The Lithuanian Free Market Institute conducts regular surveys among Lithuanian opinion leaders to elicit their attitudes to the emerging market economy and judgements on the ongoing reform process. The opinion polls target top policy makers, leading entrepreneurs, academics, reporters, and a cross-section of public leaders.
Lithuanian opinion leaders regard the monetary reform of 1994 as the most successful economic reform implemented in Lithuania since the restoration of independence in 1990. On a scale from – 10 to + 10, the monetary reform scored 3. For the sake of comparison, privatisation ranked at the mid-point of the scale (- 1), and tax reform received the most unfavourable evaluations (-1.5). Plans to install a currency board had met with fierce opposition from the Conservatives. Despite this fact, the assessments of the currency board by conservative-minded respondents appeared to be relatively positive. The supporters of the Democratic Labour Party (DLP), whose past did not prevent it from venturing such a radical free market reform and forgoing the power to print money, were highly complimentary about the new monetary regime.
The Bank of Lithuania With Moderate Powers
Most of the respondents reported that they approved of the plans to give the Bank of Lithuania the authority to pursue independent monetary policy. Asked about the scope of authority, one fourth of those polled appeared to be in favour of wide-ranging rights, half of the respondents were for moderate powers, and ten percent said that the central bank should resort to discretionary action only in exceptional cases. The rest of the respondents were against monetary policy or had no opinion on the issue.
Extensive powers of the central bank are favoured by close to 40 percent of the advocates of the Conservative Party. Entrepreneurs and supporters of the Centre Union appeared to be the least positive about an activist central bank.
It may be anticipated that those supportive of a powerful central bank will insist on giving the Bank of Lithuania complete freedom in decision making and removing all operational restraints. The middle-of-the-road, in turn, may want to establish certain rules of monetary policy. On the other hand, they may happen to justify the government’s control over the central bank. The opponents of monetary policies, who are a minority, are likely to promote a neutral central bank with a rule-bound issue of money as its only function..
The Effects of the Bank of Lithuania’s Monetary Policies
The effects of the Bank of Lithuania’s interventions appear to be a highly controversial issue. Those who would give the central bank the right to pursue activist policies are not so optimistic about their potential effects. A total of 20.4 percent of opinion leaders believe that central bank interventions will trigger a wave of inflation. Reporters as well as the advocates of the Democratic Labour Party and Social Democratic Party (SDP) are the most emphatic in this respect. 19.2 percent of those surveyed view an interventionist central bank as a handy tool for the government in fulfilling its promises.
Here again reporters and those supporting the DLP and SDP were the most categorical. Another concern, which was articulated by 18.7 percent of the respondents, is about the danger of increased private sector risks caused by unpredictable actions of the central bank. About 13 percent of the respondents share the opinion that this will undermine foreign investors’ confidence in Lithuania’s money and market, while 13.5 percent contend that the central bank will create opportunities for special interest groups to benefit from the leakage of information.
The survey findings suggest that Lithuania’s economic and political leaders are framing the operation of the Bank of Lithuania with scant knowledge about the politics of money. They assign the central bank tasks which no central bank can accomplish.
Opinion leaders (39.1 percent) share a belief that monetary interventions will help the litas to attain its real value. However, economic axioms indicate that the real value of money can be determined only in the market, the central bank being entirely neutral. The Bank of Lithuania’s interventions can lead to an administrative rate of exchange.
Some 27 percent of the respondents cherish hopes that the Bank of Lithuania “will tackle the shortage of money and credits” and “increase people’s purchasing power,” repeated proclamations by officeholders. Again, economic postulates suggest that a central bank cannot generate wealth. Wealth is created by producers, traders and other private sector agents. The central bank does control the supply of money, but, contrary to popular belief, this bolsters neither the value of money nor people’s purchasing power. Rather the opposite.
The myths that activist monetary policies can increase people’s purchasing power and set the real exchange rate are created and spread by the advocates of a maximalist central bank. No wonder they have caught on and made people think that central banks can work miracles.
The divergence of opinions is very interesting in terms of political party preferences. The prospect of an independent central bank fills with dismay the advocates of the DLP. Experience? Those supportive of the Conservatives are unequivocally the most optimistic. An attempt to boost hope?
Table 1. Should the Bank of Lithuania be given the power to pursue independent monetary policy?
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Answers
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Average
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|
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politicians
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entrepreneurs
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reporters
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officials
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academics
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Yes, wide powers
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25
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31.7
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18.3
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28.8
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25.7
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19.2
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Yes, moderate powers
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54
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54.8
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52.7
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46.2
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53.5
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63.5
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Yes, in exceptional cases
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10
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4.8
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12.9
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15.4
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10.9
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7.7
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No
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3
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3.8
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3.2
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1.9
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1
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5.8
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Other
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1
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1
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0
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1.9
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2
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0
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No opinion
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7
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3.8
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12.9
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5.8
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6.9
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3.8
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