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Annual Address to the Seimas of the Republic of Lithuania (2001)

Vilnius, 19 April 2001

Mr. Chairman,
The High Seimas,
Dear fellow citizens,

While reviewing the development of society and the state from the perspective of the past year, I would like to go back to the goals and tasks of Lithuania's modernisation project. I shall try to discuss them in the light of the last year changes, assessing the life of the state in the context of the present global developments.

Last year has brought some essential changes to our social life.

The municipal elections in the spring of the last year disclosed a long time sensed crisis of parliamentary parties: the majority of the seats in the local councils were won by the Social Liberal Party and the Farmers' Party, who had no parliamentary groups in the Seimas. Thus the citizens of Lithuania passed a vote of no confidence in those political parties that were in power. Not only did the voters demonstrate their disenchantment with the parties' ability to govern the country: they openly challenged Lithuania's course of Euro-Atlantic integration endorsed by them. During the local election campaign the new political parties did not refrain from radical populist slogans or pledges to change in principle the course of development of the country.

Lack of dialogue between the authorities and the citizens has become obvious. Moreover, serious problems of public self-awareness have become apparent.

Being aware of this situation, I underlined in my last year state-of-the-nation address the need for Lithuania to pursue consistently the chosen direction to Euro-Atlantic integration and to maintain the course of the reforms that had been started. I also raised the need for a new politics to eliminate the existing alienation between the people and the government and to restore the possibility of joint and targeted action.

At that time, the reformist government led by Andrius Kubilius and the centre political forces who together with newly emerged political parties started uniting into the so-called new politics block supported my position. However, neither of the parliamentary parties, both in power and in the opposition, managed to rejuvinate more or less substantially before the parliamentary elections.

True, merger of the left-of-centre parties has fortified their ranks.

At that time, the parties that united guided by the idea of the new politics did not manage to finalise their principles of joint action or to elaborate a clear programme of activities or to pool an unquestionably strong team.

Nevertheless, the citizens of Lithuania voted the new political parties into power. It seems that it was a proactive part of society, especially the young people and those who have set up their own business, who linked their hopes with the new political forces. Thus, the majority in the Seimas was issued the mandate to accelerate the protracted reforms. On the other hand, the new majority of the Seimas is not large. Therefore, the Seimas may expect a broader public support for its activities only if individual parliamentary groups undertake more active efforts to find joint solutions corresponding to the interests of the State.

However, there are not so many signs so far of a new style of parliamentary work, new relations between the Seimas and the Government, and new pragmatic politics. The parties of the coalition are not strong. Their activity displays an obvious lack of experience in governance as well as purpose-oriented action and consistency. Sometimes it seems that they are short on responsibility for the state affairs that the nation has entrusted them with.

New politicians per se do not guarantee new politics.

But those who have come to power today should not put up with the present situation. The contrasts are by far too striking. Mothers who cannot sustain their children have to wait for moths for benefits, teachers are not paid salaries, and farmers and industry workers are unable to get what they have earned. But at the same time, officials who had to leave their posts because of poor performance of their duties receive huge severance payments, prosecutors and police commissioners claim in court thousands of litas they have not earned, new mayors use tax-payers' money for buying new cars. It hurts. This situation calls for justice. In the face of all those contrasts, all who have the power - the ruling parties and the opposition - must overcome the inertia of old far-fetched political games and rally their forces for the solution of practical problems faced by the country.

The burden of unfulfilled tasks is indeed heavy. All of us should feel responsible for it. The present Government has inherited not only the scenarios of reforms devised by the previous Cabinets, but also a long list of problems that must be dealt with: the highest unemployment rate over the past ten years; half a million debt of SODRA; the state debt of 13 million litas; over a thousand of companies that have gone bankrupt; protracted land restitution process; arrears to farmers count millions of litas; the unrestructured energy sector; the unrecovered debt from Belarus for electricity supply; the half-empty nuclear power station decommissioning fund; disarranged and unfinished process of compensation for rouble-denominated deposits and many other similar issues.

Distinguished members of the Seimas,

To solve these problems first of all we need to set clear objectives and principles of action. This is what the present politics of Lithuania lacks most of all. Only clearly defined principles can ensure a stable concord of the government and the people. On their basis the government should define the priorities of its activity and the tasks of the ongoing reforms. Therefore I would like to discuss in greater detail the principles and goals of our politics.

The present public debate has highlighted two differing positions, which differently project the development of Lithuania.

One vision links the well being with the individual's initiative, freedom and ability of independent decision making, whereas the other - with the government's social support. The choice between these two alternatives is essential and crucial. Therefore, in making the choice it is important to examine carefully both the alternatives and not to rely on the stereotypes of the Soviet past or the present outbreaks of emotions. This is not and most probably will not be an easy task.

An international civic awareness survey, which was conducted a couple of years ago, has shown an insufficient perception of the principles of living in democracy even among those young people who received their education in independent Lithuania, and a still powerful impact of the past inertia on their thinking.

Nearly 80 per cent of Lithuania's eight-year schoolchildren are convinced that the government must guarantee job to all willing to work.

This is the vision of the young people of the country, in which 70 per cent of economically active population are engaged in the private sector.

These young people, most probably just as their teachers and parents, love their Motherland and take pride in its past. But sometimes they lack knowledge of how to build a democratic state and do not know how to find their place in that state.

All of these facts show that a considerable number of Lithuanian people live the life of unrealistic expectations which are encouraged by populist talk of some politicians. They think that the government must solve all of their problems for them. It is a highly dangerous state of society. As long as it continues, the rational action on the part of the government is hardly possible. And hardly will we manage to avoid serious social shocks and hence a return to where we had been before the start of reforms if the political forces continue to artificially sustain this condition.

