Lithuania considers IMF lifeline to slow economic collapse

Spurred by easy credit from Western banks, foreign investment, and local entrepreneurship, Lithuania was only last year among the fastest growing economies in Europe.

Today, its economy is plunging – pulled downward by the burst of a real estate bubble, the tightening of global credit, and a loss of export markets.

To avoid an unmanageable budget deficit and painful cuts that could deepen an already severe economic downturn – not to mention kindle further protests – the government is considering a step many want to avoid: joining neighbors Latvia and Belarus as a recipient of an International Monetary Fund (IMF) loan.

If Lithuania qualifies, one option could be a new flexible credit line program unveiled by the IMF in March. The program gives developing countries credit to help them strengthen their currencies against possible collapse.

Poland has already decided to participate. The country recently asked for $20 billion from the IMF to halt the decline of its currency.

Lithuania hopes to avoid the devaluation of the lita so it can stay on track for eurozone accession, as well as prevent the defaults of mortgages taken out in euros but paid in litas, a common practice before the crisis.

Lithuania's finance ministry says that the government will try to stabilize its finances before seeking IMF funds.

"While such an option remains, it's not something that we should treat as not possible. But currently there is no such need," says Giedrius Sniukas, a spokesman for the finance ministry.

The conservative government is keen to avoid a large deficit that could lower its credit rating and also delay the country's eurozone entry. In December, it increased value-added and excise taxes and cut public employee wages. However, the plan was passed when the official prediction for Lithuania's 2009 GDP decline was 4.8 percent, and the economy has deteriorated faster than expected.

Data released Tuesday shows that the nation's gross domestic product plunged at a faster-than-expected 12.6 percent in the first quarter.

Collapse of a 'Baltic Tiger'

Government revenue did increase over the first two months of the year, but was also below target. Meanwhile, Standard & Poor's lowered the country's credit rating on March 24, and unemployment is skyrocketing, as businesses lay off employees and close doors.

Some who have kept their jobs now work from home because their employers can no longer afford an office. Newspapers and magazines are shrinking and disappearing as ad revenue drops.

In the capital, Vilnius, the skeletons of abandoned construction projects stand idly, bereft of workers. The tap of credit that spurred the flurry of growth during the "Baltic Tiger" years has run dry.

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