Nations in Transit 2012 - Lithuania

Capital: Vilnius

Population: 3.3 million

GNI/capita, PPP: US$17,840

Source: The data above was provided by The World Bank, World Development Indicators 2010.

* Starting with the 2005 edition, Freedom House introduced separate analysis and ratings for national democratic governance and local democratic governance, to provide readers with more detailed and nuanced analysis of these two important subjects.

2012 Scores

Democracy Score:	2.29
Regime Classification:	Consolidated Democracy
National Democratic Governance:	2.75
Electoral Process:	1.75
Civil Society:	1.75
Independent Media:	2.00
Local Democratic Governance:	2.50
Judicial Framework and Independence:	1.75
Corruption:	3.50

NOTE: The ratings reflect the consensus of Freedom House, its academic advisers, and the author(s) of this report. The opinions expressed in this report are those of the author(s). The ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The Democracy Score is an average of ratings for the categories tracked in a given year.

Executive Summary:

The year 2011 marked the 20th anniversary of the Soviet military's failed attempt to regain control of the newly independent Republic of Lithuania. Over the past two decades, the country has established a functioning democracy with well-protected political and civil rights and a robust market economy. Lithuania joined NATO and the European Union in 2004 and the Schengen visa-free zone in late 2007.

For the past decade, much-needed reforms in the public sector have been slow and corruption has remained widespread. Public trust in major democratic institutions has continued to decline as people feel removed and disregarded in the political process. In 2011, the economy was recuperating after the dramatic economic recession of 2009. Public disappointment with a weak economy and anemic efforts to curb corruption led to an unprecedented wave of emigration. An official census revealed Lithuania's population has shrunk 12 percent during the past decade, more than twice the population drop during the economically difficult period of 1989-2001.^[1]

The center-right ruling coalition of the Homeland Union-Lithuanian Christian Democrats (HULCD), the Liberal and Center Union (LCU), the Lithuanian Liberal Movement (LLM), and the Rising Nation Party (RNP) survived its third year in power despite the opposition's efforts to replace members of the cabinet. President Dalia Grybauskaitė, who is the country's most popular political figure, toned down her criticism of the government and continued to endorse Prime Minister Andrius Kubilius. The Lithuanian Social Democratic Party (LDSP) won the majority of the year's February 27 local government elections, with the ruling HULCD coming in second place, despite its low approval ratings.

National Democratic Governance. The center-right ruling coalition maintained its focus on economic and fiscal challenges as well as energy independence. The resignation of the minister of economy left the cabinet just two reappointments shy of a dissolution vote by the parliament. The president remained the most popular political figure throughout 2011, although she was criticized for piecemeal policy and lack of long-term strategic vision. In late 2011, authorities announced that assets of the Lithuanian Central Bank deposited in the private bank Snoras had gone missing. As a result, the private bank, prompting claims by the ntral Bankeading the NDG sections, it seems as though the following might work betteR:ation?f two scho was nationalized, a move that the bank's managers perceived as politically driven. The reform of business regulatory bodies and state-owned enterprises was offset by slow progress in reducing unemployment and bureaucracy, leaving Lithuania's national governance rating unchanged at 2.75.

Electoral Process. For the first time in the history of Lithuania's independence, non-party members appeared on proportional representation ballot lists in local government elections on February 27. Political parties remained the most unpopular public institution in the country, viewed positively by only 3.5 percent of the population. The parliament approved a proposal by the president to ban company donations to political parties. Lithuania's electoral process rating remains unchanged at 1.75.

Civil Society. Non-party candidates, many of them members of civic movements, received 5 percent of the total votes in local government elections. Following severe shortfalls in funding during the economic crisis, donations to nongovernmental organizations (NGOs) rose slowly, but NGOs still struggle to find sustainable sources of funding. Lithuania's civil society rating remains unchanged at 1.75.

Independent Media. Reduced advertising budgets of private companies have increased mass media's reliance on state institutions for funding, raising concerns over the media's independence. The media sector's recovery from the economic crisis was hampered by increased taxes on journalists' income. Throughout the year, independent media continued to be criticized for presenting one-sided views and lacking investigative depth. In a controversial ruling, a journalist was found guilty of libel for indirectly linking a former presidential candidate to the Soviet KGB. Unable to pay the high fine issued to him, the journalist spent 40 days in jail. Lithuania's independent media rating declines from 1.75 to 2.00.

Local Democratic Governance. In 2011, the central government reduced the portion of total personal income tax revenues allocated to local governments, further undermining their financial independence. The parliament began hearings on a bill that would introduce constitutional amendments in favor of direct mayoral elections. The Lithuanian Social Democratic Party won local government elections, with the ruling Homeland Union-Lithuanian Christian Democrats coming in second. Lithuania's local democratic governance rating remains unchanged at 2.50.

Judicial Framework and Independence. The public continued to perceive the judiciary as insular and lacking transparency; its independence and impartiality were widely challenged in 2011. To deal with the problem of growing caseloads, the Council of Judges will be allowed to evenly distribute court workloads by transferring judges to overburdened courts. The trial against Eglė Kusaitė, accused of plotting a terrorist act in Russia, continued to be shrouded in secrecy and sparked a human rights groups' appeal over possible human rights violations. While reform is slowly being implemented in the judiciary, concerns over recurring human rights violations keep Lithuania's judicial framework and independence rating unchanged at 1.75.