Therefore I repeat once again: we must learn to live here and now, without trying to flee from reality, but conquering the difficulties that it presents. In this context, highly meaningful are the words of Gidon Kremer, a violinist born in Riga, about the young musicians from the post-communist Baltic countries, which aptly described the peculiarities of our common mentality. He said: "Blithely playing and lack of finesse is typical of young musicians. We are inclined to ponder upon complicated problems and think that we perceive them better than anyone else. But when something simple has to be done with utmost care and in a perfect manner, it becomes clear that we are not able to produce high quality and look provincial." Indeed, we need to act thoroughly and consistently in implementing the reforms that have been started. Our politicians must start dealing with daily problems of society and stop wrapping them up in lofty rhetoric or cover by political slogans. The dialogue between the government and the people may be restored today only on the basis of truth and specific efforts aimed at general well being.

Distinguished members of the Seimas,

Setting of specific tasks and their fulfilment as well as a clear vision of the future is necessary in our internal and external policy; they are necessary in our relations with other states and for our establishment in the international community.

Today it is absolutely clear that, notwithstanding the fears that were voiced during the parliamentary elections, the new government, having secured the support of the opposition, consistently implements Lithuania's foreign policy, the main guidelines of which - integration into the European Union and NATO and the development of good neighbourly relations - were defined in the first years of independence.

There is a growing awareness not only in Lithuania but also beyond its borders that only the membership of NATO and the European Union will guarantee the security of our state. In recent years, a new reality has emerged: our decision to join Euro-Atlantic structures has already been widely acknowledged as a principle decision of an independent state. This new reality, as nothing else, has brought more stability to Lithuania. On the other hand, we are integrating into a world that is marked by a particular dynamism and rapid changes. Therefore we should be aware of the inevitability of further structural reforms and rapid modernisation of Lithuania, which is necessary if we genuinely aspire to ensure stability in our society and the state.

In our endeavour to achieve the chosen goals of Euro-Atlantic integration and good neighbourly relations we should closely co-operate with the states of the Baltic Sea region, further strengthen the strategic partnership with Poland and intensify our diplomatic activities in the United States of America and the EU member states. There is no doubt that strategic co-operation between the United States and the European Union has the strongest impact on the future world order. I am certain that our state can and must move towards the centre of gravity of all ongoing processes in the world by opening up more widely its markets to western capital. This step would add to the weight of Lithuania on the international arena and ensure a more secure life for our nation.

The United States is and will remain the most influential power of the world. It seeks to safeguard the shared interests of the democratic world: stability, human rights, the principles of democracy and the development of market economy. I am convinced that Lithuania pursues the same goals. Therefore the dialogue with Washington is of essential significance for us. Already today our diplomats posses the instruments for intensifying this dialogue: the U.S.-Baltic Charter and Lithuania's Euro-Atlantic integration.

But I want to make it clear: Lithuania does not aim at becoming part of America's sphere of influence to counterbalance the influence of Russia or other states. It would be an erroneous interpretation of our goals because Euro-Atlantic integration is not a counterpoise for Russia. Euro-Atlantic integration is living in an area of shared values. And the wish to be part of this area is not directed against anyone. I am convinced that Lithuania's membership in NATO does not undermine the security of Russia. On the contrary, our membership in the Alliance will only contribute to the strengthening of security and stability in the area in which we live and in which Europe, Russia and America have their own interests.

I am prepared to further pursue a policy that has already produced tangible results. Our relations with Russia should be based on positive diplomacy and not on confrontation. It is highly important that at present both Vilnius and Moscow adhere to this principle. During my visit to Russia, President Vladimir Putin stated: "Common points outnumber differences in the relations between Lithuania and Russia." I fully share this view, since we should build our relations in the future on shared links.

The analysis of our relations with Russia sometimes gives an impression that we too often rush from one extreme to another: we either make too generous allowances or do not react to evident demarches or raise excessive demands. However, zero-sum game, i.e. winning at the expense of others, is not an acceptable norm in diplomatic practise. It is never the case in diplomatic practise that one side gets everything while the other is left with nothing. Therefore we cannot expect a miracle to take place in the dialogue between Vilnius and Moscow, moreover that it carries the load of a particularly difficult past. By passing a single law or arranging a meeting or a visit we cannot restore what had been lost during the decades and centuries of living in dependency. We shall have to recover little by little what had been lost in the past. And being aware of it we should not waste our time. However, our efforts will be rewarded with success if we perceive that compromise is not a disgrace to a state but a norm of international politics. Therefore every engagement, provided it adds in a new and positive way to the dialogue between Lithuania and Russia, is yet another step to a successful solution of complicated issues.

Still, there are vexed problems in our relations with Russia that are difficult to account for. The present state of affairs in transit through Lithuania is just one explicit example of a failure or unwillingness to reach agreement. The situation, frankly speaking, is unsatisfactory. I consider that if freight is transported through the territory of Lithuania to Karaliaucius, it should be also directed to Klaipeda. The Transport Minister of Lithuania should solve this problem as soon as possible. Lithuania should also act more effectively to secure a long-term oil supply. Furthermore, we should not repeat the mistakes of the past in restructuring our gas sector: its privatisation should not impair the existing good contacts with suppliers and should attract western capital that is necessary for the rehabilitation of the gas sector.

Sometimes it seems that Moscow attempts to turn the ratification of the border delimitation agreement into our problem. But I am convinced that Lithuania did its share of the job. Now we can only wait until Russia realises that the final settling of this issue is beneficial and necessary for Russia itself.

The relations between Vilnius and Moscow are not the concern of our states alone: the common interests of Russia and Europe effectively go through Lithuania. We can and must contribute to a greater understanding and broader co-operation in this area.

