Lithuania experienced initial difficulties with economic reform, especially with reform of agriculture, because of the government's insistence that social welfare levels be retained and that privatization of enterprises would be subject to regulations forbidding the elimination of jobs and employee services. Mistakes in fiscal policies, especially those committed by the Bank of Lithuania, and the increase in energy and other prices by Russia, as well as difficulties with payments for goods exported from Lithuania, also fueled inflation, promoted a black market, and emptied the stores. Production decreased. In 1993 industrial production dropped more than 50 percent compared with 1991. Agricultural production declined by 39 percent. Unemployment, including partial unemployment, rose from 9,000 to more than 200,000. By the end of 1992, the lack of heat and shortages of hot water in wintertime were conspicuous evidence of a deep economic crisis in the land.
Nevertheless, the economic decline was considered to be of a temporary nature, caused by the difficulties of the transition--common to former Soviet states--to a free-market economy. The IMF and the World Bank were satisfied with priva-tization and reform efforts, and the latter provided a development loan of US$82 million. On a scale of zero to ten, Germany's Deutsche Bank in 1991 ranked Lithuania's potential for agricultural production as ten and for industrialization as approximately eight. Promising sectors for future profitable investment include building materials, electricity, transportation, and tourism.
Lithuania is an independent democratic republic. Its new constitution is that of a presidential democracy with separation of powers and a system of checks and balances. In some ways, the institutional structure of the government is similar to that of the United States; however, it is closer to the system former French president Charles de Gaulle gave to the Fifth Republic of France--a strong presidency leading a parliament divided into many factions.
Data as of January 1995