?
It truly isn’t. I think we could discuss a temporary, crisis budget as an addition, alongside the yearly budget. I believe this is more of a technical issue.
When you suggested overlooking the yearly budget, Ramūnas Karbauskis stated that you want to ‘tie their hands’.
If I remember correctly, before the start of this political cycle there was a thought to return the centre of power towards parliament. I believe that budget is the main issue, through which political control is obtained.
If the ruling majority has a consensus, many votes…
That’s another question, then why not to review the budget?
Because the decisions are going to be taken more slowly…
What is now the use of money? 10 -12 per cent. The messages do not match.
Let’s talk about the development of the national bank. Does Lithuania need such a thing?
We continuously stated that firstly, we need to make the cost-benefit evaluation, and make decisions according to the facts and not assumptions. The budget and finance committee asked our opinion, we have stated it at the beginning of May, where we stated what sort of steps could be taken.
We are only the guardians, we are neutral.
However, firstly, we should determine what it is that we’re talking about. Now, seeing the Parliament’s project ruling I see a mixture – on one side the National development institution, a sort of INVEGA, Agricultural loan fund, although bigger, would proceed further and not through financial intermediaries.
On the other side, I see the beginnings of a universal commercial bank talking about giving credits to small towards medium-sized businesses and regional areas, as well as financial service to citizens. Firstly, we should determine the model, and, according to what we’re talking about, take further actions.
Some people think that this idea is made to mobilise an electorate that is disillusioned and angry with bankers and bank rates, because everyone understands that in a few months no-one will create a bank.
We believe that if we’re talking about such a significant thing, it needs a larger discussion. It should go further than one political cycle and one political power.
We frequently argue that the banks’ market is not competitive enough.
That is a fact, there’s going to be another bank. It’s going to create competition, however, it will need to compete in the same conditions as the other existing banks.
The future of world economics is being portrayed dramatically. How would you evaluate that?
The fact that we are having the biggest decline is indisputable. The question is, when are we going to see a rebound? bounce-back? Up until this point, the information that we’re getting seems to be ambiguous.
For example, the credit portfolio. Yes, the flow of credit has been in decline, especially in April, and now we see a stablisation of sorts. The number of demands, especially for the residence loans, is bigger than before the quarantine. Different segments of business this year have a different experience. For some, it’s their best year, for others,it’s not.
Beforehand, banks have stated that we could apply for postponement of loans. For a few weeks, we sort of saw an increase in demand, afterwards, the situation has stabilised. We remember the years 2008 – 2009 when the number of bad loans had skyrocketed.
The view is completely different than the situation in the years 2008 to 2009 – every week we take measures. For example, one of the major banks stated that because of the postponement of loans, some of the businesses have also applied. The bank has taken decisions to postpone the loans, however one-fifth of businesses have returned after a week stating they do not need the postponement.
Have the banks become more careful? How is the ability to obtain credit changing?
We should look at the changes in financial conditions. Speaking of the credit price, the increase of interest had begun a couple of years back, however in the middle of last year, it stopped. During this crisis, at least the rate of interest of loans seems to remain the same. We witness more of a safe behaviour towards one’s own money, due to? the so-called property and loan ratio. Here, we see changes, and banks now require a bigger first deposit. It is my belief, that the decrease in credit’s measurements in the first place has to do with the decrease in demand.
What could happen with interest rates in the future?
If the economic situation doesn’t change drastically, then I don’t see any reason why prices should increase. Additional and unforeseen risks do not appear, and the price of central banks’ money is on a downfall, which is why I don’t see why the interest rate should increase.