I am convinced that not a foreign military threat but a possible social and economic backwardness poses the greatest danger to Lithuania's security today.

Opening up to global influences is always a painful and complicated process for a small country. However, Lithuania has already succeeded in deriving positive results from it. The strategic partnership with Poland, which initially was approached with scepticism by many, is qualified today as a most significant accomplishment of Lithuania's diplomacy in the past decade. However, the sluggishness of our joint institutions with Poland, which is more and more evident today, and the lack of new ideas and initiatives have started to cause our concern. Maybe this slowdown in our relations is inevitable. But the question arises whether it will not preclude our strategic partnership from further development? Far too often our joint institutions waste their energy on trivial matters and cannot refrain from overstating the differences. Working this way is not effective. In fact we should develop a greater number of joint projects contributing to the strengthening of co-operation between Vilnius and Warsaw. I am convinced that this co-operation is of particular significance for the geopolitical development of Lithuania.

Having joint the efforts, our countries could create a particularly dynamic trade, investments and political area on the eastern shore of the Baltic Sea. But implementation of such project requires the realisation of long-pending bilateral initiatives, such as connecting Lithuania and Poland by a power transmission line. On the other hand, we should also discuss possible ways of improving the transport infrastructure between our countries. Although the capital cities of Lithuania and Poland are separated by over 400 kilometres, the distance that lies between Vilnius and Nida, we - the Lithuanians and the Poles - still seem to live in two different worlds. An express train would cover such a distance in two hours. In my opinion, this problem requires immediate action and should be solved in relation to other issues since it serves our common interests: enhanced border permeability and the development of infrastructure in the Vilnius and Suvalkai regions, both of which would attract investments to those regions and hence contribute to a greater well being of their residents.

Co-operation among Vilnius, Warsaw and Kiev under a trilateral format is no less important. I consider that the governments and the parliaments of our states should more actively contribute to its development.

European unification has become an increasingly important dimension of global politics. Though Lithuania started the negotiations with the European Union later than the majority of the Central European countries, it rapidly catches up with them. Sometimes our government is criticised for having set a too ambitious objective to join the European Union with the first group of candidates, for which it has to pay now a high price of not defending the interests of the citizens. But do we really betray the interests of Lithuania by seeking to join the European Union as soon as possible?

I do not believe that after Poland, Latvia and Estonia become the EU members Lithuania, a non-EU member, will be able to protect its markets so as to satisfy the needs of its producers and consumers. I do not believe that Lithuania will consciously choose the road leading to social tension. Consequently, it is difficult to conceive of not hurrying to the European Union under such circumstances. Isn't it better to be among the first rather than the last to join the European Union? Today I want to underscore once again what I have said on numerous occasions before: all reforms scheduled for implementation before joining the European Union are carried out to our advantage and not because the European Union demands so. I propose to delete from our political vocabulary a 'Brussels demands' argument. Before taking any political decision we first must be sure of the need to make it.

In this context I want to draw the attention of our Foreign Minister that the time has come to allocate more rationally the available limited financial and intellectual resources of our diplomatic corps according to the strategic goals of Lithuania. The most important tasks should be attended first. Now we cannot afford to scatter our resources across different fields. Now we must devote all our energy to fulfilling the most important tasks relating to European integration. Later, when the circumstances change, we shall redirect our forces and funds.

In taking care of the national defence, we must observe the approved defence strategy. We must develop our capabilities to exercise self-defence to the highest degree possible, to receive the support from foreign partners and to implement the policy of deterrence. Most importantly, we must implement our obligations before our Euro-Atlantic partners. I closely follow the ongoing discussion about territorial defence. Discussions always have an important role to play. But in the present debate not only politicians but also the military should be given a possibility to express their opinion.

Particular attention must be paid to a more cost-effective use of funds. Final decision should be taken on the future development of the air force and the navy. A stable long-term funding of defence projects remains problematic. Regrettably, the changing governments failed to ensure as smooth continuity of the policy in this field as it is desired. However, any discussion must produce timely decisions, but the debate on a possible deployment site of the navy, which has been lasting for several years already, has not been effective.

Ladies and gentlemen,

In projecting today our life together with the member states of the European Union and NATO, we should not forget one essential aspect: European unification is based on two equally important elements - the common market and the shared values. Therefore Lithuania's Euro-Atlantic integration is not and will not be, as it may sometimes seem, a mere solution of individual legal, economic and social issues. It entails a profound change in our attitudes, values and outlook on life. Three years ago, when I called for a free individual, an open society and a strong state, I perceived each of the three goals as the basis for modernising Lithuania and turning it to the West. Today, I believe that the significance of each of them has increased and their interdependence has become obvious. The time has come to perceive a simple truth: neither a strong democratic state nor the well being of society is possible without social initiative and ability to act independently. The government does not generate well being; it is created by the people: businessmen, teachers, scientists and all those who work in different areas.

The government only collects and redistributes the wealth that has been generated by the people. Certainly, it has to perform with the greatest possible effectiveness, taking into account the vital interests of the nation. But the government cannot redistribute what has not been produced; neither can it give anything to some without taking away from others.

Our economy is not sufficiently effective. The rate of GDP growth is rather slow. Though the efficiency of our performance has improved lately, it still remains well below the level of western states. The number of employed persons able to sustain the others is also not high, as only one and a half million of the people in Lithuania have jobs. The number of taxpayers, by the way, continues to decrease. According to preliminary data, around 230 thousands of Lithuanians, mostly young people, emigrated from the country in the past decade. They account for over 10 per cent of all taxpayers.

Thus we have no other way but to take personal responsibility for our life and that of our society, to show more initiative and to start working hard, both mentally and physically, under the conditions of competition.

