Lithuania

LITHUANIA IS THE LARGEST of the three Baltic States. It borders Belarus, Kalining (a Russian region), Latvia, and Poland. Vilnius is the capital (with a population of 553,000). The population totaled 3.418 million in 2005; however, during the past decade the population has declined. Its ethnicity is 83.5 percent Lithuanians, 6.3 percent Russians, 6.7 percent Poles, and 2.2 percent others. Lithuania's workforce is highly skilled and educated. In 2004, Lithuania became a European Union member and joined the North Atlantic Treaty Organization.

Lithuania was dominated by agriculture until the greatest part of its industrialization took place under Soviet occupation. Lithuania was among the most industrialized economies of the former Soviet Union, with a per capita Gross Domestic Product (GDP) in the 1990s about 50 percent higher than that of Russia.

After the collapse of the Soviet system in the early 1990s, Lithuania regained its independence. Major economic reforms started right after independence. Reform targets were to liberalize prices and withdraw government subsidies. The Civic Front Party, Sajudis, introduced a voucher program in 1991, which aimed at a fast privatization process with relatively equal distribution of wealth. The Labor Party developed this process in 1993.

Privatization was one of the factors that caused a quick increase in the number of people who were poor. Pensioners, employees, and people occupied in cultural, educational, and agricultural spheres became the losers in the property redistribution process. Finally, privatization caused social polarization, with dangerously growing potential for social group conflict.

Following the adaptation of price liberalization after 1990, however, GDP fell significantly before showing signs of growth in 1994. Prices increased sharply during 1991 and 1992. The official inflation rate soared to 383 percent in 1991 and 1,163 percent in 1992, before moderating to 45 percent in 1994 and 36 percent in 1995. Real wages in the public sector fell dramatically through 1993, and since then have improved slightly. Pressure from the International Monetary Fund (IMF) resulted in more wage controls at the end of 1992.

In the summer of 1993, Lithuania introduced its own currency, the litas (LTL), and in April 1994, it implemented a currency board, fixing the litas directly to the U.S. dollar. This step was done to give stabilization policy more credibility.

A serious banking crisis in 1995–96 had a big influence on Lithuanian citizens’ poverty level. However, a general indicator of the nation's well-being, per capita GDP (in comparative prices), grew by 4.9 percent from 1995 to 1996, and by 5.8 percent from 1996 to 1997. The overall percentage of people living below the relative poverty line decreased from 18 percent in 1996 to 16.4 percent in 2001.

Unfortunately a huge poverty gap exists today between rural and urban areas. In rural areas, the percentage of people living below the relative poverty line has actually increased from 26 percent to 27.3 percent, while in urban areas, the percentage of people living in poverty fell from 14.3 percent to 11.3 percent. The basic problem is that the officially declared relative poverty rate can't be used to reflect the real proportions of poverty problems in the country. For example, living [Page 646]standards differ two to four times between the city or town and countryside. Approximately 40 percent of the rural population are considered relatively poor.

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