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Lithuanian way to (and out) the market economy

Lithuanian way to (and out) the market economy. R ūta Vainienė, President LFMI Moscow 2011-05-24. No rule of law No (or very few) free prices No (or not much) private ownership, state provides “public” and private goods No free exchange Central planning

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Lithuanian way to (and out) the market economy

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  1. Lithuanian way to (and out) the market economy Rūta Vainienė, President LFMI Moscow 2011-05-24

  2. No rule of law No (or very few) free prices No (or not much) private ownership, state provides “public” and private goods No free exchange Central planning No money that performs its function Constitution, rule of law Free pricing Private ownership Free exchange State is providing “public goods” and exclusively dealing with “market failures” Private plans Sound money What is the difference between market and non market economy?

  3. First things first • Lithuania started with the constitution that provided grounds for legalizing private ownership of producer goods (companies) • Property protection through central register • Separation from non performing money • Price liberalization- 2 attempts • Mass voucher privatization • Creation of stock exchange and legal and institutional infrastructure • Restitution

  4. Tackle the most urgent problem • Introduction of currency board arrangement – 1st of April 1994 • Coped the inflation • Built confidence • Encouraged savings • Not due to simplicity!

  5. Finally you come to most difficult • Most socially sensitive: • Education reform, introduction of pupils basket, voucher for general education • Pension reform- introduction of the second pillar, 2002 • Higher education reform, students basket, voucher, 2009

  6. Was EU helpful or …? • Abolition of corporate income tax • Pension reform • Loosening regulations • EU funds role: from saving to spoiling

  7. What is the result? • Government is still of significant size, but 2/3 of the economy is private • Price regulation for several groups of goods and services • Stable currency – no Gresham Law effect • There is a VISIBLE and INVISIBLE (incl. mental) change!

  8. I would love to finish with the previous slide …

  9. Deviations from the market economy • Some of them are related with the EU membership: tax harmonization, heavier regulations of quality • However, most of deviations are done by the independent decision of national government, paradoxically, right wing

  10. First was the word • Tremendous change in rhetoric and most probably values • Private sector as a source of multiple evils • Coincided with the economic crisis • Capitalism is blamed for the failure of monetary policies of central banks • Sly plan: to create crises, to use it to increase public expenditure, and for all that central banking and fractional reserves mistake to blame the market

  11. Steps back (out) • Severe changes in tax legislation, mainly including new groups in to the social security scheme, taxes on small business • Progressive and real estate taxes constantly proposed • Nationalization of private property in energy sector (poisoning cocktail of politics, interests), loosening conditions to take property for public use • Reduction of the second pillar from 5,5 down to 2 % without compensation and unclear future (however compensations provided for PAYG pension cuts) • The bankruptcy procedure for natural persons • Pharmaceutical price regulations • Limitations for selling alc% products • Cashier apparatus for meal trader in the markets (bazaar type) • Severe penalties for CEO, if there is a breach of the Competition Law • Full prohibition of advertisement of alc% products from 2012

  12. Long waiting list of new proposals • Mark-up regulation for food products • Restrictions for all, both natural and legal persons to use cash • Increasing minimum wage • Plain packaging for tobacco • Separate (or even governmental) shops for alc% • Cashier apparatus for everybody in markets • Nationalization of gas sector • Prohibition to have PPP and any kind of private sector participation in heating sector • Prohibit to provide house maintenance services for heat providers • Plus the stuff that comes from the EU: EU tax, CCCTB

  13. Final note • The human history with ups and downs has the main trend from unfree - to free, from war - to free trade. • North Africa • Deviations are temporary for human history • They are important and crucial for single HUMAN being that can not postpone his life until better times

  14. If a PERSON is the most important • If someone thinks at least for a minute how every single minute of life is important for PEOPLE that live now.. • The major role of an economist, think tanker, politician, academician, etc

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