Ladies and gentlemen,

Our state has no other ultimate goal but to ensure the well being of its people. In our efforts to attain this goal we should set three strategic goals for our social policy. First, we have to free individual initiative and to strengthen the individual's sense of responsibility and the ability to act independently. Second, we must facilitate deeper co-operation among different segments of society - businessmen, researchers, farmers, civil servants and others - as well as improve their ability to work together in seeking the common goals. Third, we have to strengthen the state and establish a stable democratic order in it.

Today we have to overcome nostalgia for the old system - the system in which freedom did not exist - and to establish a new order, which is based on the values of democracy, justice and reciprocal civic duties. Without such a stable order, neither the freedom of the individual nor the civic society is possible.

I am talking about very general matters. But I am certain that they must be translated into specific tasks and action. They must become the basis for all the reforms that are implemented today and direct their course. Otherwise, our reforms will be chaotic and self-centred.

The ongoing social and economic restructuring in the country should be directed to strengthen the individual's ability to act independently. We must create forthwith the best possible conditions for those who have already taken to action and have started their own business. We need a real sunrise of business because so far the situation has not changed in principle - bureaucratic constraints of business continue to exist.

For example, defects in tax administration system are obvious. The Chief Administrative Commission for Dispute Settlement, which was set up in the autumn of 1999, satisfied during the first year of its activities over 60 per cent of the claims filed by natural and legal persons. Their rights were infringed because civil servants acted in violation of the existing laws and because the muddled secondary legislation developed by civil servants contradicts the existing laws. Last year, taxpayers appealed to the Commission against 74 millions of litas of tax arrears, which were claimed. The Commission annulled the decisions of tax administrators concerning 34 million litas - half the disputed amount that the state attempted to claim unlawfully from taxpayers. We may only wonder how many businessmen who doubt the decisions taken by the officials do not apply to the Dispute Settlement Commission.

Businesses, especially small and medium-sized, must be finally freed from excessive and not transparent regulation; they must be liberated from arbitrary decisions and specific racketeering of civil servants as well as the practise of "cruel action". The time has come to base the relations between the state and the business not on the requirements fixed by civil servants but on precisely worded legal provisions. Therefore I call on the government and the Seimas to improve, essentially and not partially, tax administration procedures. The activities of both the State Tax Inspectorate and the Customs Department must be strictly regulated and supervised by the Ministry of Finance.

Ladies and gentlemen,

Not accidentally I have singled out those two aspects: business environment and tax administration. I want to discuss in greater detail those areas, the changes in which might have the greatest impact on our well being. Tax policy is one of such areas and in a couple of minutes I shall dwell on it more extensively. The concept of tax system that has been worked out by the government aims at defining the main guidelines for tax reform. However, this is only the first step. Future tax system should be subjected to public debate and considered in the Seimas. Willing to contribute to the discourse that has already started in this area, I want to make several comments.

I consider that tax reform should reflect to greatest degree possible the changes in the relations between the citizens and the state. A new tax system must be clearly oriented towards the owner of the state and not towards those who depend on state care. It must be based on the principle that the state neither gives nor takes away from the man, but the man earns and gives away part of his income to the state, demanding from the state to use the money honestly and effectively. Tax system must allow the people to sustain themselves, receive education, take care of their health, housing and ensure a safe retirement.

It is equally important to make tax policy an integral part of the overall politics and to secure its consistency with the key goals of social, employment, economic and demographic policies so that by distributing fairly the tax burden it could contribute to a sustainable social development of the country. Regrettably, the balance of taxation of labour and capital has been significantly disturbed. The principle of alleged "neutrality" of taxes, which has been declared until now, is in fact favourable to large capital and not small business or employees. The present government and the Seimas should answer two questions that the people rightly raise: Why must the citizens who live on wages pay higher taxes in proportion to their income than those who receive capital gains? Are there any plans to change this situation and, if yes, how?

Indeed, this situation must be changed if we want to avoid huge social tension in the future and if we seek for social stability, which can be guaranteed best by a large and strong middle class.

Therefore I doubt if the government should start tax reform by reducing capital gains tax. If the government decided to alleviate the tax burden, it would be more important to raise the ceiling of non-taxable income of natural persons.

If the government changed the system of taxation by reducing personal income taxes, each and every working citizen of Lithuania would feel a positive effect. This step would increase the purchasing power, which consequently would increase consumption and lead to the recovery of domestic market and hence the overall economy.

I would like to address separately the intention of the government to abolish corporation tax. Are we aware of the consequences of this step?

Tax reform is necessary. But we cannot carry out tax reform according to the "life-will-show-it" principle. The government must project most seriously to what extent the planned tax reduction will reduce public revenues? How will the reduction in public revenues be compensated? Will the state reduce the scope of its obligations?

At present, Lithuania re-distributes a much smaller share of GDP than other developed countries. If it is intended to further diminish this share, the Seimas and the government must present to the public reasonable arguments and explain which functions of the state must be narrowed and why, and whether it will have an adverse effect on education, health care and security.

Pension reform, reorganisation of social assistance and health care reform should contribute to the man's ability to act independently and strengthen the sense of responsibility for his own life. I believe that social insurance reform is one of the most important and complicated tasks awaiting the present Seimas and the government. It will have a decisive effect on social guarantees in the future. The establishment of the mandatory social insurance pensions system and private pension funds will provide Lithuanian people with a possibility to save money and sustain themselves after they retire. At the same time, private pension funds may invigorate the capital market of Lithuania and speed up the growth of economy. All of these changes are highly necessary.

The health care system should also be based on an effective insurance system. But to introduce it, we need to raise the awareness of the government and the public that taxpayers and patients and not doctors or medical institutions are the real owners of the health insurance system. The share of tax-generated revenues which is allocated for health care is not large: it makes less than 4.5 per cent of GDP, whereas the price for quality medical services increases rapidly not only in Lithuania but also in the whole of the world. Therefore it is essential to ensure the most effective and efficient use of health insurance funds.

