Agricultural policy

In light of the ongoing discussion on the highly relevant issue for agriculture, i.e. decision on whether or not to fix a transitional period for sales of agricultural land to foreigners, on July 3 LFMI released a press release urging the parliament not to vote down the transition period. The transitional period to agricultural land sales, LFMI argued, would postpone already protracted agricultural reforms, hinder economic development in Lithuania and slow down the process of integration into the European Union.

Company law

When preparing a draft law on companies, the Ministry of Economy included the following proposals by LFMI: restrictions on the number of incorporators and shareholders and the size of corporate lending were removed, a diversity of the forms of voting was laid down, and a restriction of distribution of premiums and bonuses was lifted.

As the Ministry of Economy continued drafting the bill, LFMI once again submitted proposals for its revision. LFMI recommended to abandon prohibition for a company to mortgage corporate assets for lending purposes from its shareholders; to provide for a possibility to appeal to court a decision adopted by a general shareholders meeting not later than within thirty days following the date of adoption; to put more emphasis on the circumstance that voting is possible not only in writing, i.e. by means of filling in a general voting document, but also in other forms prescribed by the law; to juxtapose conflicting articles of the law with regard to the right of summoning up general shareholders meeting; and to eliminate the prohibition to transfer partially paid shares.

Deregulation

Building and Land Purchase. In order to enhance the efficiency of systems of registration of real estate, title to real estate and mortgage of real estate, LFMI launched a project “Real Estate Registration and Mortgage Systems in Lithuania.” Within its framework, LFMI analyses the existing registration and mortgage systems of real estate in Lithuania and the procedures related to acquisition and mortgage of residential property, assesses the efficiency, advantages and disadvantages of these systems and the existing procedures, and evaluates the impact the Law on Activities of Real Estate and Mortgage Registers have on crediting. Moreover, LFMI makes a comparison between the system of registers in Lithuania and other possible systems and formulates proposals, which, if implemented, would facilitate the evolution of systems of property registration and mortgage into viable, safe, efficient systems and would contribute to simplifying housing crediting procedures. The project is scheduled for completion next February.

Civil Code. Public authorities continue to make efforts to regulate corporate interrelations demonstrating distrust in the legal acts which were developed by themselves and are already regulating these relations. When the Ministry of Economy elaborated a draft law on prevention of delays of payments in commercial transactions, LFMI noted that the new draft regulates issues already regulated by the Civil Code. So a question arises whether a separate regulation of interest payment is needed at all that would be enforced under this new law. The explanatory note justifies the necessity to have an individual law on payments in commercial transactions by EU requirements and a specific Directive 2000/35/EEC that provides for a detailed computation procedure of interest on delayed payments. LFMI underlined, however, that, regardless of this circumstance, not very precise requirements of the said Directive have been transferred into the draft law and thus the goals of harmonisation of EU and Lithuanian laws will not be achieved. At present debates on the prepared bill are ongoing in the parliament.

Education

LFMI continues a project “Building a Sound Voucher Funding System in Higher Education” with a goal to promote a funding reform in higher education based on the voucher principle, to provide independent expert input to the policy making process and to increase public awareness of the need and essence of the reform. On July 3, LFMI released a press release criticising the amendments to the Law on Higher Education adopted by the parliament. LFMI claimed that the implementation of these amendments pushed the higher education system into an even greater deadlock and would raise misleading expectations for people planning to study in higher educational establishments. According to these amendments, changes made to the Law on Higher Education earlier this year started to be enforced as from 1 September 2002, whereby a universal tuition fee of 1.000 litas was introduced in all higher educational establishments the remaining costs of studies being covered by the state. Higher schools are prohibited to enrol students who would cover the total price of studies at their own expense.

LFMI’s policy analysts also submitted comments and proposals on a draft of government decree regulating issuance, administration and repayment of loans extended to students by the state.

