Annual report of H.E. Algirdas Brazauskas,
President of the Republic of Lithuania,

made at the Session of the Seimas concerning the Situation in Lithuania,
the Internal and Foreign Policy of the Republic of Lithuania in 1996

References

Preface

I. LITHUANIA'S POLITICAL DEVELOPMENT IN 1996

II. ECONOMY

III. SOCIAL SECTOR

IV. LAW AND ORDER AND LEGAL ENFORCEMENT

V. EDUCATION. SCIENCE. CULTURE

VI. NATIONAL SECURITY AND DEFENCE

VII. FOREIGN POLICY

VIII. LITHUANIA AS PART OF THE MODERN WORLD


Esteemed Chairman of the Seimas,

The High Seimas,

During the seventh year of the re-established independence Lithuania's drive to Europe has become more marked: today our basic development trends are oriented towards Europe. Generally speaking, the currently evolving processes may be characterised as positive, but not as simple as they appear to be at first sight. Our reinstatement into the family of European democracies, economic and security integration, convergence of cultures are all progressive processes, offering tempting prospects of a better life. However, this road is not easy to tread: it requires solving complex problems and giving up the usual provincially tranquil way of life. Return into the fold of Europe means a demanding test for our economy, politics, culture, as well as social trials to be faced by the people. We will have to boost our efforts in order to ensure competitiveness in the world markets of Lithuanian-made material and intellectual goods, to develop efficient social security network and to protect our national culture from the influence of the Western mass culture.

What advantages are to be expected from European and Transatlantic integration, from joining NATO and the European Union? Both Euro-sceptics and Euro-enthusiasts daily address the public with questions of the type, providing in most cases their own allegedly correct answers. However, our citizens want to know now all the specific advantages as well as difficulties and problems awaiting them on their way. It is from this aspect of reinstatement into Europe that I will attempt to survey Lithuania's internal and foreign policy, assess its economic, political and social situation, and dwell once again on the progress made in recent years.

I. LITHUANIA'S POLITICAL DEVELOPMENT IN 1996

Before I present my opinion on certain internal policy issues, it is worth while characterising the country's general political atmosphere.

Everybody who tries to make an objective assessment of political situation in Lithuania cannot but agree that within the current year political tension has markedly subsided, as has the confrontation between different groups of citizens, and that political co-operation, accord and mutual understanding are expanding. This is very laudable, since history has left us more than enough unhealing wounds. The years of occupations changed the lives of many people, often subjecting them to a cruel or even tragic fate. The past may not and should not be forgotten, even though it is not possible to redress all wrongs. But of late the feeling that all of us, regardless of our individual destinies, are compatriots united by common aspirations and therefore must live in harmony has been been growing stronger. Despite the remaining political antagonism, all our achievements were first the result of concerted effort of our citizens. We should also pay tribute to public authorities who speeded up the process by their decision making.. It is not easy to identify all the reasons of the growing social accord, but it is obvious, that we are united by common goals and shall succeed in reaching mutual understanding.

The year 1996 witnessed a number of major political events which were in the centre of attention of both politicians and the majority of citizens. The Government was changed twice. At the beginning of the year, upon the approval of the Seimas, Prime Minister A. Ðleþevièius had to be removed from office and the seventh Cabinet of Ministers had to be formed. Naturally, the most significant event of the year was the election to the Seimas. It provided political parties with an excellent opportunity to show their real worth on the political area, to state their projected plans and ascertain the scope of their actual political influence.

Analysis of election programmes of political parties, carried out before the election by the Lithuanian Information Institute, Vilnius University, International Relations and Political Science Institute showed that all political parties of our state spoke out for the strengthening, pursuant to the provisions of the Constitution of the Republic of Lithuania and according to the traditions of European democracies, of a democratic state governed by the rule of law. Political parties proposed to resolutely combat crime and corruption, reduce state administration expenses and ensure its greater efficiency, strengthen the country's national security, strive for membership in the EU and NATO, maintain good relations with the neighbouring states.

Thus, in general all the major influential political parties seem to have more or less identical understanding of the vital state interests. And this is a matter of utmost significance not to be overshadowed by the differences in their economic and social policies.. We are aware that a common goal may be reached by different roads. It is for the voters to make their choice.

It should be emphasised that the Seimas election produced a new arrangement of political forces. The Homeland Union-Lithuanian Conservative Party received the majority of seats in the Seimas. The 5% election barrier was also passed by the Christian Democrats which formed a coalition with the Conservative Party, the Centre Union, and the Democratic Labour and Social Democratic Parties which formed opposition parliamentary groups. The election to the Seimas revealed a well-established modern multiparty system. Consequently, today we may conclude, that Lithuania will not be a a two-party state of Anglo-Saxon type. Several strong and promising parties have come to the fore. Before the election, the excessive number of parties was a widely discussed issue. Participating in the election were as many as 28 parties out of the total number of 33 registered with the Ministry of Justice. I do not believe that the setting up of political parties should be subjected to any additional restrictions. Life itself will select those which are necessary leaving the others to fall into oblivion.

As many as 3 referenda were held together with the election to the Seimas. The voters chose not to approve of any of the submitted issues. Hasty presentation of the issues without any prior preparation of the public had, to my mind, a detrimental effect on the very idea of the referendum.

As I have mentioned earlier, the Government changed twice, but this was done strictly according to the Constitutional norms and following the democratic traditions. Not always had it been as simple as it appeared to be. However, all public authorities which took part in the forming of the new Cabinet of Ministers acted in compliance with the rights, duties and competence laid down in the Constitution. In my opinion, excessive demonstration of authority has never set a due precedent for the development of democracy and will never set one. Having won the election, the Conservative Party, together with their coalition partners Christian Democrats, nominated their own candidates to the Cabinet of Ministers, assuming thereby responsibility for ruling the country.