Desired effectiveness may be achieved in two ways: by improving administration of insurance funds or changing the principles of administration, and by providing the patients with a possibility to choose among services. In both cases, maximum transparency of the health care system should be ensured. Therefore I welcome the decision of the government to change the principle of payment to medical institutions by switching from the payment for the days that a patient spends in a hospital or the category of a hospital to paying for the quality and the number of provided services. Patients' funds should not pay for what has not been done. The medical insurance system should guarantee the right of a patient to choose a hospital or outpatient clinic, doctors, ways of treatment and medicines. Realisation of this right requires ensuring wide public access to information about the price and the quality of services. Every patient must be explained from which list of medicines and for what value he may choose medicines. Only then will the pharmaceutical industry of Lithuania lose the mystique of the Middle Ages alchemy.

The existing safety net should be subjected to radical changes. At present, the state allocates over 4.5 millions of litas each year for paying out different allowances. It is a huge amount.

Thousands of people live only on benefits. I believe that switching to a more flexible tax system could reduce the number of socially assisted persons. It is necessary to link social assistance with income declaration as soon as possible. Having abolished the payment of benefits to persons who can provide for themselves, the state will be able to expand assistance to those who indeed are in extreme need. The best proof of a distorted social assistance system in Lithuania is a growing number of families who, being incapable of providing for their children, give them to foster parents. The costs of such social assistance are much higher than the volume of benefits that the State could pay to the families in need. Furthermore, because of family impoverishment the State takes into its custody from 200 to 500 children each year. Thus, not only additional huge funds are required, but most importantly, enormous detriment is done for children.

This year, the government has finally admitted that unemployment has become one of the most painful problems and has undertaken to prepare a workplace action programme. Another positive step is that the government has incorporated the poverty alleviation strategy into its plan of action. These steps are of utmost importance. However, these problems must remain the concern of the Ministry of Social Security and Labour alone. I am convinced that there are basically two ways for effectively reducing the unemployment and poverty: rapid economic development and quality education for all.

Distinguished members of the Seimas,

Ladies and gentlemen,

Lithuania's national economy gradually recovers form the adverse effects of the Russian financial crisis. Last year, GDP grew by 3.3 per cent, exports increased by 30 per cent and industrial output started to grow. All of these signs indicate that the country's economy has passed a breakthrough point from stagnation to recovery.

But to accelerate further the recovery of our economy so that the majority of Lithuanian people could enjoy its benefits, we must speed up economic reforms. We do not have any other alternative.

Lately, the flow of investments to Lithuania has slowed down: our businesses lack capital, whereas the policy of state debt reduction limits the scope of public investments. Therefore all the reforms should be designed, inter alia, to create more favourable conditions for both domestic and foreign investments and to attract capital. The first steps have already been undertaken in this direction: bankruptcy procedures were simplified; corporate restructuring procedures have been introduced by law, the labour market has been partially liberalised and tax reform is under consideration.

However, more decisive measures should be taken to eliminate bureaucratic barriers to business. Furthermore, curbing of corruption is an essential prerequisite of a rapid economic growth. Surveys of the World Bank show that Lithuania is ahead of Estonia and Latvia in terms of corruption at the lower tier of public authorities. A Lithuanian businessman pays in bribes 3 per cent of his income. He loses over 12 per cent of the total working time dealing with public authorities. However, clandestine connections do not guarantee a safety net for business: over two-thirds of Lithuanian businessmen do not feel that their ownership rights are protected. Therefore we should pool our efforts to change in principle the character of the relations between the authorities and the business. It is necessary to move to transparent co-operation. Today Lithuania needs closer and more open co-operation between the authorities and the business. To achieve this co-operation, the business must openly declare its interests, whereas the authorities should take them into consideration and promote them. It is the duty of civil servants working in ministries, county administrations and municipal institutions to assist the business.

But this assistance should not acquire the form of support of some business groups at the expense of the others or should not turn into 'debt paying' for the support during the elections. Business should be assisted by creating conditions for fair competition, as well as by actively promoting the export. It is most important that both the authorities and the businessmen aspire to such co-operation and that the key bodies established by the entrepreneurs undertake decisive measures against corruption and clandestine protectionism.

Regrettably, the development of the country's economy is still impeded by the attempts of some business groups to impose their will on the government and their primitive inside struggle. Too often narrowly perceived personal interests make co-operation and joint work for common goals impossible. Those were the reasons of the collapse of the project of construction of the electricity transmission line to the West and close to bankruptcy situation in the Lithuanian Railways and some other large companies.

Ladies and gentlemen,

Today we can no loner allow further privatisation to suffer from the fight among different interest groups. We must ensure the transparency of privatisation and an effectual protection of societal and public interests.

Continuous scandals that have been accompanying privatisation in Lithuania impede the flow of investments and arouse justified public indignation at the government. Although with some delay, the government and the Seimas must take measures to restore public confidence in privatisation. In my last year state-of-the-nation address I drew the attention to the fact that the law on privatisation of state and public assets was not implemented. This law obliges all parliamentary groups of the Seimas to delegate their representatives to the Privatisation Commission. However, neither parliamentary group has done it. Why? Do the political parties try to secure a pretext for political fight rather than start working with full responsibility in the joint commission?

Today the interests of the state require the consensus of the political forces on the further privatisation and its acceleration. Different forms and ways of privatisation should be considered and employed. Most importantly, all its participants - local and foreign investors - should be treated equally to ensure transparency of the process of privatisation and secure the attainment of its ultimate goal of higher effectiveness of the national economy. Finally, members of the Privatisation Commission and the head of the State Property Fund must assume personal responsibility for that. The head of the State Property Fund is directly responsible for guaranteeing effective management of assets entrusted to the Fund, conclusion of profitable contracts of their sale and supervision over timely implementation of all commitments assumed by property buyers.