After submission to the parliament, LFMI analysed the revised draft law on education and submitted its proposals on the remainder defective provisions of the bill. LFMI first submitted proposals on this law last January to the Ministry of Education and Science which approved of a number of LFMI recommendations. Nevertheless, the bill still contains quite a few faulty provisions which LFMI urged to revise.

Energy sector

When the parliament debated a draft law on the national energy strategy, LFMI’s policy analysts took part in the hearings. Welcoming the proposed direction of the strategy to liberalise the energy sector and the bulk of energy enterprises, LFMI submitted comments and recommendations on how to the energy sector could be deregulated, privatised and opened for international competition in a more consistent, customer- and market-friendly way.

Health care

As a follow-up to earlier activities in the area of health care reform, LFMI analysed draft provisions of the national pharmaceuticals policy and submitted comments to the parliament. As the first step, LFMI proposes to lay down in the document how the current inefficient policy of pharmaceuticals and health care could be amended so as to make it acceptable to the people, while consideration of health care problems would avail of more constructive measures than the reshuffle of health care ministers, redistribution of health care budget or additional funding dished out for “putting out the fires” in the health care system. Only then will it be possible to formulate the key principles of the reform and to draft provisions of the national pharmaceuticals policy on their basis. Until this is done, LFMI thinks, the parliament should reject the currently discussed draft provisions of the national pharmaceuticals policy.

LFMI analysed draft amendments to the law on health insurance and proposed shortening the list of people covered by state insurance; linking the size of health insurance contribution of self-employed people to the income they receive; toughening the financial accountability of the sate Patient’s Funds, etc. LFMI believes that the implementation of these recommendations would contribute to the improvement of the health insurance system.

Proposals with regard to strategic trends of pharmaceutical activities and control thereof have also been submitted to a working group at the Office of the President which was set up for drafting strategic provisions for pharmaceutical activities and control (LFMI’s Vice President G. Steponaviciene participates in this group).

Housing financing policy

As a follow-up to previous activities in the area of housing financing policy, on July 5th LFMI hosted a round table discussion on housing financing and the expediency of contractual savings system. Representatives of public authorities, financial sector and specialists of this field discussed the currently proposed contractual savings model to be launched in Lithuania following the suit of the so-called Bausparkassen system adopted in western countries. The discussion revolved around a draft law on savings for housing and housing financing which had been drafted in line with the principles of the Bausparkassen system. Papers on the problems of this system were delivered by Douglas B. Diamond, consultant of the Project on Housing in Lithuania; Artur Ploksto, member of the parliamentary committee on budget and finance; and Andrius Bogdanovicius, LFMI’s policy analyst. Back in summer of this year, LFMI conducted an analysis on the contractual savings system and described the principles of the proposed model and overviewed the global practice. LFMI provided conspicuous conclusions on the forecasted costs for the public, the benefit for individual groups, the impact on the financial and housing market. According to LFMI’s policy analysts, the most important goals established for this system would not be achieved, while its implementation would result in sizeable public costs and would have a negative impact on the market.

Having made an in-depth analysis into the said draft law on savings for housing and housing financing, LFMI submitted comments to public authorities on the expediency of the law. LFMI thinks that the implementation of the contractual savings scheme would not bring the desirable results and would, instead, become a burden on the state budget. Therefore, this idea should be abandoned altogether, while the hearing of the draft law should be halted until a comparative analysis on various housing financing instruments has been made and the National Housing Strategy has been drafted. Nevertheless, if it were decided to go ahead with the contractual savings model in Lithuania, LFMI’s policy analysts submitted specific recommendations on how to revise the draft law.

