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In recent years, Lithuania has been one of the fastest growing economies in Europe. Stable and predictable business conditions, open and free trade market, geographical position between the West and the East, well-trained but inexpensive workforce attracted the attention of foreign investors and helped Lithuania to become a competitive international trade partner. However, developed international connections have not only meant rapid economic growth; this also means that, unfortunately, Lithuania has not been able to avoid the world economic recession.

                                          In difficult times like these it is worth remembering the recipes for our recent economic success and to combine our efforts to strengthen Lithuania’s position in the international economy.  It is important not to surrender to protectionist thinking; and it is equally important to continue to develop the free trade that guaranteed the economic well-being of Lithuania’s people before.

The fifteenth Government of Lithuania named economic diplomacy as one of the most important priorities of Lithuanian foreign policy. We, Lithuanian diplomats, are determined to work together with Lithuanian business and to represent our economic interests abroad. We will focus especially on improving Lithuania’s competitiveness, encouraging exports, and projects that pursue long-term business partnerships. I believe that successful cooperation between the Ministry of Foreign Affairs and Lithuanian business will not only help Lithuania to come through the economic difficulties but will also ensure the sustained growth of our economy in the long term.

I would like to wish all of us to establish Lithuania as a country well known for its high technology and the successful use of alternative energy sources, with a modern, competitive economy and balanced social policy, and a strong policy of developing science, information society and innovation.

Vygaudas UŠACKAS

Minister of Foreign Affairs to the Republic of Lithuania

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How might the foreign policy and economic relations of Lithuania change? The question is relevant once again, as a new Minister has taken his post. There are, actually, two recent actions by the Foreign Minister Vygaudas Ušackas adding to the urgency of raising this question. The Minister publicly admitted Russia was not yet ready to reimburse Lithuania for the occupation damages, and he left in a hurry for Germany and France on an unexpected official diplomatic trip.

Returning to Europe

Several gaps can be detected in the international relations policy of Lithuania: for example, the period between 1990 and 2004, and the post-2004 period. In the first period, all the main political powers in Lithuania had come to a clear consense about three essential priorities of the country‘s foreign policy: NATO membership, EU integration, and friendly relations with neighbours. After seamless incorporation into Euro-Atlantic structures, however, Lithuania faced a different kind of political and economic reality. The country had to learn new rules of the game and train itself to act based on them in order to achieve its goals within the EU and NATO efficiently. Therefore, Lithuania embarked on a new course in terms of the concept and strategy of international relations.

Our foreign policy has been largely aligned to promote the growth of foreign investment, to strengthen trade relations with the West thus achieving a higher standard of living, and to diminish the economic and political influence of Russia within our borders. While integrating in the Euro-Atlantic structures, Lithuania strove to develop an active dialogue in two directions: the north, by cooperating with Nordic countries; and the south, by developing a strategic alliance with Poland.

We built economic ties actively. In international trade, for quite a long time Lithuania had been intensely linked to Russia and other former republics of the USSR, such as Ukraine and Belarus. However, the country‘s exports to EU during the pre-2004 period grew gradually as well. The imports followed a similar trend, with remarkable growth occurring in the imports from some of the veteran countries of the EU, for example, France, UK, and Italy. Direct foreign investments from EU nations, especially Scandinavia and Germany (the countries that eventually became the leading foreign investors), grew at an increasing pace. According to preliminary data of the Department of Statistics, foreign direct investments amassed LTL 16,19 billion as of 1 January 2005 (EUR 4,6 billion), a growth of 18.2% compared to 1 January 2004 (LTL 13,70 billion).

Table1.  Leading investing countries (2004-2005),                                                                LTL billion

Source: The Department of Statistics under the Government of Lithuania

It did not take long for some Lithuanian entrepreneurs to pioneer the risk of investing abroad. The main target countries for the initial investment attempts of Lithuanians were neighbours such as Estonia and Latvia, plus Russia and Ukraine. Recently, the number of Lithuanian companies investing in the EU countries has grown, too. Lithuanian businesses had a total of LTL 103.873 million in foreign direct investments at the beginning of 1998, with the figure growing to LTL 1.07 billion in 2005, and further to LTL 3.70 billion in 2008.

According to preliminary data, as of 1 October 2008, Lithuanian companies had invested LTL 5.09 billion abroad as foreign direct investments, a growth of 37.6% compared to 1 January 2008. Lithuanian foreign direct investments in EU 27 amounted to LTL 3.68 billion, and to 1.11 billion in the C.I.S.

Present achievements

Some of the paramount issues in the current international relations policy of Lithuania include independent energy supply, economic diplomacy, pro-active Eastern neighbourhood policy, balancing important relations with Russia and Europe, and transatlantic cooperation.