This year the government and the Seimas will have to undertake restructuring and privatisation of the energy sector.

The reform of the energy sector will determine to a large extent the further development of the country. After all, the energy sector, which has a large capacity, should turn from a stone weighing down on Lithuania's economy into an engine stimulating its recovery. Only opening up of the energy sector to competition and investments and introduction of a professional and honest management can ensure it. In the next several years we have to untangle the knot of delayed decisions, past failures and clashing interests. But to make it possible the government must today devise a clear plan of the energy industry development.

Last year, we started creating the legal framework for the liberalisation of electricity and gas markets. This year, we need to take practical steps: restructure the Company Lietuvos energija, secure crude oil supply for Mazeikiu nafta and accelerate its rehabilitation, prepare for the decommissioning of Unit 1 of the nuclear power plant and attract private capital to the heating sector. All of these steps will require from the government political will, exceptional transparency and weighty arguments.

Ladies and gentlemen,

It is equally important to project future development of the agricultural sector. After a decade of improvisations and rushing from one measure to another, our agriculture, deceived and disillusioned, stands at a crossroad. There are more than enough reasons for that: pledges that the government made to farmers last year, exceed by 150 million litas the financial ability of the state; last year, arrears of enterprises to farmers amounted to nearly 200 millions of litas and the gap between input and output prices further widened. It would be a grave mistake, however, to revert because of the present difficulties to market regulation that was applied in the past.

Only can competitive farms and diversification of small and medium-sized business ensure a sustainable development of Lithuania's agriculture in the future. To achieve this goal, we need to complete unfinished work and to take new steps.

We must complete the process of land return to its owners and undertake land reform. Notwithstanding the declaration that this process has been finished, one-fifth of claimants is still waiting for their land to be returned. Their applications must be satisfied without further delay. Furthermore, having determined the final number of claimants, we can start already today selling the state owned land, the area of which, according to preliminary estimate, makes approximately 700 thousand hectares. Farmers who are willing to establish competitive farms may be granted a possibility to acquire land on favourable terms.

At present, small farms prevail in our agricultural sector. The average plot of returned land is below seven hectares and the average size of a family farm is a little above twelve hectares. It is obvious that the majority of such farms will be taken over by large farm owners or will have to establish co-operatives. The State should support all ways of establishing competitive farms. But to do it, greater transparency and effective management of public funds now and SAPARD funds in the future must be ensured.

Financial support designated for agriculture should reach farmers rather than land in the pockets of mediators or the hands of several millionaires who claim to be 'guardians of farmers'. The government's duty is to eliminate all bureaucratic obstacles so that SAPARD funds could reach Lithuanian farmers already this year.

I especially regret that while defending their interests our farmers do not make the full use of co-operation, thus losing a possibility of higher income. Therefore I would like to propose to the Seimas to improve the law on co-operative companies to make it applicable.

Ladies and gentlemen,

We have to implement economic and social reforms in the country being fully aware of the changes in the modern world, and at the same time shaping the vision of a modern Lithuania in the open world of tomorrow. Indeed, together with the global community we live at a time of a historic breakthrough, which started just a few decades ago: industrial, and in many cases agrarian society is developing into the information society. It is a cardinal and complicated transformation of the way of life, human relations and core values.

Not accumulation of material values but creative activity based on knowledge and intellect is driving and will drive even stronger a contemporary society to greater progress. Lithuania cannot remain at the margin of these changes. It cannot remain a laggard consuming innovations. Already today, building of the information society, and, for that matter, dot-com economy and e-government, must become strategic tasks of the state. To implement it, we need a strong unity of purpose among science, education, business and the government as well as their concerted effort.

Now, it seems that two Lithuanias, which seldom, if ever, meet, exist side-by-side. It is high time we involved the young people having initiative into the realisation of the project of Lithuania's modernisation, before they disperse throughout the world. The government must strengthen a young Lithuania, since only it will be able to pull out the impoverished part of Lithuania from poverty and apathy.

Recent years have provided a number of positive signs indicating an accelerated development of the information society. Computers are getting increasingly common both at home and in working places. The number of the Internet users is growing faster than ever before. All of these changes are welcome, but not sufficient. In this area, the Government must undertake greater initiative and move from drafting strategies on the information society to concrete action. First, it is necessary to link and systematise chaotically managed public databases and to introduce advanced management. Yet another urgent step is to start providing at least some of public services online already this year and increase their number continuously.

It is essential that in the near future all groups of society could directly benefit from the advantages that technologies provide in order to avoid their isolation in the future due to limited possibilities to use those technologies. Therefore, in our endeavour to establish an e-government we must make the third step and ensure access for each and every citizen to the Internet.

All of these goals can be achieved through a more rapid computerisation of libraries and schools, ensuring wide public access to computer classes, providing favourable crediting conditions for studying and tax privileges to private internet cafes, and companies designing homepages as well as facilitating the acquisition of personal computers.

Dear ladies and gentlemen,

Today Lithuania's modernisation, and thus the prospect of a better life of the nation, depends on the development of science and education, as well as the level of public investments into human resources. Education has become a necessary prerequisite of the independence of the individual and the nation and their success in life. This statement is not a political declaration, but the truth, which has been proved by the present world experience. All political parties, those in opposition and in power, have pledged during the parliamentary election campaign to accord priority to education. Therefore the citizens rightly expected definite steps to improving the quality of education and ensuring broad access to it. Regrettably, this is not the case. Preference has been given not to well-considered reforms, but to passing declarative laws and to manipulation with the public budget. Furthermore, there have been started campaigns of intimidation against the studying youth, scientific institutions and individual higher schools.