The process of Cabinet formation evidenced that our state is already governed by a democratic Constitution and that democratic traditions are gaining ground. It is for the second time that we witnessed a smooth transfer of Government functions between the two opposing political forces. We have once again realised, as well as demonstrating it to the rest of Europe, that different political parties may co-operate for the benefit of the state.

These are the positive political lessons of the year.

Unfortunately, last year a different and rather dangerous trend in the formation of a civic society also became evident, namely, low political activity of citizens. After the decisive victory - restoration of independence - political enthusiasm of the majority of the people subsided. A relatively low voter turnout is also a matter of major concern. Hundreds of thousands of people chose not to exercise their constitutional right to rule the state through their democratically elected representatives. What does this mean? Disappointment in the government as such or only in the former ruling party? Could it be that this political apathy is linked to other, more earthly matters, social problems the people have to cope with? Also, one cannot disregard the poor election turnout among the young people. Here, gaps in the family and school upbringing and education of citizens become most obvious. Stating one's opinion in a democratic election is not only one's right, it is our duty, since thereby we show our concern for the future of our state.

All institutions of state government - the Seimas, President of the Republic, the Government - should enhance by joint effort the prestige of public authorities, try to make their activities more transparent to the public, respond with greater concern to the submitted proposals and refrain rom engaging in hollow verbiage which only damages the prestige of public authorities. We are well aware, that having reached a certain scale, political apathy and disappointment with our country's government may acquire dangerous proportions eventually lapsing into indifference to the future of the motherland.

In April last year the third forum of Lithuania's non-governmental organisations was held in Vilnius. Taking part in it were approximately 300 public organisations, associations, foundations, representatives of non-profit enterprises. It was aptly stated in the forum that the problems of non-governmental organisations may not be explained away merely by lack of funds as the only one most frequently given reason. Quite a lot depends on new forms of activity, close co-operation and the size of membership.

Non-governmental organisations have ample possibilities to develop their activities in the spheres of social security and artistic creativity, as well as satisfying other needs of their members. Lithuania has a number of professional, business, cultural, sports, national, scientific, charity organisations. Among the most influential of them I could mention the Industrialists and Businessmen Employers' Confederation, Agricultural Companies Association, Farmers' Union, the Chamber of Agriculture.

Last year public organisations were re-registered pursuant to the laws regulating the activities of public organisations, which came into force in 1995. The organisations had to amend their statutes to comply with the new procedure by 1 July 1996. 604 public organisations have been registered with the Ministry of Justice, 254 have had their activities terminated because of their failure to register.

241 charity organisations or charity funds that are at present actually or formally functioning will have to be re-registered by 14 April 1997 pursuant to the Law of the Republic of Lithuania on Charity and Sponsorship Funds.

The Law of the Republic of Lithuania on Religious Communities and Associations regulates registration as legal entities of traditional religious communities or associations as well as registration of statutes of non-traditional religious communities or associations. In 1996, 142 Lithuania's traditional religious communities and associations were registered as legal entities, and 9 non-traditional communities or associations were entered in the register.

Debates on the proposed amendments to the Law on Religious Communities and Associations as well as to the Law on Education resulted in the deterioration of relations with the Catholic Church and other religious denominations. To my mind, one-sided proposals submitted by certain former Seimas members aroused numerous disputes, electrified the public. We have been taught a lesson that this sphere of special sensitivity should only be regulated by laws based on the Constitutional provisions. In addition to nine non-traditional religious beliefs, "new beliefs" are emerging in Lithuania: the country has been invaded by various religious sects receiving financial support from abroad. They exert unwholesome influence both on the elderly and the young. It would be expedient to set up a special department at the Government to analyse the position of all religious denominations and submit recommendations to me, the Seimas or the Government (I regret to say, that we never saw the setting up of a department for the registration of religious denominations which was to be established at the Ministry of Justice last year).

The Ministry of Justice has registered 362 trade unions, however, only 87 of them function in more than one county. The majority of trade unions are united by four national trade union centres: the Lithuanian Trade Unions Centre, Lithuanian Trade Unions Association, Lithuanian Labour Federation, and the Lithuanian Workers' Union which in fact has split.

Trade union movement leaders are not always able to convincingly chart their work programmes or propose specific actions for protecting their members against economic difficulties. Also, sometimes the leaders are at odds with each other and this overshadows the principal goals and objectives of trade unions and weakens the movement. This accounts for the lack of the working people's trust in trade union centres. Therefore, conditions are more favourable for setting up regional trade union associations.

According to the data possessed by trade unions, their membership now amounts to over 200,000 or 10-15% of the working people. Having compared trade union membership in Lithuania and West European countries, we see that in Lithuania trade union membership is far from sufficient. In Germany, for example, trade unions unite up to 50%, in Denmark and Sweden - over 80%, and in Finland - almost 90% of the working people. This fact is illustrative of a rather sceptical attitude of Lithuania's people towards trade union activities and their prospects. Trade union leaders themselves have not noticed any marked growth of trade union membership either. Only by expanding and boosting up their activities will the trade unions manage to establish their authority, attract new members and occupy a prominent place in our country's public and political life.