Corruption. A new national anticorruption program aims to reduce bureaucracy and introduce e-services, especially for territory planning and construction permits, which are areas most prone to corruption. In the past, similar programs have failed to reach their objectives, and the prospects for the new program's long-term success remain unclear. Violations of official procedures were identified in 63 percent of public procurements investigated by officials in 2010. The government continued reform of regulatory agencies, yet its positive effects on the business environment still remain to be seen. Owing to a lack of visible progress in the prevention of corruption, Lithuania's corruption rating remains unchanged at 3.50.

Outlook for 2012. The political scene in 2012 is likely to be dominated by the upcoming parliamentary elections, where the opposition parties are expected to perform better than the members of the center-right ruling coalition. The government is set to focus on energy independence as it pushes ahead with electricity grid deals and plans to build a new nuclear power plant. Unemployment is expected to decline, as the country's economic situation improves. However, continued public disappointment, high levels of corruption, and a lack of long-term employment prospects may fuel continued emigration. The potential for healthcare and court reform is slim as politicians will concentrate their attention on the upcoming elections.

National Democratic Governance:

Throughout 2011, economic and fiscal challenges and energy independence were the focus of the center-right ruling coalition between the Homeland Union-Lithuanian Christian Democrats (HULCD), the Lithuanian Liberal Movement (LLM), the Liberal and Center Union (LCU), and the Rising Nation Party (RNP). Previously marked by polarization and infighting, the work of the coalition was mostly stable during the year.

Minister of Economy Dainius Kreivys resigned in the spring of 2011 after media reports questioned the source of his quickly amassed personal wealth. The media's estimation of Kreivys's wealth was soon proven to be inaccurate; however, new allegations surfaced concerning his allocation of European Union (EU) funds for school renovations to a company co-owned by his mother and previously owned by him. Lithuania's Chief Official Ethics Commission confirmed that Kreivys's decision constituted a conflict of interest, and he was forced to resign after President Dalia Gyrbauskaite announced that she had loss trust in him. Known for his accomplishments in making the public procurement system more transparent, Minister Kreivys maintained his innocence and accused special interest groups of instigating the scandal because of their discontent with the increasing transparency of public procurement. Kreivys's forced resignation left the cabinet just two reappointments shy of a dissolution vote by the parliament, which is required by Lithuania's constitution once more than half of cabinet members have been replaced.

During 2011, the parliamentary opposition pursued a number of unsuccessful attempts to replace members of the cabinet. Allegations were made against the Minister of Energy, Arvydas Sekmokas, in response to his failure to find a strategic investor for a new nuclear power plant, and against the Minister of Environment, Gediminas Kazlauskas, in response to his slow progress in developing a housing renovation scheme to increase the energy efficiency of apartment buildings. Both cases resulted in a failed vote of no-confidence in the parliament, despite President Grybauskaitė's harsh criticism of Minister Kazlauskas. In mid-2011 the Minister of Justice Remigijus Šimašius and the Minister of Foreign Affairs Audronis Ažubalis were also threatened with interpellations after the bank account information of Belarusian human rights activist Ales Beliatski was disclosed to his country's government, resulting in Beliatski's arrest. An internal investigation by the Ministry of Justice revealed breaches of protocol and miscommunication among institutions, yet the opposition dropped its pursuit of an interpellation citing unlikely success.

The president remained the most popular political figure throughout 2011 due to her resolve infighting against corruption and monopolies and her reputation as a firm and independent leader. During 2011 she continued to reshuffle top political appointees, bringing in a new chairman of the board for the Bank of Lithuania, a new chairman for the Competition Council, and a new Police Commissioner General. However, many political analysts continued to criticize the president's piecemeal policy and lack of long-term strategic vision. The president's proposals to reform the residential housing administration and heating maintenance systems were controversial and seen by some as detrimental to residents.

Census data for 2011 reveals a startling rise in emigration, most likely caused by high unemployment, low wages, and disappointment in public administration. Many economists also cite tax increases and slow progress in improving the business environment as reasons for the population decline. In 2011, the government attempted to transform business regulatory bodies into consultative organizations, but no changes were made to improve incentives for legal self-employment. Indeed, some changes undertaken during the year appeared to increase administrative burdens on the self-employed. Hoping to reduce the scope of the shadow economy, the government made a deeply unpopular decision to require the use of cash registers in local marketplaces. Following this change, the number of market sellers working with business certificates decreased by nearly 50 percent.

In November 2011, the Lithuanian Central Bank discovered that significant assets were missing at Snoras, one of the country's largest private banks. In order to stave off bankruptcy, Snoras was nationalized via urgent parliamentary legislation a few days later. Snoras's main shareholders and managers Vladimir Antonov and Raimondas Baranauskas were arrested in London and soon released on bail, with hearings on their extradition to Lithuania set for May 2012. Antonov and Baranauskas maintain their innocence and insist the decision to nationalize Snoras was politically-driven. The daily newspaper Lietuvos Rytas, in which Snoras holds 35.6 percent of shares, is known for its criticism of Lithuanian authorities, especially the president. On November 24, Snoras was declared bankrupt. While state investigators continued the search for the missing assets, Snoras' shares in Lietuvos Rytas were nationalized, along with all other Snoras assets.