I consider that the Seimas and the government should switch from one-day political shows to a consistent implementation of education and science reforms, the continuity of which is necessary to enable the State to execute its primary duty of providing the citizens with good basic education and helping them to acquire profession.

Today, one-third of the young people does not receive secondary education and one-fourth - remains outside vocational training.

We even do not know how many children do not go to school. I want to draw your attention to an alarming tendency: during one decade of independence the number of the young people in the cities considerably decreased, but it grew up significantly in rural areas. Unemployment and lack of qualifications among the young people living in rural areas is particularly high.

Therefore we must implement measures that had been developed long ago. First, the Government must establish forthwith a national registry of children. It would not be decent in this case to make excuses of the lack of resources when the cattle had been identified long ago. Second, in the next few years we should create a system of universal pre-school education. Children who grow in different social conditions must be provided with equal access to education. Third, children must be provided with social conditions for studying at secondary schools. We must arrange busing of children to school. Part of the funds designated for allowances, which not always reach children, could be redirected through schools for providing children with meals, clothes and studying materials. Large schools should employ social workers as soon as possible.

Fourth, it is necessary to change in the immediate future school curricula making it less theoretical and more practical. We must provide children with knowledge and skills required in adult life: to implant a strong sense of civil responsibility in them as well as provide them with the basic knowledge of economy and teach computer skills. In the next couple of years, we must provide every ten school children with one computer and establish vocational guidance centres in all schools. We must immediately destroy the divide between the general education and vocational schools and reorganise as soon as possible agricultural schools as well as establish a wide network of technical higher schools.

Fifth, we should reinforce essentially the country's system of higher education. A Lithuania of the past century survived largely on elementary and higher schools, whereas a modern Lithuania should base its life on colleges and universities. Therefore it is necessary to improve conditions of studying. Already this year functioning universal students' crediting system must be established. Consistent efforts must be taken to develop the network of colleges, which could form the basis for establishing universities in rural areas. In three years the number of students in Lithuania may exceed 100 000. Then, according to the number of students per 10 000 of population, Lithuania will catch up with the Scandinavian countries.

However, it is no less important to ensure the quality of education. Therefore it is necessary to upgrade university curricula, abandon outdated courses and develop new programmes of study oriented to new technologies. Practical dimension should be introduced to all courses. Surveys show that nearly eighty percent of higher school graduates lack practical vocational training. The majority of them admit that during the years at university they have not mastered to sufficient degree foreign languages or acquired the necessary computer skills.

Sixth, it is necessary to establish an effective cohesion of education, science and business. Regrettably, during the past decade Lithuania failed to develop an effective education management model. We still rush from evident stagnation to revolutionary action. I consider that today the State must move gradually from financing of educational institutions to the funding of those programmes of study, which are necessary for society. At the same time funds may be allocated from the state budget for co-financing those applied science projects into which Lithuanian business invests its money. It does not mean that scientific institutions should be artificially closed. It is necessary to establish conditions for fair competition of the intellect as well as to lay down rational and transparent principles and criteria of funding of scientific projects. We should finally recognise the significance of humanities and social science for the national culture and democratic development of the State. It is absurd when administrators of national science, guided by the rules that they had established, do not ascribe to scientific projects such work as the compilation of the comprehensive dictionary of the Lithuanian language, encyclopaedia of folklore songs and the Statute of Lithuania.

It is no less absurd when one ministry maintains from budget funds several agrarian institutes and the other - uses the money from the very same state budget for establishing and financing public institutions to perform research in agriculture and provide consulting services for farmers.

And seventh, in the next few years a modern adult education system must be developed. It is necessary to reduce unemployment and poverty. At the same time this system is one of the necessary conditions for creating the information society. Therefore all existing systems of education - labour market training centres, vocational schools and universities, which function independently, should be linked into a single network. Retraining and consulting services should be provided not so much by special training centres of the labour market but by universities and vocational schools. Today Lithuania needs open universities and open vocational training centres. It needs schools that could offer not only consistent training courses but also a variety of training modules.

On the other hand, municipalities should take more and more responsibility for adult education. While reforming school network and reinforcing cultural institutions the local authorities must also think about continuous training possibilities for adult citizens. Almost 4 000 of libraries in Lithuania can be reformed into modern information and consulting points and may become strong centres of education.

Distinguished members of the Seimas,

I have already mentioned the deficit of a stable democratic order based on justice and truth. We should establish this order by strengthening all tiers of the state governance: political and judicial, public service and self-government. A strong democratic state is not possible without strong political parties and strong political power. Our parties are still weak. Therefore all efforts to unite and to renew are welcome. The Lithuanian Social Democrats and the Conservatives who have already embarked on this road are getting stronger today. The Liberal and the Social Liberal parties, who for the first time are at the helm of state, are facing serious difficulties. Regrettably, they rather often repeat the mistakes of those who had been in power. The most serious mistakes they have made are low involvement of the intellectual potential in strategic planning; sometimes they still regard Lithuania as their own patrimony and attempt to impose the will of the party on the country without going into public discourse or explaining the need for one or another step. They also suffer form mistrust in civil servants and want to post "their own people" to all positions, even those of school principals and hospital directors. Furthermore, the relations between the ruling parties and the business who had supported them remain obscure.

Our parties experience the deficit of what Vytautas Kavolis called "the culture of liberalism," that is, openness to other ideologies and views, and ability to move from the fight of ideas to the interaction of ideas. In modern democracy parties must posses those abilities.