It sometimes happens that trade union leaders show no interest in new laws the provisions whereof affect social interests of the working people, their relations with the employers. Here I have in mind the law amending Article 29 of the Law on Employment Contract, passed by the Seimas at the close of last year. The provision of the Law, prescribing employees' performance evaluation, actually creates preconditions for the employers to abuse their position when deciding the issue of dismissal from work. However, the matter is expected to finally clear up after the Government drafts and approves the regulations for the employees' performance evaluation. I referred the law for repeat consideration, however, received no active support from trade union leaders.

The Trilateral Council has been operating since May 1995, where representatives of the Government, employers and trade unions join their efforts in settling economic, social and labour problems, implementing economic and social policy. The Council considers draft laws, presents its findings to the Seimas and the Government, and monitors compliance with the Council recommendations.

Close co-operation on the Trilateral Council between trade unions, employers and Government representatives spurred up the passing of the Law on Penalties for Delayed Payments Related to Labour Relations which obligated the employers who have arrears in payment of wages or other amounts related to labour relations to pay out penalties together with wages. The Law on Enterprise Bankruptcy was also amended prescribing priority settlement with the employees in the event of enterprise bankruptcy. The concept of idle time and the definition of the employee's legal status during idle time were also introduced in the Law on Employment Contract.

Although in principle, being in the position to monitor compliance with its recommendations, the Trilateral Council has not merely an advisory function, trade unions, nevertheless, have every reason to insist that the Council be considered an institution of social dialogue and its activities be governed by law.

The essence and objective of ethnic policy of the Republic of Lithuania is to ensure best possible conditions for the development of Lithuanians and other nations residing in our country. Developed and sustained, national character and cultural traditions not only enrich us, but also serve as a unifying factor instilling patriotic feelings, love for the motherland and the state where we are living.

Over the ages the realities of our country have developed an understanding that ethnic minorities constitute an inseparable part of the Lithuanian state and, consequently, ensuring the progress and cultural continuity of not only Lithuanians, but also of all nations residing here is one of the objectives of Lithuania's restored statehood. One of the major tasks in the area is implementation of the national programme marking the 600th anniversary of the Tartar and Karaite settlement in the Grand Duchy of Lithuania. The programme is monitored by a special Government commission.

Analogous goals are pursued by the working group formed pursuant to my Decree in order to mark the 200th death anniversary of Gaon Elijahu of Vilnius and headed by the Minister of Culture. The anniversary, due to its significance not only to Lithuania's but also to world culture, has received international attention, since the thinker from Vilnius was widely renowned for his scholarly works. In the middle of September certain events: a solemn meeting, a scientific conference, an exhibition shall be held to mark the anniversary. A special proposal by the working group should be highlighted: in November last year the group suggested setting up a specialised Gaon reading room with books in Yiddish and Hebrew in the extension of the Martynas Maþvydas library depository currently under construction. There the books of great cultural value would be duly catalogued, stored on microfilm and made accessible to all investigators both from our country and from abroad.

The survey carried out in 1996 by the Canadian Human Rights Fund established that among all the Eastern and Central European states, Austria, Hungary and Lithuania have the best ethnic minorities record. In these countries the rights of ethnic minorities are guaranteed by the Constitution and special laws, appropriate bodies have been set up within the executive branch on the governmental level, and public institutions of ethnic communities are functioning on a permanent basis, offering consultations to various state departments on national relations and ethnic minorities issues. In the Republic of Lithuania the rights of Lithuanian and foreign nationals (including stateless persons), ethnic, linguistic and religious minorities are safeguarded by the Constitution and bilateral and multilateral agreements between states. Political agreements with Russia, Belarus, the Ukraine, Poland contain special articles which lay down the rights and duties of ethnic minorities. These agreement are equally applicable both to the ethnic minorities of those countries residing in Lithuania and to Lithuanian ethnic minorities abroad.

According to the latest research data of the Lithuanian Institute of Philosophy and Sociology, the trend towards integration into the life of the state is continuing among the ethnic minorities.

Good command of state language should be given special emphasis. Although the Programme for the Use and Fostering of the State Language for the period until 2005 has been in force for two years already, we have to admit that the area still requires quite a lot of effort and funds. With all effort mobilised for the teaching of Lithuanian language at educational institutions, adult education should not be neglected either. Work should be carried out in two directions: both looking for possibilities to organise language courses and prescribing that the officials, officers and employees be required to have a knowledge of the State language according to the established qualification categories. We must spare neither effort nor funds to ensure that every secondary school graduate who is a Lithuanian national would have an adequate command of the state language.

Social, economic and cultural conditions of Lithuanians residing abroad differ as does their historical background. Consequently, their needs and possibilities to maintain relations with Lithuania differ accordingly. Therefore the problems and needs of Lithuanians residing in the Eastern and Western countries should be treated differently. Lithuanians, residing in the neighbouring countries as authochtons and preservation of their ethno-cultural identity should be in the centre of our attention.

The key short-term target is providing the children of Lithuanian parents or Lithuanian descent in the neighbouring countries with possibilities to attend Lithuanian language schools or at least to study their native language. Targeted assistance is provided for the purpose, including construction of educational and cultural institutions and provision of financial assistance. At present such construction is in progress in Belarus, Poland, Russia (Kaliningrad Region):

Last year an excellent secondary school was built for the Lithuanians of the Gervëèiai area in Rimdþiûnai (Belarus). This, of course, was a joyful event, although certain ambitions were far in excess of our country's potential. Suffice it to say that in addition to the school and other unfinished buildings, construction of a swimming pool was started in this small village. While in close vicinity in Lithuanian, in the Vilnius and Ðalèininkai districts, Lithuanian schools are often housed in entirely dilapidated buildings. The Government must more rationally balance various departmental interests with the country's potential.

