Economist Rudzkis: The prevailing opinion is that the crisis will last only 1 year

“I think the example of Sweden is remarkable. A set of restrictive measures has been introduced, but the optimum limit has not been exceeded,” he said in an interview with Delfi.

A former long-term analyst at banks SEB and DNB said one of Lithuania’s biggest advantages today is a good credit rating. “There was a time when Lithuania tried to borrow 17%. Interest, and the banks did not lend it to them,” he recalled.

However, R. Rudzkis said it is not yet completely clear what awaits the Lithuanian economies and the entire world in the coming years.

“It is possible that the global economic crisis will begin in 2021. There is enough potential for it,” said the economist.

– It seems that the economic crisis is starting again in Lithuania. How do you think we are ready this time?

– We use the word ‘crisis’ very loudly. Normally, a crisis would mean a loss of normal economic relations. I don’t see such a threat right now, and in 2008 it happened because banks simply stopped lending to companies and individuals. Several companies ran out of working capital. So there really was a crisis. It will be now, I doubt it.

One should speak about economic stagnation or recession. This year, Lithuania is facing a recession. Firstly, we, like other European countries, have suspended part of the business. How things develop will continue to depend on how quickly those restrictions are lifted. I guess most of them won’t stay in the third trimester.

However, Lithuania depends not only on the internal market, but also on the external market. We are a strongly export-oriented country. This was already the case in 2008 and 2000. The proportion of our exports with respect to the gross domestic product is increasing and that is natural. We are a small country where it is worth concentrating on some areas and importing consumer and investment goods for the money we earn.

Looking ahead to next year, let’s say, our prospects depend greatly on how the world recovers and, most importantly, the European Union. We used to have two big markets, the EU and the East, but due to the confrontation between East and West in recent years, our weight in Russia and other markets has dropped dramatically.

At that time, the EU does not have good prospects. We are now focusing on the virus and the quarantine associated with it, but it must be recognized that it acts as a catalyst. For Europe, this should also be a one-time restriction, and from July or even June 1, everything is likely to lift and the economy to return to normal. In Europe, however, negative trends have emerged in the past. And last year was poor, and not the best last year.

The EU is currently experiencing a period of very slow growth. The main reason for this is that we cannot resist competition from Asia and the United States. We see how difficult a unified policy is, how big a bureaucracy is. As a result, Europe is losing the battle in cutting-edge technology. These are space and information technologies, 5G connectivity, supercomputers, artificial intelligence, electric cars, etc. Nowhere is Europe heard in leadership positions.

In the classical economy, Europe is gradually losing ground. The auto industry, for example, has a very high weight, but it has been declining for 2 years and the prospects are deteriorating.

Furthermore, the problem of high indebtedness, which led to the crisis in 2008, remained unresolved. The high level of indebtedness has not gone anywhere. Italy, Spain and France have very high public debt / GDP ratios. And it is in such a medium that such a negative impulse arises: the coronavirus, which affected more that southern flank.

– In the face of the recession, Lithuania is borrowing. Can this cause problems (not now, but in a few years or more)?

– I’ll compare it to 2008. So we had very little debt, around 16 percent. of GDP and now stands at around 35%. Our debt at European level is low from time to time.

However, currently the level of indebtedness of the population and companies is much lower, and most importantly, our country now has a good rating. At that time, in 2008, the confidence of world markets in the Baltic States was very low. We were like this, we jumped into the European Union from Soviet space. When the crisis began at that time, the foreign press mocked the Baltic countries: they wrote that “the Baltic tigers became wet kittens”, and so on.

That mockery ended very quickly when, in 2-3 years, we showed the West an example of how to deal with macroeconomics. Yes, we were the toughest in the EU, but normal economic development soon began.

I think that now we can take very cheap loans. Certainly there will be no difficulties faced by the Andrius Kubilius government. Of course, neither then nor now do I understand why the International Monetary Fund was not called. Then we borrow about 9.5 percent. interest. You can imagine how heavy it was for the treasure. Now and the times are different: money is cheap, loans are much more forgiving.

However, Lithuania’s long-term outlook is not optimistic and this is not only related to the coronavirus boost. Our economy is being driven by two sectors: manufacturing and transportation. The immediate future of both is nebulous.

Another major area of ​​the economy is internal trade, and construction, for which a slowdown was already expected this year, is also of considerable importance. A surplus of new apartments and houses for sale had accumulated, and construction was unlikely to grow much, and little expectations were now being formed.

The real estate market largely depends not only on objective factors but also on expectations. We understand that expectations are now poor (we are also talking about the crisis now). I think people will refrain from buying durable goods. If you were planning to change furniture or a car, it could take a year or more. As for the apartments, I think their purchases will drop sharply, as everyone will expect prices to drop and builders will suspend projects.

The global economic crisis may begin in 2021. There is enough potential for it. For example, it is not clear how the markets will react to situations in Italy or Spain, where public debt will continue to increase, whether or not there will be a Greek option.