Fiscal consolidation and attempts to curb Lithuania's massive public spending reduced the public deficit from 8 to 6 percent of GDP in 2011. However, the government's efforts to reform Lithuania's bloated state bureaucracy remained ad hoc, and the actual number of bureaucrats was reduced by less than 1 percent during the year.^[2] Faced with considerable opposition to more comprehensive reforms, the government implemented no meaningful institutional and administrative changes, postponing important and widely-anticipated decisions on issues such as social security reform. In late 2011, tax increases were once again introduced to fill holes in the budget. With a lack of comprehensive policies to stabilize government spending, public trust in the government remained low, hovering around 13 percent.^[3]

In 2010, Lithuania went from being a net energy exporter to a net energy importer after the closure of the Soviet-era Ignalina nuclear power plant. Although nearly 50 percent of Lithuanians polled considered the construction of a new plant unnecessary,^[4] in early 2011 the government moved forward with plans for a new plant to be built by the Japanese firm Hitachi. Lithuania still imports most of its electricity and gas from Russia, despite Lithuania's shaky relationship with Gazprom, which owns 37.1 percent of Lietuvos Dujos (Lithuanian Gas). Relations further deteriorated in January 2011 when Lithuania launched a complaint at the European Commission accusing Gazprom of abusing its dominant position to implement unfair pricing and demanded a withdrawal of Lietuvos Dujos leadership. The complaint resulted in an EU antitrust investigation against Gazprom and its affiliates. On June 30, the Lithuanian parliament also passed legislation that prohibits gas suppliers from owning or operating pipelines in Lithuania, thus giving the state control of all pipelines on its territory. Although the legislation is in line with EU energy market legislation, Gazprom criticized it for being politically-driven. The ongoing feud with Gazprom has resulted in continued price discrimination against Lithuania, which is now charged one of the highest gas prices in the EU. In April 2011, the average European gas price was US$350 per 1,000 cubic metres, compared to nearly $400 charged to Lithuania.^[5]

The government's focus on energy independence also caused it to push ahead in electricity grid deals with Poland and Sweden, projects which had been lagging for years. In September, a public tender was announced for the preparation of the technical construction of a grid to Poland, followed by a deal to build another with Sweden in October. Once implemented, these projects will have potential to improve Lithuania's access to energy in terms of cost, safety, and supply. The Lithuanian electrical grid is set to become fully interconnected with continental Europe in 2015.

Electoral Process:

A record-breaking 17,066 candidates competed for 1,526 seats in Lithuania's municipal councils on February 27, 2011. For the first time in a Lithuanian election, non-party members appeared on proportional ballot lists, creating an opportunity for members of civil movements to form coalitions and run as independent candidates. Prominent politicians and businessmen also founded their own coalitions in order to run in the elections.

The candidates represented 23 parties and 35 coalitions, with independent candidates accounting for only 3 percent. Reportedly, more than 40 percent of the independent candidates had previously been party members, suggesting that the inclusion of non-party members on ballot lists did not bring as many new independents or as much political competition as expected. The Lithuanian Social Democratic Party (LSDP) won a majority in 18 cities, receiving a total of 21.5 percent of the votes. Homeland Union-Lithuanian Christian Democrats received the second largest percentage of votes (16.3 percent) and won a majority in 11 cities.^[6] The Central Electoral Committee and the police received nationwide reports of vote buying and voter harassment on election day. However, the incidents appeared to be sporadic, and did not notably affect the fairness of results.

The lifespan for most new political organizations and parties in Lithuania is quite short, as many are prone to unstable ad hoc coalitions, infighting, and weak leadership. In 2011, there were 39 registered parties in Lithuania, one-third of which did not participate in the February elections and 5 of which failed to win a single mandate.^[7] Political parties remain the most unpopular public institution in the country; they are viewed positively by only 3.5 percent of the population. This figure nearly equals the percentage of citizens with party membership, which stands at 3.4 percent.^[8]

The European Court of Human Rights Court (ECHR) ruled in early 2011 that it was unjust to ban the impeached President Rolandas Paksas from running for public office. Paksas was impeached in 2004 on charges of corruption leading the Constitutional Court to permanently and irreversibly ban him from holding any state office that requires an oath. However, by the end of 2011 the Lithuanian government and parliament was still undecided about how to legally resolve the issue, debating whether a constitutional amendment would be required to introduce a time limit on the ban and if so, what the time limit should be.

In late 2011, parliament passed a law banning both corporate and individual donations to political parties, with the exception individual donations made during elections. The draft legislation was supported by leaders of two of the biggest parties, who also proposed an increase in state budget support for political parties. At the time, donations to political parties accounted for approximately one-third of all party funding, with another third coming from the state budget and the last third from other sources, including loans and the state-run Stabilization Reserve Fund.^[9]

Parliament – which, like Lithuanian political parties, suffers from low levels of public trust – was further discredited in 2011 when its members refused to lift the parliamentary immunity of a deputy embroiled in a corruption scandal. Evaldas Lementauskas was first accused of graft in 2008, but entered parliament in April 2011 after a fellow party member gave up his seat to become mayor. Public distrust of the parliament is reinforced by countless scandals surrounding parliamentary deputies and their frequent migration between different parliamentary factions.