Last year thorough and targeted preparations were undertaken to initiate the programme for granting asylum to the refugees. Implementing the Law on the Status of the Refugees in the Republic of Lithuania, the Government set up a Council for the Affairs of the Refugees, drew up and approved the Council regulations and the Refugee Centre regulations. Secondary legislation enacted by the Government is already regulating, among other matters, the conditions and procedure of the refugees' entry, their sojourn here and their expulsion or departure from Lithuania. This year in January the Republic of Lithuania acceded to the 1951 Vienna Convention on the Status of the Refugee and to the 1967 Protocol to the Convention. The Government is drafting a Decree initiating the procedure for considering applications of asylum seekers'. Such applications will be considered only after we complete all the necessary preparations.

Certain measures have already been taken to alleviate the condition of the refugees. The Nordic countries have granted financial assistance for repair works at the first block housing 156 refugees in the Refugees Centre set up in Rukla settlement, Jonava district. Personnel of certain departments are trained to make them qualified for work with the refugees, a special unified information system is being developed, structural divisions of the Ministry of the Interior, Ministry of Social Security and Labour and the Lithuanian Red Cross Society are being supplied with computers and software.

A wide mass media network has been developed in Lithuania. I must admit, however, that legislation regulating the activities of the media, relations with the public as well as the rights and responsibilities of journalists had been non-existent until last year when, after prolonged discussions, the Law on the Provision of Information to the Public as well as Law on its implementation were at long last enacted. The functioning of the budget-funded Lithuanian National Radio and Television is regulated by a special National Radio and Television Law. All the above laws superseded the outdated Law on the Press and other Mass Media passed as far back as 1990.

Under the new laws journalists are bound to present correct, accurate and unbiased information. Censorship of mass media is prohibited, but at the same time it is also prohibited to disseminate information which is knowingly slanderous, insulting and humiliating to individual honour and dignity or incites war and enmity. The state, municipalities and banks are prohibited form being owners of public information producer and holding stakes in radio and television stations.

The Law on the Provision of Information to the Public lays down the self-regulatory principle of the press. Pursuant to the Law, the Public Information Board was abolished and the Ethics Commission of Journalists and Publishers was set up. The Commission examines violations committed while providing information to the public. All natural and legal persons may appeal to the Commission concerning the violation of the rules of ethics. The Law also establishes the office of the Inspector of Journalist Ethics who is a government officer. His function is to examine the complaints lodged by natural persons concerning violations of their honour and dignity in the mass media as well as the professional claims of the mass media subjects.

Mass media, except for the National Radio and Television, have become quite independent from the state. No one is in the position to enforce restrictions on the freedom of information. As the Law on the Provision of Information to the Public being very democratic and grants the journalists full freedom, the latter must feel all the responsibility, comply with the principles of journalists' ethics and respect human dignity.

Amendments to the Law on the Provision of Information to the Public that were enacted by the new Seimas changed the National Radio and Television Board formation procedure. From now on the Board is to be formed by creative artists and representatives of public organisations. Regrettably, both the previous Seimas, when forming the National Radio and Television Board, and the new Seimas, enacting, in special urgency procedure, amendments on the Board formation principles, relied merely on the majority vote and disregarded the opponents' opinion, instead of trying to find a compromise and a variant of the law acceptable to all parties.

We should all realise that laws are enacted not for a one-day period. Their drafting must be thought out and concerted, with due regard to public opinion. Such style of legislation would allow to avoid unwanted conflicts and tension.

1996 saw further improvement of the local government system. Last year the Constitution of the Republic of Lithuania was amended twice. Both amendments to the fundamental law of the state concerned municipality affairs. Pursuant to one of them, municipalities have been granted the right to acquire title to non-agricultural land plots required for the construction and use of buildings needed for their direct business (procedure regulated by a constitutional law). Amendment to Article 119 of the Constitution extended the municipal councils' term of office from 2 to 3 years.

The European Self-government Charter was signed on 27 November 1996, while the Joint European Convention "On Crossborder Co-operation between Territorial Communities and Public Authorities" was signed on 6 June 1996. The signing of these important international documents is indicative of Lithuania's aspirations in the sphere of local self-government and of its desire to integrate into European structures.

The legal basis of local self-government was reinforced by passing the Law on Local Government Symbols and Emblems, Law on Local Taxes, three amendments to the Law on Local Self-government, Law on the Amendment of the Law on Elections to Municipal Councils, other statutory acts.

In 1996 the Seimas of the Republic of Lithuania passed as many as 7 laws changing city and district administrative boundaries thereby completing the first stage of administrative-territorial reform. Regrettably, no acceptable solution was found regarding the administrative boundaries of the town of Visaginas and Ignalina district municipalities.

The second educational institution for state officials and local elective officers - Government and Municipality Employees Education and Rehabilitation Centre "Dainava" was set up in Druskininkai last year. The Lithuanian Municipalities Association expanded its activities. Meetings of ministers of the three Baltic states whose functions embrace the local government matters were held on a regular basis. Pursuant to the co-operation agreement signed between Lithuania's Ministry of Administrative Reforms and Municipal Affairs and Denmark's Ministry of the Interior, far-reaching projects were produced and implemented.

Regrettably, attempts at strengthening economic and financial independence of municipalities were unreasonably unproductive last year. Municipal budget formation procedure was not changed. The provisional procedure for determining the amount of mandatory deductions and subsidies into municipal budgets approved in 1994 was subjected to criticism both from municipalities and from public authorities. However, the procedure remains valid and was applied when determining the above deductions and subsidies for the year 1997.

