Economic changes in Lithuania after re-establishment of independence in 1990: the case of a double transition

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Experience of Lithuania’s double transition allows drawing several conclusions. The commitment of reformers and national consensus are of paramount importance for the economic reforms including those which deal with re-regulation of external relations of a country. Domestic politics and dominance of short-term political interests can distort essential reforms and reduce potential benefits which motivate them. To be sure, such systemic reforms as transition to market economy and parallel creation of new sovereign political institutions, even though often based on the interwar experience or external advice, inevitably are characterized by high uncertainty. But political consensus and popular support for the sovereignty and for concrete economic policy objectives and instruments are important preconditions for better dealing with such uncertainty.

The hostility of Soviet authorities to the idea of the re-established Lithuanian state and to the initial attempts of Lithuanian leaders to re-regulate mutual relations on the basis of international agreements further complicated reform process during the first and a half year in 1990-1991. Although initially population mobilized in the face of economic blockade, but gradually disillusionment with sovereign policies of Lithuania, especially privatization, land reform, banking system which experienced crisis in mid-1990s, spread among voters. This resulted in first coming back to power of former nomenclature party and later in significant support for populist parties which regularly have been gaining seats in the parliament. Only joining the EU and NATO once again mobilized political elite to undertake institutional reforms and to look beyond immediate short-term political horizon.

Lithuanian – Russian relations have been initially characterized by mutual support and good understanding of each other’s aspirations. However, soon as Russia replaced the dissolved Soviet Union as a regional power concerned about preserving its geopolitical status and its domestic politics showing increasingly authoritarian tendencies, management of mutual relations became increasingly difficult. Lithuania’s efforts to re-establish itself as a sovereign nation-state and to become as autonomous as possible from the former empire meant limiting the role of Russia as much as possible. Integration into NATO and the EU was also an important factor influencing bilateral relations. Membership was a way for Lithuania to distance itself from the Soviet past as well as an instrument to increase its bargaining power and its ability to manage interdependency with Russia. As bilateral relations have always been and still remain asymmetrical, with Russia acting from a position of power and often negligence, the dominant strategy of Lithuania has been to internationalize and later to Europeanize its policy towards Russia. The status of the relationship continues to be defined by disputes linked with the treatment of the past, divergent assessment of security concepts in the region, and the difficulties of managing economic relations, especially in the field of energy.

Although relations with Lithuania are not a priority for Russia, the dynamics during the past twenty plus years have produced certain significant issues, as indicated by the debates over Kaliningrad, energy and the politics of history. During the past two decades Russia has employed a wide range of policy tools for arranging relations with Lithuania. The elements of coercion and pressure have included the threat of an energy blockade, delayed ratification of bilateral documents, more recently increase in the price of natural gas above the level charged to most other EU members and selective checks of Lithuanian goods by Russian customs. In a practical sense, opportunities for real economic sanctions were limited by Russia’s dependence on transit via Lithuania to Kaliningrad.

Lithuania is pursuing an energy security policy aimed at diversifying the sources of supply and introducing real competition into the electricity and natural gas sectors still dominated by Russian suppliers. The status quo can be changed only by major shifts in the patterns of mutual dependency, such as Lithuania’s connection to the Northern and Western electricity and natural gas markets, or by domestic politics in Russia. It is the creation of conditions for competition and alternative sources of supply which is planned for 2015-2016 that might become an important factor allowing Lithuanian politics to be less influenced by Russian suppliers and potential manipulation of energy dependency, and therefore might contribute to more constructive bilateral relations with Russia. This is a fundamental precondition for less suspicious bilateral relationship and a natural completion of the process of economic integration into the EU Single market.

Many of the difficulties of re-regulating bilateral economic relations could have been avoided if both countries adopted principles of liberal democracies and avoided using trade relations for political purposes. This draws attention to the importance of sound domestic institutions and the use of international norms in managing bilateral relations between former integrated polities and economies, especially under conditions of asymmetry.


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1 Institute of International Relations and Political Science, Vilnius University, e-mail:

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