In May, Prime Minister Kubilius secured his position as HULCD leader despite having a public approval rating of only 11.6 percent. By contrast, the Speaker of the Parliament Irena Degutienė's approval rating is 63.4 percent.^[10]

Civil Society:

With trust in political parties extremely low, civic movements have gained importance and visibility. Non-party candidates, many of them members of civic movements, received on average of 5 percent of the total vote in the 2011 local government council elections. Among the most notable examples of civic movements' success in the local government elections was the performance of Artūras Zuokas's Homeland Revival and Future (TAIP) in the capital city of Vilnius, where it secured 12 out of 51 seats in the local government council. Visvaldas Matijošaitis's United Kaunas movement also performed well in Kaunas, Lithuania's second largest city, with 5 out of 41 seats.^[11]

Nongovernmental organizations (NGOs) may contribute their opinions during the law-drafting process and in recent years, their activities in this area have been more visible and prominent. Crisis-induced budget cuts have mobilized various society groups to organize into associations representing the interests of special groups such as mothers and participants of the second pension pillar.

There are three legal forms of NGOs in Lithuania: associations, public institutions (such as schools, hospitals, and research institutes), and charity or sponsorship funds. Statistics on the number of organizations are ambiguous; the number of officially registered NGOs is far larger than the number of operating entities. At the beginning of 2011, there were 8,769 active associations (up 10 percent from 2010), 2,567 public institutions (schools and hospitals excluded), and 225 charity and sponsorship funds.^[12]

A 2 percent tax deduction is available to private individuals who donate to NGOs and this provides supplemental funding to many NGOs. However, a decrease in personal income due to the economic crisis and a cut in the personal income tax rate led to a decline in funding through the 2 percent provision. While the number of recipient organizations increased in 2011, the number of donors decreased for the second year in a row. In 2010, 16,700 organizations received funding from 456,000 donors; in 2011, 17,700 organizations received funding from just 411,000 donors.^[13] The total amount donated decreased from 40 million Litas (approximately $15 million US) in 2010 to 36 million Litas (approximately $13 million US) in 2011.

According to official data, donations to charities and sponsorships rose by 5 percent in 2010 compared to 2009.^[14] Private companies account for 90 percent of total sponsorships and donations, with 10 percent coming from anonymous donors and private individuals. Sports teams are the major recipient of donations (40 percent), followed by healthcare organizations (12 percent), social care organizations (10 percent) and cultural groups (10 percent). Opinion polls indicate that as much as a third of Lithuanians participate in volunteer work, while an additional quarter does not participate but reports a willingness to do so.

Most NGOs lack permanent sources of income and are facing a decline in funding. In recent years, NGOs have increasingly adjusted their activities to qualify for EU funding, but this drive to attract EU donations has distracted many from their core objectives. NGOs may bid for government contracts, but this practice is uncommon owing to a complex administrative process. Searching for new sources of funding, NGOs are noticeably making more use of social media in their fundraising efforts.

Business associations and trade unions are traditionally the most influential nongovernmental groups in the policymaking arena, although the labor pillar has been losing influence in recent years. Trade unions are fairly unpopular and passive, although they are granted wide powers and rights by law. Unions sign collective agreements with employers on behalf of all employees, and the labor code requires all employers to comply. However, in most cases, the role of unions is limited to negotiating wages and employee duties.^[15]

The Lithuanian Confederation of Trade Unions, Lithuanian Labor Federation, and Solidarity are coalitions of labor groups; the Lithuanian Confederation of Industrialists and the Lithuanian Business Employers' Confederation are the country's leading employer organizations. These labor and employer groups together with the government constitute the Tripartite Council, which makes recommendations on national labor policy. Despite its wide powers, the council has low representation – trade unions claim only about 15 percent of the workforce, while the employer confederations represent 1 percent of business enterprises.^[16] In recent years, the council has been widely censured for blocking much-needed liberalization of Lithuania's tight and inflexible employment regulations.

Independent Media:

Lithuania's media environment has been under severe economic strain for several years, characterized by a dramatic drop in advertising revenues and exacerbated by rising taxes. Because private companies have reduced their advertising budgets, mass media have become more reliant on advertising commissioned by state institutions, raising concerns over media's independence.

Throughout the year, Lithuania's independent media continued to be criticized for partisanship and a lack of investigative depth. Media outlets were clearly divided on issues such as the infamous pedophilia case, while the coverage of political news was often perceived as lacking rigor. Since most private mass media are owned by influential businesspersons or obscure conglomerates, they are widely regarded as representing business interests. Public trust in mass media hovered around 35 percent in 2011, down by 5 percent since 2010 and 50 percent over the past decade.^[17]

Libel remains a criminal offense, though harsh penalties are rare. In early 2011, Gintaras Visockas, a journalist and editor of the internet portal Slaptai.lt, was found guilty of libel for indirectly linking a former presidential candidate to the Soviet KGB. A Vilnius district court sentenced the journalist to a 25,400 Litas fine (approximately US$10,000).^[18] Unable to pay this large sum, Visockas was forced to spend 40 days in jail. The case marks the first time that a journalist has spent time in jail due to a libel-related sentence.