Last year the process of building municipal property by transferring the share of state assets allotted under law to the ownership of municipalities was not completed. During the two-year period the conditions underwent certain changes, but the Government failed to timely draft the necessary amendments and to regulate the above processes in due manner.

The criteria and procedure for setting up new municipalities were not approved in 1996, and the programme for the second stage of the administrative-territorial reform was not worked out either. During the first stage of administrative-territorial reform only 56 town and district municipalities were entitled under law to local self-government. In future, the number of municipalities should be gradually increased. The second stage of administrative-territorial reform should be consistently carried out with due regard to the state possibilities and citizens' interest.

It is appropriate to take stock both of our successes and failures. It is also necessary to set trends for future activities. Our prime targets for 1997 should be:

Working out and approving a new and revised municipal budgeting procedure so that in 1998 municipal budgets could be drawn up pursuant to the changed principles.

Reviewing municipal budget planning and accounting systems, drafting and enacting statutory acts to regulate loan-related operations of municipal institutions, prescribing the procedure of and restrictions on such operations.

Extending the time period for transferring state assets allotted by law into municipal ownership, enacting amendments to the law ensuring smooth transfer of state assets to municipalities and putting an end to conflicts between municipal institutions and county governors.

Drafting qualified recommendations on the choice of most appropriate organisational forms of property management or service provision.

Achieving a more distinct division of functions between municipalities and county governors, eliminating contradictions between laws on local government and other laws.

Drafting and enacting amendments to the Law on Local Self-government, which would allow to more distinctly identify the functions (responsibility) of municipalities, to make a more distinct division between independent (obligatory and voluntary) functions and state-delegated competence, in this way ensuring separation of powers between the municipal elective institutions and the administration. Preparing and implementing local officials and local elective officers training and internship programmes.

Carrying out preparatory work in order to ratify in the Seimas of the Republic of Lithuania the European Local Government Charter and Joint European Convention on Crossborder Co-operation between Territorial Communities and Government Institutions.

Timely and appropriate performance of the above tasks would provide conditions for better discharge of functions assigned by law to new municipal councils to be elected on 23 March 1997.

II. ECONOMY

We may assert that the days of greatest economic difficulties are over for Lithuania. This is evidenced by the growth of one of the basic economic indicators - the GDP - which started in 1994. According to preliminary estimates, in 1996 Gross Domestic Product grew by 3.5% due to the increase in industrial production (electricity generation included), growing volume of agricultural production, as well as increase in the volume of trade, communications and telecommunications, transport and other services.

It became obvious as early as the middle of last year, that national budget revenue target figures for 1996 had been unreasonably increased, therefore 370 mn Litas were not received by the national and municipal budgets. The consequence thereof was the state's failure to fulfil its financial obligations to schools, hospitals, farmers, which, in its turn, resulted in arrears in payments for energy and public utilities services. But debts must be repaid and the payment is due this year.

Two reasons accounting for failure to collect budget revenue must be pointed out: extension of the validity term of value added tax breaks and tax evasion. The fact that the Seimas extended the validity term of the value added tax breaks from 1 July until the close of the year resulted in the loss of approximately 25bn Litas in budget revenue. The second reason is tax evasion and inability of public institutions to collect the taxes due.

Double-entry accounting, unofficial wages, and smuggling are widely discussed matters. These are instances of black economy whose scope is difficult to assess.

A survey of black economy conducted by the Department of Statistics in 1995 shows that over 600mn Litas of VAT and excise duties fail to reach the national budget because of alcohol and oil product smuggling. Comparison has shown that Lithuania's export to Germany, Poland, Latvia and Estonia exceeded its import from the above countries by almost 310mn Litas which means a loss of 56mn Litas to the budget.

As I have already said, these data are for 1995. One could hardly expect better results in 1996 either.

Regrettably, nearly the entire national budget deficit was attributed to the allocations of the first half of the year. At the beginning of the year the listed securities interest rate was as high as 36%, while at the close of the year, having succeeded in attracting foreign capital, the interest rate fell down to 10-12%.

High interest rate for Government bonds has a double negative effect: high servicing costs (in 1996 the total amount of interest reached almost 180mn Litas) and decreasing economy crediting resources. It's no secret that commercial banks prefer buying risk-free high interest Government bonds instead of extending loans to economic entities.

Thus the budget deficit servicing experience of the two previous years has once again confirmed the importance of joint effort seeking to avoid budget deficit. I regret to say, that this year's budget will have an even higher deficit as against the last year.

1996 saw a further decrease of inflation. In 1995 the average monthly price increase was 2.6%, whereas in 1996 it fell down to only 1.01%; the annual inflation was 13.% as against the planned 25% . The decrease in inflation was first of all conditioned by the fact that consumer product prices corresponded to the demand and reached the world price level. Second, inflation growth was checked by Government-regulated electricity and heat prices and a stable Litas exchange rate.

The low inflation could not but affect the budget revenue, planned following much higher inflation forecasts. Being lower by 12 percentage points as against the anticipated rate, inflation conditioned a 10% decline in budget revenue. This would amount to approximately 500mn Litas.

The prime target of all public authorities, first of all the Ministry of Finance, Ministry of Economy, the Bank of Lithuania, is tight monetary and credit policy and further curbing of inflation to reach the targeted figures of 3-4% annual rate of developed industrial countries.

