Slammed by Inflation, Lithuanians to Vote on Boosting Bank Balances : Referendum: Measure would increase savings 100-fold. Opponents say it would destroy economy.
How would you like the government to tack a couple of zeros on the end of your bank account balance, increasing your savings by a factor of 100?
This is the seductive offer Lithuanians will vote on today in a nationwide referendum, which, if approved, would oblige the government to index bank savings to account for the hyper-inflation that ravaged the country in the early 1990s.
Supporters of the measure admit it is unlikely to pass but say that if it does, it will restore economic justice. Opponents--including the International Monetary Fund, the World Bank and Lithuania’s ruling Democratic Labor Party--say it will bring more inflation and, in the end, Lithuania’s economic destruction.
Devastating inflation has been a common feature throughout the former Soviet Union. Street corners and kitchen tables in Minsk, Moscow and Kiev echo with complaints like those of Kostas Pietrovsky, 44, a Vilnius cab driver who has had 10,000 rubles in the bank since 1990.
“I could have bought a car. Now I couldn’t buy a pair of shoes with that money,” he said, angrily swinging his taxi down the narrow, hilly streets here. “What about our babushki , who had set aside savings to pay for their own funerals? Now that funeral money would barely cover a bouquet or wreath, much less a coffin and a grave plot. Someone has to help those people.”
But if inflation has been the common post-Soviet denominator, a widespread conviction that the government ought to pick up the tab for it is almost unique to Lithuania, an Ireland-sized Baltic nation home to 3.7 million people.
The seed of this idea was planted in 1991, when Lithuania--led by Vytautas Landsbergis and the grass-roots Sajudis movement--had set up its own government and was staring down Soviet tanks in a bold bid for independence. To punish the rebels, Moscow cut off the flow of Soviet rubles to Lithuanian branches of the Soviet Union’s lone citizens savings bank.
Panicky Lithuanians asked what good independence would be if the Soviet Union confiscated their life savings.
Fear not, responded Prime Minister Gediminas Vagnorius--Landsbergis’ right-hand man. In the milk-and-honey land of independent Lithuania, Vagnorius promised, the government would cover all confiscated Soviet rubles with new Lithuanian litas. Citizens were encouraged not to touch their ruble accounts--advice that helped head off a run on Lithuania’s banks--and the government registered the amounts in each bank account as of February, 1991.
“My mother listened to that talk of how an independent Lithuania would protect us by exchanging litas for rubles,” Pietrovsky said. “She then sold all her gold and jewelry at the market and deposited the earnings in the bank. Now look at her--without her gold and without her savings.”
The old Soviet Union never did confiscate the accounts; it collapsed first. Inflation, however, accomplished what the Soviets had only threatened.
Vagnorius and Landsbergis--now leaders of the opposition Conservative Party--say the government ought to compensate people for their losses. Doing so would require about 8 billion litas ($2 billion)--or roughly two Lithuanian national budgets.
Despite the staggering economic realities, the notion of compensation remains popular among Lithuanians, 70% of whom live from paycheck to paycheck and can put nothing aside. Thousands of voters supported Landsbergis’ petition drive to hold the referendum.
But along the way, the original, simple request--100 times as much money, thank you very much--ballooned into a legislative program. Conservatives, frustrated by two years in the opposition, have tacked on bills covering everything from fighting organized crime to C-SPAN-style coverage of the Seimas, or Parliament.
The poster-sized ballot, crammed front and back with meandering fine print, is so large the elections commission fears that the usual ballot boxes won’t be able to hold all the paper.
The text is so dense that a Lithuanian actress, hired to read the ballot for broadcast to sailors at sea who wish to vote, needed 44 minutes to get through it. And it is so confusing that Vagnorius, the referendum’s architect, is one of the few people in Vilnius who can actually explain it.
“The people do not understand any of the (referendum’s) details,” Vagnorius admitted.
As he tells it, the core of the referendum is not the savings compensation at all but a review of the privatization process. Conservatives say the ruling party has used privatization to steal choice businesses and real estate; the referendum would set up a special commission to review certain cases.
But such talk alarms the IMF, which has said the referendum could discredit Lithuanian privatization.
President Algirdas Brazauskas, 62, says the Conservatives are in favor of “nationalizing” newly privatized businesses.
As for the pledge of 100-fold indexing--which Conservatives continue to dangle before panting voters--it’s no longer explicit. Instead, the referendum calls for selling one-third of Lithuania’s state-owned property--exactly which third remains unclear--and using the earnings for compensation. Vagnorius calculates that scheme would net 10 billion litas, which would mean savings could be indexed 100-fold with money to spare.
The IMF and government officials counter that Vagnorius has drastically overestimated the value of Lithuanian property. They also argue that anything near 100-fold indexing would kick off a new round of inflation and make a mockery of the Lithuanian lita, stable since its introduction in 1993.