The authorities in Lithuania are also subject to laws regulating libel. In August 2011, Lithuania's Supreme Court found the State Security Department guilty of libel for detaining the editor of the newspaper Laisvas laikraštis, Aurimas Drižius, on suspicion of possessing classified information and ties to the KGB back in 2006. The Supreme Court ruled that the accusations made by the State Security Department were false and threatened Drižius's reputation.

A report released in 2011 by the whistleblower site WikiLeaks alleged that Lithuanian media owners were blackmailing businesses and politicians in order to secure advertising contracts. The report focused primarily on the racketeering practices of the daily newspaper Respublika. The editor of Respublika, Vitas Tomkus, subsequently filed libel suits against a number of mass media outlets that published articles based on the Wikileaks report, including the daily newspaper Verslo žinios, the online news outlets 15Minučių.lt and Delfi.lt, and the president of the Lithuanian Journalists Union, Dainius Radzevičius. Tomkus is the first journalist to make use of the libel law to limit the press freedom of other journalists. The case was widely reported on by the international community, but received limited attention in the Lithuanian press.

Media in Lithuania are privately owned, with the exception of the state-owned Lithuanian Radio and Television. The television market comprises 30 broadcasters. The leading national broadcasters are TV3 (owned by the Scandinavian conglomerate MTG), LNK (owned by Lithuania's MG Baltic), and the Lithuanian National Television LTV1. The number of digital television subscribers in 2011 grew by a fifth compared to 2010, reaching 297,000 households in June 2011.^[19] Lithuania is set to make a full transition to digital television by 2012. There are around 50 radio broadcasters in Lithuania and all are commercial except for the Lithuanian National Radio broadcasting. The state-run radio LR1 has the largest audience, comprising 18.6 percent in spring 2011, and Lietus ranks second with 13.1 percent.^[20]

There are 4 national daily newspapers – Lietuvos Rytas, Vakaro Žinios, Respublika, and Lietuvos Žinios – and around 70 regional dailies across the country. The Lietuvos Rytas Group and Respublika Group dominate the newspaper market.^[21] In late 2011, 35.6 percent of Lietuvos Rytas shares were transferred to the public sector following the nationalization of the private bank Snoras. Lithuania has no sector-specific regulation of media ownership concentration, but legislation on competition sets a general limit at 40 percent market share, implying no single business group can gain a dominant market share and exert unlimited influence.

The internet continued to grow in importance in the media market in 2011. In spring 2011, a total of 56 percent of Lithuanian households were connected to the internet and 61 percent of the population were regular users, a slight increase over the previous year. Household surveys revealed that online reading of newspapers and journals was one of the most popular uses of the internet, accounting for 89 percent of internet use in 2011. News portals in Lithuania's extensive online media market competed intensively over quality and quantity of information, also expanding their video materials. The use of social media has also expanded rapidly in recent years; nearly 46 percent of Lithuania's internet users had Facebook accounts in 2011.

Social security contributions paid by journalists increased in 2011 for a third, consecutive year. Prior to 2009, journalists were excluded from paying taxes into the state social security system. Since 2009, the income of journalists and other independent workers, such as authors and painters, is taxed with social security contributions, which reached 34 percent in 2011. The government maintains that this increase provides journalists with the same benefits as regular employees. The advertising market expanded by 5 percent in 2011, with 12 percent growth in internet advertising, modest growth in radio (4 percent) and TV (6 percent), and no change in newspapers' advertising revenues.^[22] Print media has fared worse than television as leading national newspapers Lietuvos Rytas, Lietuvos žinios, Verslo žinios and Diena Media News continued to report losses in 2010.

In addition to state budget resources, state-owned media institutions can make use of European Union funds to employ private public relations companies to make advertising contracts with mass media. In 2011, the Public Procurement Office halted numerous PR-related public procurements because the requirements were tailored in such a way that ensured the contracts would be allocated to specific mass media outlets.

Local Democratic Governance:

In October 2011, parliament began hearings on a bill on constitutional amendments to institute direct mayoral elections. At present, mayors are elected by municipal councils whose members are chosen in general elections. The move to popularly elected mayors has been debated for several years, with some parties opposing it on the grounds that administrative powers of directly elected mayors were not clearly defined. The change is also likely to cost some parties significant influence in local government.

Public confidence in local government is undermined by politicking, graft, and mismanagement by local authorities. Before the February 2011 local elections, just 18 percent of the population expressed confidence in municipal councils;^[23] however, by the end of 2011, the number had risen to 26.7 percent.^[24] Municipal councils are viewed as lacking accountability to their electorate, and often disregard residents' opinions.^[25] Their budgets are composed of central government subsidies (accounting for about half of municipal budgets) and revenue collected from personal income tax, property and land taxes, and local fees.