During the period of transition to a market economy the share of industry in the country's GDP kept decreasing until it reached the present level of 29%. There has also been a decrease in the volume of production of certain goods. These sharp falls were caused by the factors characteristic of all transitional economies: shrinking internal market, loss of traditional external markets, shortage of working capital, changing forms of ownership and difficulties of industrial enterprise restructuring.

The first signs of industrial recovery became evident in 1995 when trade volume of the country's extractive and processing industries exceeded that of 1994 by 1%. Accordingly, the figure for electricity, gas and water supply was 22%.

1996 saw the increasing growth of industrial activity. By comparative prices the volume of trade of extractive and processing industries increased by 1.3% (electricity, gas and water suppliers - by 10.8%) as against the 1995 figures. The increase in industrial electricity consumption confirms the tendency towards renewal of industrial activities.

The most marked changes in the 1996 sales of products were witnessed in the following industries: tobacco products -26%, clothing, fur processing and dying -22.4%, electrical appliances and equipment -18.9%, chemicals -12.2%, timber (except furniture) -11.6%, oil processing products -11.3%, office machinery and computers -11%.

The revival of industry was spurred up by the passing of the Law on Arrears in Payments to the Budget which allowed to use enterprise assets for the payment of arrears and write off the accrued interest.

We have to admit, however, that production output in certain sectors of industry is still on the decline. This is most evident in the machine building and electrical engineering industries. Our prime target is averting the bankruptcy of the enterprises so as to preserve the intellect of our country's industrial potential. The Government should analyse the performance of every individual enterprise and look for ways to attract foreign investors.

Just like in the previous years, the energy sector still remains in the centre of attention. We may regard as positive the fact that for two years running there has been a slight improvement in the energy sector performance indicators.

1996 saw an increase in energy and gas consumption and oil processing. Electricity generation for export increased 1.5 times, and there was a 20% increase in the aggregate volume of generated electricity which slightly increased the energy sector performance and economic indicators: worker productivity increased by 12%, power network losses fell down by 20%. The production cost of 1kWh fell down accordingly.

However, ever since the re-establishment of independence energy sector production costs have exceeded the rates. Excessive losses in the power network, unreasonable commercial expenses, overblown management system remains a drag on the energy sector. Another reason accounting for the increase of losses is the fact that the problems of energy saving are left for the energy sector to grapple with.

Last year, taking into account the consumers' financial potential, authorities consciously kept the rates low. But no provision was made for funds to compensate the difference in prices and the energy sector has run into huge debts. Neither the Government nor the Seimas ventured to address the problems which remain as acute as ever. The newly restructured State Commission for the Control of Prices of Energy Resources and Energy Sector must without undue delay commence its activities and attend to such issues as price and rate adjustment, approval of the procedure for setting prices and rates, assessment of reasonableness of the energy sector expenses.

Additional state support must be provided for to the most socially vulnerable sections of society. In future loans will have to be extended to finance investment projects, instead of covering current expenses. Only after the financial situation is set right will it be possible to modernise and restructure the energy sector, repay credits, ensure adequate preparation for the heating season.

The oil complex is the key object of the energy sector. Now it is more than obvious that we delayed too long the setting up of a national oil company. In order to rectify the situation, a special law was passed at the end of last year empowering the Government to unite all the enterprises and set up the company "Lietuvos nafta". All the enterprises incorporated in the company will have a common goal - making a more effective use of the production potential of special importance to Lithuania's economy and national budget. Therefore the Government must not delay the enforcement of the law on the setting up of the company "Lietuvos nafta".

Last year the energy sector underwent further restructuring: the share of private capital was further increased following the Government and Seimas resolutions, but the controlling stake was retained by the state. Restructuring of the energy sector is unfeasible without private capital, foreign investments included, because the process is capital-intensive and local investors are not in the position to supply the required funds. The prime objective for the projected future is attracting foreign investments to finance strategic objects of the energy sector. The Government must obtain funds of financing energy saving measures, since only rational use of fuel and energy ensures the desired economic growth.

Last year agriculture, a traditionally leading sector of Lithuania's economy, was still in a poor condition, although a number of positive trends are already discernible. Economic support to agricultural producers was boosted, there was a shrinkage in the area of unused land, the grain, sugar beet and potato yields were the most abundant in the last four years, livestock productivity is on the increase. On the whole, in 1996, as against 1995, gross agricultural production (preliminary estimates) increased by 15%, plant production - by 31%, while livestock production remained on the 1995 level.

We may not ignore the remaining difficulties: dissolution of agricultural companies in many localities, small farmers hardly keeping their farms afloat because of lack of modern agricultural machinery, shortage of funds, growing energy rates. The land is inefficiently used: it is badly tilled, the areas under crops receive not enough fertilisers, hence the rather low agricultural output and high production costs.

In 1996, just like in previous years, the share of land used by farmers and other residents increased, while the area of land used by agricultural companies was shrinking. The farmers' and other residents' share of land in the total land area under cultivation increased from 60% in 1995 to 71% in 1996., whereas the corresponding figures for agricultural companies were accordingly 34% and 29%.

Contrary to what is sometimes asserted, the land reform did not slow down, but proceeded rather consistently. This could be proved by adducing figures evidencing the number of private land owners: more than one-third of agricultural land users already possess title documents to it. Formally, this land may be both put for sale and bought, however, for obvious reasons the land market is still weak, public land is not bought. Therefore there are no possibilities for the growth of farms.

I am pleased to note, that the free trade in agricultural produce agreement between the Baltic states has at long last come into force. The agreement opens a larger market for our producers in addition to offers the consumers a wider range of sometimes cheaper products from the neighbouring countries.

