Transition in Lithuania

by Steve Jaffe, May 2000

 On March 11, 1990,  the Lithuanian Supreme Soviet declared the restitution of Lithuania's independence.  On September 17, 1991, Lithuania accepted its seat at the United Nations, the ultimate indication of sovergnty.(Ashbourne, 1)  The following years were to prove challenging, as Lithuania set about reconstructing their state and re-emerging into the international community: a community it had been denied for fifty years.  Lithuania had been occupied by Soviet forces in 1940, but because of Operation Barbarossa (the Nazi invasion of the USSR launched on June 17, 1941), she was temporarily occupied by Hitler's Nazis.  With German retreat in full swing by 1944, Soviet forces re-occupied Lithuania.(Ashbourne, 17)  There was continuous resistance to Soviet occupation, but any public nationalist outbursts were quickly suppressed.  It would be the reforms of Mikhail Gorbachev, "which were designed primarily to restructure the economy in a new era of openness after the repressive regimes of former Soviet leaders" (Ashbourne, 19) that would bring about Lithuanian independence.  On November  9th, 1989, the Berlin Wall came tumbling down, taking with it the Communist regimes of the eastern and central European Soviet satellite states.

The transition from a command economy to a market economy was not an easy one.  In March 1990, the government of the USSR believed that an economic blockade on Lithuania would lead to the collapse of the newly established government and a renunciation of all claims to independence (Ashbourne, 134).  The blockade, however, only lasted eight weeks and was imposed in spring rather than winter, making it easier on the Lithuanians to survive with shortages.

The re-introduction of the Litas proved to be an important step in the goal to a market economy.  Yet this could not be done immediately.  Two years after Lithuania's  independence, the Soviet issued Ruble was still the legal currency of Lithuania.  "Finally, on 25 June 1993, three years after the restitution of Lithuania's independence and two years after that independence had received unconditional international acknowledgement, the Litas was formally re-introduced after a period of 53 years (Ashbourne, 135)."

 One of the most fundamental changes in the Lithuanian economy was the Lithuanian foreign trade.  New markets had to be found for Lithuanians goods, which were now competing in the international market.  The most prominent market was, not surprisingly, was the former states of the USSR.  In 1997, Lithuania's main export market was Russia (24%), Germany (11%), Belarus (10%), Latvia and Ukraine (both 9%).  Their imports came mostly from Russia, Germany and Poland mainly in the form of machinery and equipment, mineral products, and chemicals (from CIA report).

    Yet, Lithuania was not alone at trying to improve her economical transition.  The US government played an active prole in transforming the business sector from one of state ownership and control to one based on private ownership.  "US assistance in the financial sector was designed to strengthen the ability of the Central Bank of Lithuania to supervise and regulate commercial banks, to carry out prudent monetary policy and to facilitate international transactions, a concomitant of attracting foreign investment. The aid was also designed to ease the development of the government debt instruments, tax laws and other legal requirements which were necessary to strengthen the development of Lithuania's financial sector (Ashbourne, 147)."  The US government was not alone in providing aid, as the European Union PHARE programme was implemented in 1991 to assist Lithuania is the process of transition from a command economy to a market economy.  The PHARE programme was almost exclusively for technical assistance through the supply of manpower.

 Even though Lithuania was receiving foreign help, restored the currency, and was launching the process of privatization, "by the end of December 1992, the economic situation in Lithuania had deteriorated to an extent undreamed of (Ashbourne, 153)."  The removal of the Ruble economy contributed to high inflation, which led to an overall decline in the standard of living.  Lithuania's inflation was further aggravated by the constantly increasing prices of imports from the former USSR (Ashbourne, 154).  To add to Lithuania's problems, the business methods practiced were that of Soviet style, therefore ill-prepared to compete in a global environment. 

Although Lithuania gained her independence in 1991, it is evident that she  has not yet been able to escape from the clutches of the former USSR.  There are, however, many high points.  Lithuania's government was installed by free and fair elections.  Lithuania "acquired a new, modern constitution" (Ashbourne, 167), and has a functioning judicial system.  Lithuania has accepted membership into numerous international organizations, and has made clear her intentions of joining the European Union.  Lithuania probably attempted too quickly to abandon the command economy for a market economy.  This sudden change was built on too large of a scale.  "The slow pace of development of Lithuania's economy between 1991 and 1994 was a direct repercussion of the legacy of 50 years of Soviet occupation.  It led to  a tendency of absenteeism, apathy, an increase in pilfering from the workplace, a widespread loss of initiative, the inability to make decisions and the reluctance to shoulder responsibility, all of which did not facilitate the smooth transition to a market economy" (Ashbourne, 173).

Ashbourne, Alexandrea.   Lithuania-The Rebirth of a Nation. 1991-1994.
          Lexington Books. Lanham, 1999.
CIA Reports- Listed on EC396 Webpage
Shaw, Denis.  Russia in the Modern World. Blackwell Publishers
           Oxford, 1999



OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses: ---

This website contains the following sections:

General  Economics:

Economic Systems:

Money and Banking:

Past students:

Czech Republic

Kyn’s Publications

 American education

free hit counters
Nutrisystem Diet Coupons