The financial independence of local governments is limited. Central budget allocations account for about half of municipal budgets, with the remaining portion coming from independent municipal revenues. A large share of municipalities' independent proceeds goes to the central government wage fund and utility payments, so in reality municipal councils are free to distribute less than one-tenth of municipal budgets.^[26] In the national budget, the portion of total personal income tax revenue allocated to local governments dropped from 73.5 percent in 2010 to 61.6 percent in 2011, and is set to be reduced to 57.1 percent in 2012.^[27]

There are wide regional disparities in local government revenues, which are leveled through revenue transfers among municipalities. Cities with higher personal income tax rates are net donors as they are required to give up a larger share of these revenues, while poorer regions become net recipients. In effect, the central government decides on a different share of personal income tax revenues for each municipality, thus undermining their independence from the central government. The situation is particularly serious in the capital city of Vilnius, where the budget receives only 40 percent of personal income tax, with the other 60 percent being redistributed among other cities. Despite a lower share of revenues, Vilnius is required to perform functions unique to the capital. In 2011, Vilnius municipality and municipality-owned enterprises debts reached almost 1 billion Litas (approximately US$400 million), the size of its yearly budget.^[28]

Judicial Framework and Independence:

Lengthy investigations, trials, and occasional corruption scandals in the judiciary have damaged the reputation of Lithuania's court system. Throughout the year, discussions continued on reforming the prosecution service and state security with a view toward making them accountable to the government, rather than the president, but no tangible progress was made.

The public perceives the judiciary as insular and lacking transparency; its independence and impartiality are widely challenged. In 2011, around half of the population distrusted the courts.^[29] A new national anticorruption program, set for implementation in 2013, hopes to increase judicial transparency by computerizing the system of allocating lawsuits to judges and publishing information and documentation of court proceedings online. In 2011, a number of judges were embroiled in scandals over forging signatures on court materials and working under the influence of alcohol. In 2010, the Judicial Ethics and Discipline Commission, an institution that adjudicates disciplinary cases within the judiciary, undertook hearings on 114 of Lithuania's 779 judges. The Judicial Court of Honor, another institution that handles disciplinary cases, examined 11 cases that resulted in 8 guilty decisions and the removal of 4 judges from office.^[30]

The number of lawsuits in Lithuania has grown considerably over the past few years, especially civil suits. The proliferation of civil suits is associated with company bankruptcies, business restructuring procedures, and the recovery of liabilities brought on by the economic crisis.^[31] The number of administrative cases almost doubled from 2007 to 2010, during which period the workload of judges grew by an average of 27.8 percent annually.^[32] In an effort to address the problem of case backlogs and overburdened courts, parliament passed a bill in 2011 allowing for the transfer of judges between courts to accommodate those with heavier workloads. Further legislation was passed to encourage out-of-court settlements by removing bureaucratic barriers, addressing the fact that only 2 percent of all civil suits filed are settled before trial.^[33]

Throughout 2011, the court continued to conduct a controversial trial involving a young Lithuanian female Muslim convert, Eglė Kusaitė. Kusaitė was detained in late 2009, accused by Lithuanian prosecutors of plotting a terrorist act in Russia. While in custody in 2010, Kusaitė reported physical and psychological abuse by Lithuanian authorities and Russian security officials, who were allegedly allowed to take part in a pre-trial investigation. The Lithuanian prosecution concluded that the suspect's complaint was not supported by any objective records, and it refused to conduct a pre-trial investigation of Kusaitė's complaints. Throughout 2011, a number of new charges were brought against Kusaitė, including threatening the former lead prosecutor in her case and falsely reporting abuse while in detention. Human rights groups have appealed to the Lithuanian president and the speaker of the parliament over possible human rights violations, claiming that the court, the prosecution and the State Security Department jointly operated without an adequate system of checks and balances. The case against Kusaitė continues to be shrouded in secrecy, which has been reinforced by the court's decision against holding a public trial.

Corruption:

In June 2011, parliament approved a new, updated national anticorruption program for 2011-14. The new program focuses on clear-cut objectives and measurable criteria for more accurate assessment of anticorruption efforts than the government's previous programs have produced. One of the central aims of the new program is to reduce bureaucracy and introduce e-services, especially for territory planning and construction permits, which are areas most prone to corruption. The updated program will usher in new rules to facilitate greater transparency in the drafting of related legislation and the granting of permits. For example, all draft bills will be required to indicate the original initiators of the bill in the version submitted to parliament. The program also introduces procedures for increasing efficiency in the judiciary and improving central control of public procurements. However, the prospects of the program's long-term success are unclear since nearly a quarter of the program's tasks are set to be implemented in 2013-2014.

The current center-right coalition has been vocal about reducing corruption in the area of public procurement, with some visible changes since 2009. In February 2010 the Public Procurement Office (PPO) began online publishing of all reports and decisions of purchasing organizations. In 2010, the PPO investigated 1,016 public procurements, identifying violations of official procedures in roughly 63 percent. Public institutions' directors are not held personally liable for procedural violations, and penalties for violators are disproportionately low compared to the value of the public tenders. The number of public tenders carried out through the centralized online public procurement system has risen in recent years, but remains relatively low at 2.5 percent.^[34]

Public officials and civil servants were perceived in 2010 as being among the most corrupt actors in Lithuanian society, though more trusted than political parties, the parliament, or the judiciary.^[35] Almost a third of respondents admitted that they or members of their households had given a bribe in some form over the past 12 months.^[36] In late 2011, parliament passed a law banning company as well as individual donations to political parties. Individual donations are only permitted during elections. Critics of the law fear that this measure may increase the likelihood of illegal donations.