– During the 2008-9 crisis, the government saved and now spends. Is it due to ideological differences or opportunities?

– This is due to a different situation. In 2008, there was still no experience to flood the world with cheap money. We feared that the crisis would continue for several years. The world was fortunate that at the time, the head of the United States Federal Reserve was Ben Bernanke, considered one of the best experts in the Great Depression. He is not only a practitioner but also a famous theorist. Those necessary decisions were already on his mind.

There was an unprecedented case in which four of the world’s central banks agreed and flooded the world with money at the same time. This immediately stopped the collapse of the financial market, revived the interbank market, and loans began. A year later, the economy began to beat almost normally.

In 2008, it was not possible to predict this. How could an ordinary analyst or even the leadership of our country have predicted what would happen to Mr. Bernanke? Until then, there had never been such solutions, there was no zero interest.

Furthermore, if Lithuania had not competed at the time, no one would have loaned it to them. Recall that in 2000, when the country’s economy was in decline, there was a time when Lithuania attempted to borrow 17 percent. interest, and the banks did not make loans to him and were assisted only by contracts with the IMF. If finances had not been limited in 2008, the world would not have been shown that Lithuania would remain stable and repay its loans, it simply could not have borrowed.

Now the situation is different. First, the prevailing view is that the crisis will last only 1 year, after which the EU will return to a growth trajectory. Secondly, Lithuania is now a member of the euro area and it is very easy to borrow it. You can borrow up to 10 percent. interest, and for 1 percent.

– The first stage, quarantine, is coming to an end. During the meeting, the government provided funds for freelancers, downtime grants, loans and compensation can be applied for at Invega. The business complains that things went too slowly, and how does it assess that it managed to handle that initial shock?

– I wouldn’t say that very slowly. The first losses occurred only in April. And when was that money going to be shared? Now only in early May.

When support is provided, it is very important to know that you will receive it. It doesn’t really matter when that money arrives. Suppose I know that when I complete an application, I will receive a refund for April in June. I have that money in mind. I can plan

Lithuania has been living in an economic rebound for several years, with wages and profits on the rise. How many natural or legal persons are completely “swept away” and cannot live for a month? Such is a complete minority.

Of course, there is too much ‘paperwork’ and bureaucracy, I tend to believe it. For many years, Lithuania has followed the same path as the EU, taking on not only the good but also the bad qualities.

– Do you see any really serious mistake that the Lithuanian government would have made during this crisis?

– I would say the restrictions were too strict. But if those restrictions had been more lenient, our media would have agreed with this Government.

It must be recognized that the current Government is operating in a very unfavorable environment. The mainstream media is very hostile to it. Why is that? I will not decide

Yes, perhaps they, like other governments, lack strategic thinking, some members may lack experience. However, this Government stands out for its determination.

For example, in 2008 I was very disappointed in the A. Kubilius government. I really liked and expected a lot from him. At that time, the National Union pre-election program was excellent. But they did not do anything significant. Sodra’s problems remained, education only intensified, and forest problems were not resolved either.

The current government has put Sodra and the SFE in order and has begun reforms in higher education. At least they try. I don’t know why the media is totally attacking. In that environment, already in the electoral year, they did not have the opportunity to adopt a more lenient quarantine policy.

I think Sweden’s example is remarkable. A set of restrictive measures has been introduced, but the optimum limit has not been exceeded.

– Post-quarantine measures have now been taken. It is help for the unemployed, the poor, direct benefits for retirees, more money for families through children’s money, etc. t. In total, almost a billion. euros Is this an adequate response to what awaits you later this year?

– After all, nothing prevents a decision on another billion in one month, and then another. There is no rush because there is a lot of uncertainty. For whom to accept immediately for 4 or 5 billion. if in June it turns out that the economy is growing?

Is that money distributed correctly? I will personally say: I am a pensioner, I don’t see why I should add to that pension. It kept increasing, I didn’t experience any loss during quarantine. I think the simplest principle has been made here: We give it to everyone with low incomes.

A balance must always be struck between the most equitable solution and the simplicity of its implementation. The fairest solution would be very difficult. Therefore, I believe that a logical decision has been made.

Incidentally, the money given to retirees goes immediately to domestic consumption because they don’t go to Thailand on vacation, they don’t buy new cars or luxury items. They immediately enliven the local market. Of course, I myself would be more supportive of those who lost their jobs and small businesses that were left under restrictions.

– How do you evaluate the actions of Lithuania’s neighbors, Russia and Belarus, during this crisis? Have the leaders of these countries, Putin and Lukashenko, done their best?

– No one does everything they can. Furthermore, there is very little information on the real situation in Russia and Belarus. Is the official statistic correct? If so, then it works normally due to the low mortality rate. And if the statistics are wrong, then double wrong. Both lying and not trying to fight properly.