Transparency of decision-making is another prerequisite of a strong political power. Efforts of the present Seimas to arrange public debates of draft laws are welcome. But such public deliberations should become a law and should not be held only on some occasions. I believe that the Seimas of Lithuania must indeed become a public forum for debating not only draft laws, but also all other issues of key significance for the nation and the state.

Such discussions should involve not only the members of the Seimas, but also the citizens of the country.

Ladies and gentlemen,

Merger of economic crime and political power would be especially dangerous for our state. It would decisively undermine justice and destroy the foundations of our state. In this respect highly warming are the words of St. Augustin who said that the state without justice is just a gang of robbers.

Today we must react to any sign of coalescence between economic crime and political action. In all circumstances the independence of the Special Investigation Service, the Office of the Prosecutor General and the Police Department, which has been so difficult to secure, must be maintained as well as impartiality of courts must be ensured.

It is also necessary to complete the investigation, both pre-court and judicial, of cases, which have been instituted a long time ago. For instance, although a criminal case against Concern EBSW for squandering LTL81 million was instituted in 1995, the case reached the court in 1998, whereas its actual court hearing has started only this year. The case of Company Luoke is yet another example. It was instituted in 1997, referred to the court in parts, but has not been decided until now: neither the police nor prosecutors or judges are able to deal with it. The case of scandalous embezzlement of the assets of the shipping Company Jura, which was instituted in 1996 and later split into 16 individual cases, is still pending and those guilty are walking free. All cases - explosion of the bridge over the Brazuole river, murder of Juras Abromavicius and Gintautas Sereika and other must reach the court. Justice requires it. Likewise the consciousness of public servants should require it.

Today justice suffers from loopholes in the existing laws. Therefore I hope that you, dear members of the Seimas, will approve amendments to the Code of Criminal Procedure, which I have submitted, and improve the existing criminal and judicial proceedings. Most importantly, officials working in law enforcement bodies should consistently safeguard justice and should be among the first to demand legal amendments to laws or their provisions if they impair justice or run counter common sense. In a civilised state a person cannot be prosecuted and imprisoned for home brewed beer or twenty pills of tranquillizer Diazepam.

Distinguished members of the Seimas,

Successful implementation of administration reforms will determine to a large extent the strength of our state and will insure more justice in it. Until now, the administration reforms were superficial and chaotic. During the past decade of the independence we have failed to create a modern and effective civil service system. We have failed not only because of not knowing how to proceed. We have failed because our politicians, who were willing and still seem to be willing to treat civil servants as humble executors of their will, have not been able to form it. Obedience in civil service has been rewarded by inadequately high wages and the liberty of lower tier officials to treat off-handedly the people. It all led to the emergence of a state of high-handed civil servants and not to the creation of a state of independent citizens. Helplessness of the government in the face of the Russian crisis has disclosed how ruinous a road we have chosen.

Therefore it is necessary to fully implement the idea of the sunset of bureaucracy that was put forward last year. It is too expensive for the people to maintain an inefficient civil service system. I consider that this year, the Interior Ministry should develop with the help of independent experts a detailed plan of when and how the civil service system and public administration will be reformed.

When and how will a stable system of performance assessment of public administration and internal control in public institutions be introduced?

Today we must improve in principle the law on civil service, define more clearly the responsibility of civil servants and introduce stringent legal measures preventing any possibility of corruption and conflict of public and private interests. We also must regulate with greater precision the relations between civil servants and politicians. Is it normal for the officials who have grossly violated the rules to remain in the same position or to be restored to it by the decision of the court? Healthy competition must be introduced among civil servants - honesty, showing of initiative and professional performance must be adequately evaluated and encouraged. In our civil service we need a greater number of young people who are well-educated and smart managers, able to act independently and capable of strategic thinking. Without them neither a genuine strategic planning nor programme based budgeting or effective public administration is possible.

In the next few years, we must finally fine-tune the relations between the state and the local authorities. Local authorities of Lithuania must start exercising genuine self-government and assume full responsibility for decision-making. I consider that the majority of functions which at present are performed by the counties must be delegated to the local councils, whereas counties must be reorganised into small regional development bodies consisting of the representatives of municipalities. Indeed, there is no need to replace some counties with the other. European practise, which is very diverse, or financial or management reasons cannot substantiate such reforms.

Instead of getting involved into an argument with the residents of the Telšiai county over the future of their county, it is more important to reduce immediately the number of the counties, set up in them regional development agencies, develop detailed projects for the revival of the regions and, after received the aid from the EU structural funds, to undertake implementation of such projects. This is what our impoverished periphery suffering from unemployment needs today most of all.

Ladies and gentlemen,

Social, economic and cultural development of our regions is one of the most topical tasks today. It includes a number of specific tasks, which should target a common goal of greater well being for all. The success of our endeavours will depend on our ability to pool the efforts of all stakeholders: public institutions, local authorities, businesses, non-governmental organisations, the Church and those citizens who are not indifferent to the future of the state. Working together would also allow strengthening the feeling of being a civic community which can determine its life in the future.

"We are Lithuania," the noblemen of the Grand Duchy of Lithuania used to say proudly. Today we must finally tell ourselves: we are Lithuania.

We have restored our state and returned to the civilised world. We are able to live in that world and create well being for our children and us here, in our Homeland. We are able to do it because we are united not by coercion or hatred, but freedom and reciprocal obligations arising from it.

A book "Catechism of the Lithuanian" was found during a search in a flat of a rebel of the 1863 uprising. One question in it asked: "Who is the Lithuanian?" The answer was simple: "The one who believes in freedom and abides by the Statute is the Lithuanian." That is the answer that we - free people of a free country should most probably give to that essential question.

Valdas Adamkus
President of the Republic of Lithuania

Maintained by the Office of the President of the Republic of Lithuania. Please specify source when quoting.