Agricultural policy must be planned taking into account both the consumers' and producers' interests. It must speed up land reform, provide conditions for the development of viable farms able to produce low cost high quality products finding ready market abroad.

The likely social and economic consequences of Lithuania's integration into the European Union should be subjected to a thorough analysis leading to adoption of decisions for protecting the agricultural sector against additional difficulties in the management of this first priority foreign policy issue.

Lithuania's transport sector, reflecting the country's general economic and social situation, satisfies the users' demand in inland and international passenger travel and goods carriage. The activities of sea and river transport, road transport sectors have stabilised and show certain sign of expansion. It is true, that Lithuania, being a gateway for transit, suffers heavy losses by reason of border crossing difficulties and faulty tariff system. The efforts of all interested authorities should be mobilised for the solution of border crossing problems.

Fundamental restructuring of the transport sector has been undertaken seeking the realisation of the key strategic target of Lithuania's transport sector - integration into transport network of Europe and the Baltic Sea region and entry into European market of transport services. One of the principal preconditions for restructuring is approximation of Lithuania's legal framework with the corresponding statutes of the European Union, application of principles, requirements and standards laid down in international conventions, EU resolutions and directives, documents of other international organisations.

The influence of transport sector on the development of the country's economy is immense, therefore strategic objects of transport infrastructure are retained in state ownership, public investments are provided in this sectors and Government guarantees are given to foreign credits. Increasing the share of private capital in this sector will accelerate integration of Lithuania's transport into the European transport network.

Financial problems slow down the integration of the infrastructure into the ES transport system which may turn into an obstacle for transit services. This issue should be given due consideration, since neighbouring countries give priority to transit. Without changes in the Government investment policy we will hardly be able to compete in the market which is vital for Lithuania, especially in the East-West direction through the Klaipëda seaport.

The weight of private business in the life of our country is growing. As of late there has been a great increase in the number of employees in the sector, and in 1996 two-thirds of the workforce were employed in private sector enterprises. The speedy increase in the numbers of private businesses was conditioned by the accelerated privatisation rates and the people's wish to launch a private business. At the same time the contribution of this sector to the national economy has also been growing.

The main problems businessmen have to face are the faulty legal system, frequently amended laws, instability of taxation system, shortage of working capital, inadequate qualifications of a number of businessmen, shortage of soft credit sources for business development, inadequate business information infrastructure and failure of government empowered bodies to ensure the protection of businessmen's interests and property.

Greater attention given to small and medium-sized businesses as the driving force of private business would spur up the growth of the already functioning and rather stable private business structure. In the beginning, the currently effective Law on Small Enterprises used to stimulate businessmen's activity, however, with the changes in the economic situation having occurred it no longer ensures best possible conditions for small business development. This prompted the previous Government to submit to the Seimas a draft law on small business.

Incidentally, the draft law provides for the setting up of funds for the implementation of small and medium-sized business programme. Small and Medium-sized Business Incentives Fund should provide a basis for that. The Fund would be drawn into preparation and implementation of investment projects as well as mediating in loan extension and loan guarantees provision to small and medium business entities. The Fund could also be used to improve the businessmen's qualifications and to gain access to more detailed information.

In the near future the Seimas should enact the Law on Small and Medium-sized Business, while the Government, in its turn, in addition to establishing business priorities with a view to the changed situation and developing a stable system of taxation providing incentives for business, should also review and supplement the programme for the development in Lithuania of small and medium-sized business.

The improved economic situation provided favourable conditions for foreign trade development. At the present time Lithuania maintains economic and trade relations with over 140 countries. In 1996 the 9 months foreign trade volume amounted to 21.8bn Litas.

The growth of export was especially evident in 1996. During a 9-month period the export of Lithuanian-made goods exceed that of the same period in 1995 by 22.8%. However, foreign trade negative balance of the above period amounted to 2,8bn Litas.

Positive changes may be seen in the geographical structure of Lithuania's foreign trade partners. Although our industrial enterprises have not severed trade relations with Russia and other CIS countries, their orientation is gradually shifting towards Western markets. The current trend is the growing trade volume with Western countries which exceeds 60%. Until quite recently the proportion was in the opposite direction.

Textile and its goods make up 15% of Lithuania's export, chemical industry and related industries products - 11.4%, live animals and livestock products - 7.6%, finished food product - 6.4%.

Energy resources - oil, gas, nuclear and other fuel make up the largest share of Lithuania's import. The excessive share of imported mineral products (energy resources) conditions our negative foreign trade balance. The situation may be rectified (which is more than necessary) by gradually increasing the export of Lithuanian-made goods both to the West and to the East. And it stands to reason, that negative foreign trade balance may be avoided only by reducing the consumption of energy resources.

Numerous measures stimulating foreign trade have been introduced in recent years. Lithuania has already signed free trade agreements with European Union member states, Baltic countries, Poland, other CEFTA and EFTA countries, as well as with the Ukraine. In the foreseeable future the list will be enlarged, although presently the turnover of our trade with the counties with the free trade status is over 50%. Trade with other countries, the CIS included, is conducted on the basis of most favoured nation status. In addition, implementation of goods and services export incentives programme is to be started without delay, while the Export Incentives Agency must expand its activities and use the funds of the Export Support Fund more efficiently.

Planning the country's foreign trade and tariffs policy, adjusting it to meet the requirements of joining the European Union and the World Trade Organisation, the Government must not neglect local producers, giving them all-round support and economic incentives as well as showing concern for the local market protection. The movement "Let's Buy Lithuanian Goods" should spur up the development of domestic market.

