Lietuvos ekonominė politika globalinės krizės kontekste
Lithuanian economic policy in the context of global crisis

Summary/Abstract: The article deals with the main reasons of today’s global crisis and its influence to the economics of Lithuania and other countries. The current global crisis is not the only worldwide crisis in the new history of humanity. We are aware of such economic crises that have affected more than one state and therefore they can be called as worldwide crises. The onset of the current financial crisis is considered to be 2007, when the Federal Reserve System of the USA had to interfere and grant liquidity to the bank system. Economic cycles are on immanent feature of the market economy, because the evolution of the market economy is uneven and there is no other mechanism to equalize disproportions of uneven evolution than periodical shocks – crises. Thus, although crises entail great losses, both economic and social, they are inevitable. On the other hand, the proper economic policy is able to reduce the after- effects of crises. Despite that no economic cycle is apt to repeat, the analysis of its causes has a sense for the sole purpose of avoiding the economic policy errors made. The current global crisis stands out from the previous ones by its measures - it affected the majority of world countries. The crisis arose due to some troubles in the USA financial markets after burst of so-called real estate bubble Major features of the current crisis are the processes in real estate markets, vast credit expansion, financial novelty and globalization of world economy. The truth in that the current crisis stand out by application of very complicated derivative financial measures and insufficient assessment of risk, though theses derivative measures were created namely to diversity and diminish the risk. Thus the processes in the real estate market were the detonator that invoked the world crisis of finance and economy It should be stressed, that the severe lessons of the Great Depression were not in vain and the governmental response to economic recession was much more expeditions than in 1929. The Great Depression impelled to create the economy regulatory theory the methods of which allowed us to manage the time challenge. Globalization also facilitated the expansion of crisis. The intensifying integration of financial markets is related with the growing risk and uncertainty. On the other hand, with an increase of interrelations and dependences between global financial markets and economics, the risk of problem transmission increases as well. The global crisis, though to a lesser extent than in the USA, had a bad effect on the EU countries as well. It should be stressed, that the severe lessons of the Great Depression were not in vain and the governmental response to economic recession was much more expeditions than in 1929. The Great Depression impelled to create the economy regulatory theory the methods of which allowed us to manage the time challenge. Because, both the USA and EU institutions took anticrisis measures rather resolutely. The Federal Reserve System of the USA, later the Bank of Great Britain and the Central European bank began to decrease the basic interest norm with a view to stop the growth of the market interest norm. However, during a depression, even a very low size amount of basic interest does not help to vivify the economic activity.Therefore the financial system of USA was subsidized in large sums to support bank liquidity and later the major share of state expenditure was assigned to stimulate consumer’s expenses and social programs. In 2008, the European Commission prepared a restoration plan of economics which implies the increase of demand by enlarging the purchasing capacity of population and restoring the confidence of investors. The main reasons of economic crisis in Lithuania were the negative tendencies in the real estate market, irresponsible economic policy of Government and adverse situation in the international markets. 2004-2007 were the years of the fast economic growth in Lithuania. Decreasing unemployment, increasing income, hard currency and financial support of EU were the main factors of the growth. These factors laid the basis, as it is evident at present, to cherish grounded hopes as to the future of the country. Guided by these hopes, both enterprises and households began borrowing for consumption and business ever more and all the more that the banks granted loans with engaging interests. The largest share of loans received by a household was aimed at the real estate market. Such an expansion of credit had a decisive influence to form a ‘bubble’ in the Lithuanian real estate market. In the period before crisis Lithuanian economics was growing due to the growth of domestic demand which was maintained by domestic demand stimulates import growth, too. However the import increase was not equivalent to an adequate export increase and the balance foreign trade was in deficit up till 2009. In such a situation, the economic growth was feasible only by borrowing in the international finance market. Despite rather high growth rates of GDP of the country, year after year budget expenditure exceeded receipts income. Though the budget deficit before crisis was not so high, under the conditions of fast economic growth, it increased a possibility of economy overheat. On the other hand, the constant budget deficit increased the country’s debt which is unacceptable under the conditions of the economic growth. Due to the global crisis, increased interests stopped the flow of foreign credits and shook the economic growth basis of the country. The rate of country’s GDP growth in 2007 amounting almost up to 10%, in 2008 fell down up to 3%, and in 2009 it slowed down up to 15% pushing Lithuania among the countries that suffered from the crisis most of all. After the burst of the “bubble” in the real estate market of Lithuania, the credit interest, given by the banks acting in Lithuania, have grown as well. That affected negatively the subjects of Lithuanian economy. Only the processes in the county’s real estate market could invoke economic depression, however, mostly the outside factors have affected our economics. The global crisis predetermined slowdown of economic growth and consumption decrease of many world countries. Decreasing consumption of foreign countries restricted the chances of Lithuanian export and that was one of the most important factors which determined the country’s economic depression. In the presence of crisis the Bank of Lithuania and Parliament of Republic of Lithuania have made decisions: to diminish the mandatory reserve norm from 6 to 4 percent and to increase the deposit insurance sum up to 100.000 EURO with a view to vivify the domestic market using additional financial resources. Though these decisions were correct and adopted in time, unfortunately, their effect seemed to be insufficient. To maintain the market activity a more intensive promotion of economics was necessary. However, due to an inadvertent and irresponsible budget policy persuaded in the years of economic rise progress, these were no resources to stimulate the economics. Therefore there remained nothing else to do but to take measures that are usually applied not in the period of depression, but in up growth of economics. The newly elected Parliament of the Republic of Lithuania and Government undertook to apply the measure of a restrictive fiscal policy: to decrease expenditure and increase taxes in order to stabilize state finances, which was persistently recommended by the European Commission. The government so-called retrenchment policy, i.e., to diminish government expenses by lowering the employers ‘and officers’ salaries, pensions, and social pays can be assessed ambiguously. On the one hand, it allows diminishing government expenses and to decrease the state budget deficit, on the other hand, it decreases income of the population and thereby consumers demand. The decrease in demand weakens the home market even more. The domestic market will revive only if income of the population starts growing and consumers demand increasing.

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