Hungry piggy banks
In order to give momentum to the European economy, the European Central Bank lowered interest rate to 0.75 percent this year, gradually pushing down interest on bank deposits. As a result, keeping one's money in Lithuania's Scandinavian-capital banks has become a loss-making form of saving – annual interest on deposits now stands ten times below annual inflation.
True, interest rates are somewhat higher in Lithuanian-owned banks, ranging between 1.6 and 2.95 percent. To earn even more, one can deposit one's savings with a credit union – some of them offer interest rates of up to 4.5 percent. In other words, if you deposit 5 thousand litas of your money in a Scandinavian bank, one year later – assuming that annual inflation stays at 3 percent – you will be able to buy goods and services valued at 4,864.5 litas. And if you give your 5 thousand litas to the most generous credit union, within a year you will get the equivalent of 5,068.5 litas.
Most people in Lithuania, however, continue to entrust their savings to major banks – meaning that their savings are dwindling without them spending a dime. But despite the fact that saving means losing money and borrowing is cheap, Lithuanians do not seem eager to take out loans and spend. With memories of the recent downturn fresh in their memory, people scrap and save and, upon running into some money, they use it to repay old debts rather than spend on new stuff.
The burden of old age
At the moment, the average retirement pension in Lithuania stands at 40 percent of a person's former income. Ingrida Šimonytė, former minister of finance, has warned that if the system remains unchanged, pensions will drop to 26-28 percent of income from work within two decades. That means a three-fold drop in the quality of life upon retirement: Lithuania's retired citizens will be able to afford three times smaller apartments, theatre or cinema outings three times rarer than they are used to, three times fewer dinner parties with friends.
One of the ways to ensure wealthier retirement is to accumulate extra funds. In 2012, the Lithuanian parliament finally endorsed a pension reform, envisaging to gradually increase contribution to second-step retirement funds, while people suspicious of private funds will be able to rely solely on the public Social Security Fund, Sodra. 2013 will be a year for reflecting on which retirement scheme to choose.
As of January 2014, a person will be able to put 1 percent of his or her social security payments into private retirement funds, thus qualifying for a contribution from the public coffers, equivalent to one percent of average pay, on his behalf.
In 2016, the contributions from both the person and the state to the retirement fund will increase to 2 percent, while as of 2020, Sodra payments to private pension funds will grow from 2 to 3.5 percent.
Granted, one cannot rule out that future governments will tamper with the scheme. When the pension reform was discussed in parliament, two votes failed due to insufficient number of MPs present in the room. Social Democrat Algirdas Sysas, an expert on the current government's social policies, has predicted that the new coalition will amend the laws.
Over the first eleven months of 2012, Sodra ran a deficit of 2 billion litas, while its overall debt is approaching 10 billion.
Energy wars
Lithuania has encroached on the pasture lands of Russia's Gazprom – it started building a liquefied natural gas (LNG) terminal in Klaipėda and scouting for shale gas. The company Mitnijos Nafta drilled a bore in Kalnaliai village in order to explore Lithuania's shale gas deposits, estimated to total 113 million cube metres.
Of particular significance is the fact that the American energy giant Chevron has bought a 50-percent stake in LL Investicijos, the company that runs an oilfield on the Baltic coast. It was announced in October that the Americans were also launching shale gas explorations.
On another front, Klaipėdos Nafta has signed a contract with Norway's Hoegh LNG on leasing a floating storage and regasification unit. 16 companies responded to a call for tenders to supply gas to the future LNG terminal.
Lithuania's major gas consumers will be legally obliged to buy 25 percent of their gas from the terminal, to help shoulder its building costs, and 25 percent from Gazprom. Lietuvos Dujos has already filed a complaint against such an obligation to the European Commission.
After Lithuania builds the LNG terminal, it will be less dependent on gas supplied by Gazprom which dictates draconian prices. The terminal is seen as one of the key guarantees of Lithuania's energy independence.
Another jewel in the crown of the Lithuanian energy industry was to be Visaginas Nuclear Power Plant, but the project now seems to be on shaky ground. US-Japanese company Hitachi has pledged to be investor in the plant as well as equipment supplier, yet neither Latvia nor Estonia – regional partners in the nuclear project – have shown clear commitment yet. An advisory referendum held in Lithuania in October might prove to be the final nail in the project's coffin, as over two thirds of voters said they did not support Visaginas Nuclear Power Plant. The new government, however, remains conspicuously ambiguous about their nuclear plans.
Lithuanian banking resisted infection
The Lithuanian bank Snoras, which collapsed in the end of 2011, threatened to infect the entire banking system, yet such fears proved to be unfounded.
True, little has been done over 2012 to prosecute the bank's former owners, Vladimir Antonov and Raimondas Baranauskas, who are suspected of embezzling Snoras' funds. The sale of Snoras assets, in hope of recovering at least part of its creditors' money, is also moving at a snail's pace. So far, only the chain of Snoras retail kiosks has been sold to the Lithuanian Post. In fact, the company intends to offer financial services in the kiosks. No one, however, seems to be very eager to buy other assets: Finasta, Finasta Holding, Snoras Leasing. Vitas Vasiliauskas, head of Lithuania's central bank, is starting to show public signs of distress.
Meanwhile other banks were relieved to learn that Snoras bankruptcy did not undermine people's trust in banking. Private individuals as well as companies continue to keep their money in banks. Finance and institutional oversight has become much stricter as a result of the Snoras affair. The Bank of Lithuania is now more attentive to what banks do with their creditors' money, at the same time pressing them to cut unreasonably inflated fees for their services.
Credit unions, too, feel the tougher hand. In early 2012, it emerged that Palanga Credit Union was issuing large loans to people with not effective income. Meanwhile the National Credit Union was giving new loans to companies that were not engaging in any operations. Heads of the National Credit Union have been arrested. Its clients, however, did not go into panic, after the Bank of Lithuania – and other credit unions – assured there were no more problems with these institutions.
Moreover, Lithuania's central bank is keeping a watchful eye on Ūkio Bankas, which finds it hard to climb out of the red and keeps surprising everyone with announcements on massive extensions for its subprime loans. The Bank of Lithuania claims there is no reason for alarm, that all actions by Ūkio Bankas are closely watched and pre-approved. There appeared speculations that 2013 might see attempts to merge Ūkio Bankas and Šiaulių Bankas, creating a strong competitor in the market dominated by Scandinavian banks.