LFMI has also analysed a draft law on mortgage bonds and mortgage lending which would regulate a new housing financing instrument – mortgage lending system. LFMI welcomes the proposal to introduce the mortgage lending system in Lithuania; however, the policy analysts underlined a number of shortcomings of the bill. First, the possibility to provide mortgage lending services and to issue mortgage bonds is limited only to credit institutions. Second, restrictions are provided for that would be imposed on credit beneficiaries and the utilisation of the credit. Third, too strict requirement is laid down with regard to the value proportion of the size of the credit secured by mortgage and mortgaged property. LFMI believes that these provisions of the bill would inevitably bring about stagnation of the market of mortgage bonds and low liquidity and would artificially narrow the circle of providers and users of mortgage credits. LFMI proposed to soften the said restrictions and thus create more favourable conditions for mortgage lending, a more flexible and more suitable model for Lithuanian (as compared with the contractual savings system).

In a press conference, September 30, LFMI’s policy analysts highlighted once again the weaknesses of the contractual savings system and the negative results it would have on Lithuania. They also presented the advantages of the mortgage lending system and recommendations on the improvement of its regulation. LFMI’s policy analysts stressed that introduction of the contractual savings model would prevent the adoption of a much more efficient system in Lithuania requiring no public expenditure – mortgage lending system.

Drawing on the results of the poll conducted from July 9 to 24, 2002 (2.998 households were polled), LFMI carried out a survey of Lithuanian households. The aim of this survey was to analyse Lithuanian households’ income and expenditure, expectations regarding changes in their economic situation, expenditure priorities, housing conditions, willingness and efforts to improve housing conditions as well as attitudes towards commercial loans and state housing policy. The findings of the survey will be disseminated in the coming month.

LFMI believes that these activities will contribute to ensuring better conditions for the financial and housing market, as well as to enhancing the efficiency and expediency of the forms of state support.

Information technologies and telecommunications

One of major activities by LFMI in this field was its contribution to drafting amendments to the Law on Telecommunications which was adopted on July 5, 2002. LFMI’s policy analysts took an active part in a working group set up to draft the law. At a later stage they presented the problems of this law to public authorities – Office of the President, the parliament, foreign experts and the public. From the very beginning of activities of the working group, LFMI proposed orienting towards a new package of EU directives, but this proposal was turned down. However, some of LFMI’s proposals on the reduction of the scope and toughness of regulation of market players were approved.

LFMI highlighted the key problems of the then draft. These were: legal instability, administrative regulation of prices, non-transparent distribution of resources, possibility to protect state service providers, and insufficiently defined regulation of universal services in the law. During further discussions of the working group note was taken of several LFMI’s proposals. Unfortunately, the following key proposals by LFMI were not included: the financing of universal services from the budget, the elimination of penalties from turnover and the reduction of operators’ obligations to submit information to the intelligence services.

LFMI has also analysed draft regulations on provision of general mobile telephone communications services. The policy analysts pointed out that the draft regulations contain provisions which go beyond the scope of minimal regulation. LFMI suggested making an essential revision of the document by scrapping unnecessary or unjustified regulations and embedding in the provisions a possibility for a service provider and a customer to define their mutual relations by a contract.

Upon request of the World Bank, LFMI’s policy analysts submitted comments on the World Bank’s conclusions on business conditions in Lithuania in the context of knowledge economy. LFMI’s Vice-president G. Steponaviciene also participated in a discussion held by the World Bank Mission on conditions for knowledge economy in Lithuania and delivered a presentation on preconditions of the development of innovations in the country.

NGO legislation

LFMI analysed a draft order drawn up by the Ministry of Finance on the forms and terms for submitting annual reports by support providers and support receivers. It contains a provision stipulating that the forms of reports are to be established by the central tax administrator rather than laid down in the order itself. More than that, the drafters intended to set the procedure for submitting reports requiring support providers and receivers to identify for which areas and public aims the support was utilised. LFMI noted that such a provision would result in many inconveniences and confusion for supporters of non-government organisations and the organisations themselves. The Ministry of Finance only partially consulted the opinion of LFMI in that under the established procedure reports will have to be submitted for 2003 and successive years, whereas reports for 2002 could be submitted in a free (or recommended) rather than obligatory form. LFMI thinks that companies and non-profit organisations will find it difficult to provide this information as they did not know beforehand about the types of information they would have to provide and the ways of accumulation thereof. LFMI had already initiated changes in the regulation of reporting of charity and support: according to the amended Law on Charity and Support, organisations are now required to report once a year to one institution instead of four times a year to two institutions.