According to international relations officials, pursuing a constructive dialogue with Russia will remain an essential issue for the foreign policy. In this regard, it is essential to maintain efficient cooperation, on the one hand, with the core of the EU, that is, the United Kingdom, France, and Germany, and on the other hand with NATO partners. The proactive Eastern policy to which Lithuania has been catering embraces supporting such countries as Ukraine, Georgia, and Moldova, who are aspiring to be free-market nations and align themselves with EU. According to the Foreign Affairs Minister Vygaudas Ušackas, “Lithuania would never achieve any success without being backed by Berlin and Paris.”

In several recent years, the Western Balkans have emerged as an important target of economic cooperation. There are more changes pending in Lithuanian economic relations, including strengthening ties with emerging markets, such as India and China. In another part of the world, the small Caucasian nation of Georgia has gained significant political support recently, making it a pro-offered partner of economic relations as well. In line with its Euro-Atlantic ambitions, Lithuania intends to develop political and economical cohesion between the two countries.

 According to Petras Šimeliūnas, the Director of the Export and Investment Promotion Department of the Ministry of Foreign Affairs, the Ministry would largely focus its future efforts on stimulating Lithuanian exports and will look for new markets beyond the EU. He says special attention would be paid to the Caucasus and beyond, in such countries as Azerbaijan, Turkmenistan and Kazakhstan. In some of these countries where business missions are to be organised, similar measures would be followed in Algiers and Iran, according to the Ministry official. The Caucasian countries in question are rich in natural resources with rather underdeveloped economic potential, making them quite attractive.

Conversely, Mr. Šimeliūnas admits foreign investments have shrunken over the last year, compared to 2007. He also admits more should be done inside the country to facilitate foreign investor undertakings. With most Lithuanian investments still occurring in the neighbouring countries, some new targets have sprung up, such as The Netherlands (the second market by the amount of the Lithuanian foreign investment) and the UK, where Lithuanian investments have grown recently.

Table2. Foreign investments of Lithuanian businesses, 2008

Source: The Department of Statistics under the Government of Lithuania

Bearing in mind the current complicated borrowing environment, the growth of the Lithuanian foreign investment will probably slow down, thinks Mr. Šimeliūnas. According to his projection, the investments would nevertheless resume growing in the future, since there is little room in such a small market as Lithuania.

The global financial crisis and its consequences for the Lithuanian economy have been widely debated recently. A number of possible future scenarios have been scrutinised in the media, most of them projecting even tougher times ahead instead of a fast recovery. According to Mr. Šimeliūnas, the importance of maintaining external economic relations in due course in the face of economic recession can not be overestimated. International relations officials expect international trade between Lithuania and the countries less hurt by the recession to grow, thus contributing to the natural adjustment of international trade patterns.

Future lies with economic diplomacy

Economic levers have increasingly gained more weight over military power in the contemporary world. Mr. Šimeliūnas enumerates close ties and efficient partnerships with main international business organisations Lithuania has associated with as the main achievements of its economic diplomacy. Indeed, it has helped Lithuania pursue its economic interests abroad much more.

Meanwhile, Lithuanian diplomats and the business community would like to scout more new markets and regions. According to Mr. Šimeliūnas, officials are ready to help Lithuanian businesses set foot on exploring the markets of the Middle East, Asia, Africa, and Latin America. Setting up an Economic Diplomacy Service is on the agenda to combine the efforts of public agencies and business associations by advising state institutions on the policy of pursuing the country‘s economic interests abroad,  developing strategic courses of action, and facilitating the activity of institutions and agencies in charge of economic diplomacy. Some new diplomatic offices are scheduled for opening in 2009-2012. Mr. Šimeliūnas has revealed negotiations have been in progress for a while with a country in North Africa, and with another in South-Eastern Asia. Setting up a consular office in Shanghai to take care of bringing the potential of exports to China to fruition, will be considered shortly, along with strengthening an economic diplomacy presence in Latvia and Azerbaijan (an official with combined diplomacy and economics competence would be assigned to each of the countries), and establishing diplomatic offices in India and Brazil.    

Lithuanian politicians have been consistently adhering to the international relations vision of the Grand Duchy of Lithuania, including the period between the World Wars. NATO and EU memberships have provided the country with fresh impetus to direct its foreign policy. The experts of a British university, when referring to Lithuanian foreign policy over the period from the restoration of Independence in 1990 till the present day, have noticed that pro-American trends in Lithuanian international relations have increasingly resulted in a lack of Realpolitik in our relations with Russia, while any domestic criticism towards the United States is automatically regarded as a pro-Russian act, putting at peril national security or even the sovereignty itself. Keeping a balance between the two extremes is, perhaps, what is needed most. Less soaring ambition and more constructive ground work will help.

By Kristina  Puleikytė