The 2nd European Resource Bank Meeting will be staged by LFMI

On its 15th anniversary year LFMI will host the second European Resource Bank Meeting (ERBM) in Vilnius, Lithuania, on October 14 -15th, with a mission to improve the strategies and to enlarge the debate to reach all the people in advancing ideas of freedom in Europe. The event will draw about 200 think-tank executives, policy analysts, local leaders and others in a two-day event that will be a combination of exchange of ideas and skill building exercises. During the first day the participants will engage in a constructive dialog in high level presentations on ideological, political and practical issues of free market ideas and principles. The second day will feature the exchange of practical information on think-tank strategies and methods during six skill-building workshops. The ERBM will be convened with the official gala dinner.

LFMI evaluated the 13th Government’s one hundred days in office

On March 23 LFMI held a press conference "A Hundred Days of Government Astray" to discuss the work of the 13th government during the first 100 days in office. LFMI's President Ugnius Trumpa and Vice-presidents Guoda Steponaviciene and Remigijus Simasius focused on necessary changes in the tax system, especially taxation of residents, and the energy sector, as well as transparent allocation of EU structural funds. Comments were made on the policy actions laid down in the government's work plan.

The Institute’s leaders criticised the Brazauskas government for not showing clear guidelines of its future economic and social policy and how it plans to react to the most pressing economic issues such as maintaining economic growth, increasing the country’s competitiveness in the EU, preventing the brain-drain, and reducing the growing budget expenditure. LFMI also blamed the government for its irresponsible planning of the tax reform which has already prompted a concern in the business community and the society at large.

As this government was the first real coalition in Lithuania, LFMI admitted that certain conflicts among its leaders may have been provoked by inexperience to work under such a form. LFMI’s leaders urged government and parliament members to show more involvement in participating in the EU-wide legislation and active participation in debating such issues. Also, they urged the government to draw a clear-cut and final plan of the tax reform, which would lower taxes, and to start implementing it without further delay.

LFMI has analysed and supported the pro-market services directive

As the first step towards examining EU’s legislative initiates and continuing the work in the field of business deregulation, the Lithuanian Free Market Institute (LFMI) has analysed a proposal for a Directive (COM(2004) 2 final/3), the so called services directive, which has been presented by the European Commission and is designed to open up the EU market for services. LFMI also evaluated the directive’s impact assessment and studied the position of Lithuania and those of other member states on the proposal and submitted it to the Ministry of Economy, Lithuania’s representatives in the European Parliament, the Lithuanian Government and the Parliament in January 2005.

The proposal for a Directive provides a legal framework that would eliminate the obstacles to the free movement of services between EU member states. According to the proposal, companies would be free to provide a number of services in other EU countries without establishing themselves there and operate according to the rules of their home country (the "country of origin" principle). Also, market entry procedures would be simplified significantly to make it easier to establish companies in the EU. What is more important, that subsidies for services will follow citizens to other EU countries, once they are granted in their home countries.

LFMI is of the opinion that the implementation of the proposed directive, within the scope envisaged in the proposal, would advance the economic development and people’s welfare across the European Union in all respects. A free movement of services would provide conditions for the establishment and operation of new businesses and allow consumers to choose among a wider variety of services available and a bigger number of competing service providers. Currently, services account for the biggest share of GDP, although the movement of services within the European Union is incomparably scantier than the movement of goods.

Seeking to back up this law when it came under a fierce attack from France and Germany, the Lithuanian Free Market Institute and 15 EU-based non-government organizations have signed a petition in support of the services directive and submitted it to the European Parliament and the Council of Ministers. In the petition these authorities and each MEP personally have been urged to take necessary steps for the benefit to the future economic freedom and prosperity in the EU and to adopt the services directive as proposed, without limiting the scope of its provisions.

Despite the firm position of the EC, the EU summit in March came to decision to revise the law. It is most likely that the central and most important part - "country of origin" principle – will be discarded from the law. If so, the benefit of this legislation will be minima, if at all. The EC now has time until July to submit a re-write of directive to the European Parliament.

A full text of LFMI’s position is posted online: http://www.freema.org/Research/Sdir.phtml.

LFMI‘s new Project on energy security

In March 2005 the Lithuanian Free Market Institute (LFMI) launched a new project "Energy security: economic analysis of political arguments” which is implemented through the cooperation with an international security project carried out by the Atlas Economic Research Foundation. The goal of this project is to determine the level of energy dependency of Central European countries, which have poorly integrated their energy infrastructure to western neighbours while being integrated to eastern neighbours, on the energy resources from Russia and possible problems related to it. The analysis will also show what measures can be effective in ensuring energy security and continuous stability in those countries.