Pension reform

In September the Government approved of a revised draft law on pension reform which is currently under the parliamentary debates. According to the bill, 2.5 percent of the social security contribution will be diverted for accumulation in a private pension fund, the employer’s contribution paid to the state social insurance fund being reduced accordingly. The contribution will be increased to 5.5 percent in 2007. It should be noted that a conceptual framework of pension reform was drafted and debated for quite a long time, then it was submitted to the Parliament and returned to the Government for revision. When the Parliament turned down the first draft law on pension reform, LFMI’s policy analysts submitted policy recommendations to the Ministry of Social Affairs and Labour and the Parliament. LFMI proposed to lay down an alternative to accumulate private pensions not only in private pension funds but also in private insurance companies. LFMI also recommended retaining the right for all people, regardless of their age, to choose whether to accumulate the determined contribution privately or to leave it with the government-run system. Both proposals were incorporated in the revised bill. People will be allowed to choose were this contribution should be accumulated, i.e. if an individual is willing to remain in the government-run system, he will not be forced to move to the private pension system. This element will help preventing pension reform from discredit if, in mandatory case, workers were forced into a private pension system and received poorer returns that they expected. A voluntary aspect of the reform also prevents the government from assuming responsibility for private pensions as the system is not mandatory.

Property rights

LFMI is launching a new project “The Protection of Property Rights and State Economic Sanctions Policy” which is aimed at promoting development of an efficient protection system of property rights by means of identifying problems related to the concept of property laid down in the Lithuanian laws and submitting recommendations as to how better protect property rights in relations of imposing and enforcing proprietary sanctions. LFMI will implement this project together with the Human Studies Centre.

Public administration

Public procurement. When the parliament was hearing a draft law on public procurement, LFMI submitted a package of policy proposals on broaden the definition of public procurement, since, in LFMI’s opinion, it will be more expedient and beneficial to regulate more types of procurement in Lithuania in addition to the ones regulated in the EU (the EU strictly regulates part of public procurement (international procurement), while the EU institutions take part in the procuring process). LFMI also submitted recommendations on how to regulate public procurement more explicitly seeking transparency and efficiency in this area.

Ethics of public servants. At present, legal acts crucial for the public and state administration are being drafted which will lay down the rules of ethics of public servants and politicians. In order to ensure a successful drafting and adoption thereof, LFMI is conducting a public opinion survey on the ethics of politicians’ behaviour and the efficient measures ensuring impeccable and ethical behaviour of politicians.

Social policy

LFMI has analysed a draft law on monetary social support and submitted comments to public authorities. According to LFMI, this law fails to integrate all forms of monetary support currently rendered in Lithuania. Moreover, despite that public authorities declare the need to establish a uniform criterion of income and property for allotting state support, the bill stipulates various criteria to be applied to different groups of society. LFMI has repeatedly called for rendering one integrated form of state monetary support that would be based on the only criterion – receiver’s income and property.

Tax policy

LFMI’s policy analysts continued analysing legal acts regulating taxes and actively participated in the Sunrise task force on taxation. The task force discussed secondary legislation of the laws on Income Tax, Value Added Tax, Private Income Tax and Excise Duty. When drafting final versions of legal acts, the Ministry of Finance included many proposals of the task force. It should be noted that the Ministry of Finance approves of the LFMI’s proposal to adopt amendments to the Law on Tax Administration, whereby the Ministry of Finance would be entitled to interpret legal acts regulating taxes rather than the State Tax Inspectorate, currently performing this function.