Businesses in Lithuania are burdened with onerous reporting regulations that amount to some 900 requirements in the areas of corporate, labor, and tax law, statistics, and consumer protection, and another 1,200 in vertical sectors of the economy, such as transport, finance, trade, and construction.^[37] In 2011, there are about 63 regulatory agencies in Lithuania, and over 300 permissions or licenses required.^[38] A revision of business protection procedures coupled with functional and institutional mergers was launched in 2009 aiming to prevent abuse, excessive interventions, and unjustified penalties for businesses. However, by the end of the 2011, a study commissioned by the Ministry of Economy revealed the administrative burden had decreased by only 0.6 percent since 2009. Another survey indicated that it even increased by 4 percent in 2009 and 2010.^[39] In September 2011, nine regulatory agencies signed a declaration promising to consult rather than penalize businesses in their first year of operation.

Author:

Kaetana Leontjeva

Kaetana Leontjeva is a policy analyst at the Lithuanian Free Market Institute.

Notes:

[1] Department of Statistics of the Republic of Lithuania, Provisional Results of the Population and Housing Census 2011 by County and Municipality, 2 December 2011, http://www.stat.gov.lt/uploads/docs/3surasymas_e.pdf.

[2] Between 1 January 2011 and 1 May 2011, the number of civil service employees shrank from 55,101 to 54,660. See Civil Service Department website, http://www.vtd.lt/index.php?-510024592.

[3] "Premjero reitingas kyla, Vyriausybės – krinta" [Prime minister's approval rate goes up, but the government's goes down], Spinter Tyrimai Ltd, http://www.spinter.lt/site/lt/vidinis/menutop/9/home/publish/Mjk3Ozk7OzA.

[4] "Keičiasi žmonių nuomonė dėl naujos atominės elektrinės" [Change in public opinion on a new nuclear power plant], Veidas, 7 February 2011, http://www.veidas.lt/keiciasi-zmoniu-nuomone-del-naujos-atomines-elektr….

[5] "Snapshot Of Key Developments In The External Relations Of The Russian Gas Sector," EGF Gazprom Monitor, April 2011, http://gpf-europe.com/upload/iblock/953/2011_5%20egf%20gazprom%20monito….

[6] Central Electoral Committee of the Republic of Lithuania, 2011m. Lietuvos Respublikos savivaldybių tarybų rinkimai [Municipal council elections of the Republic of Lithuania in 2011], http://www.vrk.lt/2011_savivaldybiu_tarybu_rinkimai/output_lt/rinkimu_d….

[7] Ministry of Justice of the Republic of Lithuania, Lietuvos Respublikos politinių partijų sąrašas [Republic of Lithuania, list of political parties], http://www.tm.lt/dok/VEIKLA/politines-partijos/Politines_partijos_20110…; Central Electoral Commission of the Republic of Lithuania, 2011 m. vasario 27 d. savivaldybių tarybų rinkimai [Municipal council elections 27 February in 2011] http://www.vrk.lt/rinkimai/409_lt/Partijos/index.html.

[8] "Visuomenė labiausiai pasitiki ugniagesiais, mažiausiai – partijomis" [Highest public trust in firefighters, lowest in parties], Delfi.lt, 17 September 2011, http://www.delfi.lt/news/daily/lithuania/visuomene-labiausiai-pasitiki-…; Department of Statistics of the Republic of Lithuania, http://db1.stat.gov.lt/statbank/default.asp?w=1024.

[9] Department of Statistics of the Republic of Lithuania, http://db1.stat.gov.lt/statbank/default.asp?w=1280.

[10] "I. Degutienė vs. A. Kubilius: abipusis pralaimėjimas" [I. Degutienė vs. A. Kubilius: A Mutual Loss], Veidas, 23 May 2011.

[11] Central Electoral Commission of the Republic of Lithuania, Balsavimo rezultatai Lietuvoje [Voting results in Lithuania], 29 March 2011, http://www.vrk.lt/2011_savivaldybiu_tarybu_rinkimai/output_lt/rezultata….

[12] Department of Statistics of the Republic of Lithuania, http://db1.stat.gov.lt/statbank/default.asp?w=1280.

[13] "Nuo sumokėto pajamų mokesčio gyventojai paramai šiemet skyrė apie 36 mln. Litų" [People devoted 36 million Litas of their personal income tax to donations], State Tax Inspectorate, 11 August 2011, http://www.vmi.lt/lt/?itemId=10824694.

[14] Department of Statistics of the Republic of Lithuania, http://www.stat.gov.lt/lt/news/view?id=9088.

[15] R.J. Hrebenar, C.H. McBeth, and B.B. Morgan, "Interests and Lobbying in Lithuania: A Spectrum of Development," Journal of Public Affairs 8:1-2 (2008): 51-65.