The analysis will be based on the empirical data collected, historical knowledge on the subject and theoretical understanding of motivation of both private and public bodies in the energy sector. The analysis will focus on the Central Europe and its energy relations and dependency on Russia. A particular focus will be placed to the Baltic States and Lithuania, where the issue of energy dependence, especially after the gradual closing of the Ignalina’s nuclear power plant, is critically important.

The project is scheduled to be completed in May 2005.

Lithuania doesn‘t need a separate policy on clusterization, says LFMI

Continuing its involvement in the field of the knowledge economy, LFMI has analysed an address to the Lithuanian government, submitted by a group of associations and scientists in December 2004, urging the Government to set a separate policy on clusters until 2006 in which the state played the “catalyst’s role” and stimulated entrepreneurship and innovation. In its comments to the Government, LFMI stated that there is no reason and need to formulate a cluster policy in Lithuania as problems plaguing cluster companies are typical of the entire business sector and should be solved by general means of economic policy. For example, in the first place the government should overhaul the systems of tax and tax administration, land acquisition procedures, public administration, legislature and courts, education, social policy and others.

LFMI’s position on Lisbon Agenda and labour market regulations

On January 19, 2005 LFMI and the UK Embassy in Lithuania staged a round table discussion on the Lisbon Strategy and employment regulation. The event was aimed at discussing the impact the regulation of the labour market has on the competitiveness among EU member-states as well as on the implementation of the Lisbon Strategy, illustrating with examples in Lithuania and the United Kingdom.

LFMI has prepared a position paper on the Lisbon Agenda and labour market regulation, which was presented during the round table discussion. According to LFMI, the European Union fails to achieve the primary Lisbon goal “to become the most competitive knowledge-based economy” because social cohesion has been presented as the goal supplementing the EU’s economic goals such as higher employment, productiveness, competitiveness and economic growth, rather than contradicting them. For instance, at the same time the strategy lays down liberal measures (better business conditions, less extensive employment regulation, etc.) and interventionist measures (ensuring the quality of workplace environment, maintaining the current number of workplaces, promotion and protection of individual groups, collective agreements’ priority against individual contracts, etc.).

The Institute is of the opinion that Lithuania should take an active part in the EU legislature process and to present a clear-cut, openly and transparently coordinated position, which has not been the case with the Lisbon Strategy and other important issue. LFMI’s policy analysts call government representatives to admit the inconsistency between the Lisbon goals and the European social model and to support initiatives of milder regulation in the EU and to back up minimal requirements in deregulating rather than regulating.

LFMI‘s position on the Lisbon strategy and employment regulation is posted online: http://www.freema.org/Research/Lisb.pdf.

Investment Climate Survey in Lithuania

In 2004 the Lithuanian Free Market Institute participated in conducting an Investment Climate Survey which was contracted by the World Bank. The goal of the survey was to generate establishment-level quantitative information that would help evaluate the performance of business enterprises and identify constraints to doing business. The report on the survey was presented in February 2005 at a discussion held by the Ministry of Economy.

The topics discussed in the report encompass Lithuania’s competitiveness, innovation and productivity, opening and closure procedures of companies, the tax environment, employment regulation, the quality of education, availability of financial resources, infrastructure, business regulation, and corruption.

The study provides multiple benchmarks of Lithuania’s business climate against other countries, especially the new EU member states, and recommendations for further improvement of business conditions. The main proposal among them is to strengthen the quality and abilities of the labour force and the education system in assimilating new knowledge and technologies.

As part of the project, a survey of Lithuanian companies was carried out in 2004. According to the poll, tax-related issues and regulatory uncertainty continue to preoccupy Lithuanian businesses as the most important business constraints. The tax burden tops all other constraints by a large margin. Sixty-seven percent of respondents see the tax burden as a major or very severe obstacle, while over 30% of them mention taxes as the highest or second-biggest obstacle for the development of their business. Other factors impeding business activities are uncertainty of regulatory policy (40.6%), tax administration (37%), anti-competitive or informal practices (when business representatives induce state institutions to resort actions that restrict competition, especially in large privatisation deals, 36%), and low skills education of workers (30%).

The Investment Climate Survey in Lithuania is posted online: (2,98 MB, PDF).