[16] Department of Statistics of the Republic of Lithuania, http://www.stat.gov.lt/lt/news/view?id=9088.

[17] "Pyktį dėl didėsiančių šilumos kainų žmonės jau išliejo ir ant politikų" [People have already showcased their anger on politicians over higher heating costs], Lrytas.lt, 22 October 2011, http://www.lrytas.lt/?data=20111022&id=akt22pdd111022&view=2.

[18] "Vilniaus apygardos teismas apgynė Č. Jezerską" [Vilnius district court defended Č. Jezerskas], Delfi.lt, 27 January 2011, http://verslas.delfi.lt/archive/article.php?id=41339997.

[19] Communications Regulatory Authority of Lithuania, 2011 Q2 Report on the Electronic Communications Sector, 26 September 2011, http://www.rrt.lt/en/reviews-and-reports/reports-on-the-urpp/2011_823.h….

[20] TNS, Radijo auditorijos tyrimas 2011 m. pavasaris [Radio audience survey of spring 2011], http://www.tns.lt/lt/ziniasklaidos-tyrimai-radijo-auditorijos-tyrimas-d….

[21] TNS, Baltijos šalių leidinių skaitomumas 2011 m. [Readership of publications in the Baltic states in the summer of 2011], http://www.tns.lt/lt/naujienos-nacionalinis-skaitytoju-tyrimas-baltijos….

[22] "Lietuvos reklamos rinka pamiršta minusą" [Lithuanian advertising market is forgetting the minus], Vz.lt, 5 September 2011, http://vz.lt/Default.aspx?PublicationId=4fd2bbad-5483-4c22-bc34-255708d….

[23] "Apklausa: labiausiai krito pasitikėjimas 'Sodra', policija ir savivaldybėmis" , Zebra.lt, 26 February 2011, http://www.zebra.lt/lt/naujienos/lietuva/apklausa-labiausiai-krito-pasi….

[24] "Pyktį dėl didėsiančių šilumos kainų žmonės jau išliejo ir ant politikų" [People have already showcased their anger at politicians over higher heating costs], Lrytas.lt, 22 October 2011, http://www.lrytas.lt/?data=20111022&id=akt22pdd111022&view=2.

[25] "Lietuvoje savivalda nyksta" [Self-government in Lithuania is disappearing], Veidas, 21 February 2011, http://www.veidas.lt/lietuvos-savivalda-nyksta.

[26] Law on Local Governments, I-533, 1 December 2011, http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=415107&p_query=….

[27] Law on 2012 State Budget and Municipal Budgets, XI-1823, 20 December 2011, http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=415665&p_query=….

[28] "Vilniui būtinai reikia Sostinės įstatymo" [Vilnius ought to have a law on the capital], Veidas, 24 January 2011.

[29] "Mėgstamiausi politikai – tie patys, tarp nemėgstamųjų – nauji veidai" [Same popular politicians, new faces among the least popular], Lrytas.lt, 26 February 2011, http://www.lrytas.lt/-12987046011298487865-mėgstamiausi-politikai-tie-p….

[30] "Trys klausimai Gintarui Kryževičiui, Teisėjų tarybos pirmininkui" [Three Questions to Gintaras Kryževičius, Head of the Judicial Council], Veidas, 14 February 2011.

[31] Ibid.

[32] "Teisėjai ir prokurorai nebepakelia darbo krūvio" [Judges and prosecutors can no longer bear the workload], Veidas, 31 May 2010, http://www.veidas.lt/teisejai-ir-prokurorai-nebepakelia-darbo-kruvio.

[33] Ministry of Justice of the Republic of Lithuania, http://en.tm.lt/.

[34] Public Procurement Office. http://www.vpt.lt/rtmp8/dtd/index.php?pid=121189211065&lan=EN.

[35] Transparency International, Global Corruption Barometer 2010, http://www.transparency.lt/new/images/global_corruption_barometer_repor….

[36] Ibid.

[37] The Ministry of Economy of the Republic of Lithuania, "Taikomojo mokslinio tyrimo 'Administracinę naštą verslui sukuriančių informacinių įpareigojimų supaprastinimo galimybės geresnio reglamentavimo kontekste' ataskaita" [Report on applied scientific research 'possibilities of simplifying reporting requirements imposing administrative burden on business in the context of sounder regulation'], 22 July 2010, http://www.ukmin.lt/lt/veikla/veiklos_sritys/reglamentavimas/studija/in….

[38] Act of the Government of the Republic of Lithuania on the Optimization of Supervisory Functions Performed by Agencies, 13 July 2011, http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=404042&p_query=….

[39] "Administracinės naštos svoris – 136,6 mln. Lt, ir ji nelengvėja" [Administrative burden amounts to 136.6 million Litas and is not decreasing], Vz.lt, 29 December 2011, http://vz.lt/?PublicationId=cda3e5f6-3e6c-42b5-afd2-cb87cc22a479; and Lithuanian Free Market Institute, A Survey of the Lithuanian Economy 2010/2011 (Vilnius: Lithuanian Free Market Institute, 2011), http://files.lrinka.lt/LET27.pdf.