During its second stage privatisation is carried out for cash, at market prices, on equal terms for Lithuanian and foreign natural and legal persons.

47 objects for 3.2mn Litas had been sold by 1 January 1997. The results could have been better, had the number of objects been greater and had they been more attractive. 452 objects had been included in the list of privatisation objects whose public assets offered for privatisation amounted to merely 145.5mn Litas. Thus, it is obvious that, with several exceptions, all the objects entered on the privatisation list are small-sized and unattractive to serious investors.

What is more, the founding ministries timely presented only half of the listed objects for the drawing up of privatisation programmes. Having 37 objects on the privatisation list, the Ministry of Industry and Trade presented merely 4 programmes, the Ministry of Communications and Informatics failed to present a single programme for any of its 12 objects, as did the Ministry of Energy, whose list contains 9 privatisation objects. What else can be said?

Presently the list of objects subject to be privatised in 1997 has already been drawn up. But the trend continues and the founding ministries put on the list only objects in whose authorised capital the share of state capital being privatised is small. As we see, privatisation is proceeding rather sluggishly .

III. SOCIAL SECTOR

As in 1995, in 1996 in Lithuania the monthly wage and minimum hourly wage saw a rapid increase. The minimal monthly wage (MMW) was increased from 180 Lt to 300 Lt, i.e. even by 67%, which significantly exceeded the rate of inflation and growth of the average monthly wage.

The dynamics of growth of wages and prices in the country, compared with situation in the neighbouring countries of Latvia and Estonia, display positive tendencies. Application of the purchasing power parity index computed by the Organisation on Economic Co-operation and Development (OECD) revealed that the average wage was highest in Lithuania and amounted to $520US, in Latvia - 468 and in Estonia - $429US. Having this in mind, I would like to point out once again that in 1996 the rate of inflation in Lithuania was the same as in Latvia, but lower than that in Estonia.

However, the year 1996 did not witness reduction of wage differential between the various sectors of economy. Wages of employees of educational and health care sectors as well as social workers still do not reach the average wage of employees of institutions financed out from the State budget.

The Law on the Fundamentals of Remuneration of the Heads of State and Government, Members of the Seimas, employees of the public (state and local) institutions and organisations was adopted last year, and upon coming into effect it will redress the imbalance between the amount of salaries and equalise the salaries of persons performing the same functions but employed at different agencies.

Urgent and painful remain the social problems of retired people who form a large part of our society.

The number of pensioners in the country is continuously increasing. Especially rapidly is growing the number of orphans and widowed persons receiving pensions, as during the last year the number of such persons increased by 4,4 times. The number of persons eligible to draw the disability pensions increased by 5,3% while the number of pensioners in general - by 2,7%. Thus, the number of occupied persons paying taxes is constantly decreasing whereas the number of pensioners is growing which, of course, is an indicator unfavourable towards the pensioners.

In the 1996 national, municipal and state social insurance budgets the appropriations for social security accounted for 13,7% of the GDP which constituted 4402,2 million Lt. Though this amount exceeded the 1995 GDP portion allocated for social needs even by 1 unit in percentage terms, however, the allocated resources were insufficient to deal with even the most urgent problems.

The average old-age pension increased from 168 Lt to 213 Lt per year, and despite the fact that it grew faster than the rate of inflation, the condition of pensioners is still not satisfactory. They found themselves in an especially complicated situation as a result of unpunctual payment of pensions early last year. Such situation was due not only to the banking crisis, but was also the outcome of social insurance premiums evasion on the part of employers and employees themselves.

Therefore, amendments were introduced into the Law on Labour Contract and the Penal Code envisaging more stringent measures to add more weight to the responsibility of employers for illegal employees, while social security premiums evasion shall be punishable even by imprisonment.

As early as January 1996 I submitted to the Seimas for its consideration a draft for amending and appending the Law on State Social Security Pensions, where I suggest that the income quotient should be increased for persons for a long time employed at low-paid positions, also an additional nursery allowance introduced for occupied handicapped persons declared as belonging to the Handicap Group I. Unfortunately, the project is still deposited with the parliament, and I would therefore urge the current Seimas to discuss and approve it in the immediate future.

The decision on the pensions to widowed persons must also be made without further delay. At the moment we are being overflown with letters from widowed persons ineligible to draw the pension of their late spouse if the latter passed away before the moment of the coming into effect of the law.

I am deeply convinced that funds for such pensions would be made available if the economic entities were paying their taxes duly and institutions of the state ensured their adequate administration.

Especially pressing is the issue of legal regulation of the employer and employee relationship, as well as compliance with security at work requirements regarding the employees and implementation of employers' obligations undertaken by them in respect with the state and social security. The mentioned problems are closely interrelated. I called for a number of important meetings on this subject during the last year. Heads of public institutions have been assigned concrete tasks. Laws regulating the labour relations were amended, as e.g. more severe measures were introduced for recruitment of employees wither labour contract etc. However, the situation still remains unsatisfactory. The employees cannot enjoy social security guarantees and the trade unions do not ensure adequate protection of their interests.

As an example of this, we may recall the case of Maþeikiø baldai joint venture's bankruptcy, when its employees resorted even to a hunger strike protesting against the failure to pay wages.

The number of the unemployed in the country started declining last year following its rapid increase during the year 1995, and by the end of the previous year it constituted 109,4 thousand persons, i.e. it witnessed a 14% annual decrease. The level of unemployment was reduced from 7,3% in 1995 to 6,2% in 1996. Such positive developments were produced not only by the positive changes in country's economic life, but were also the result of the approval by the Seimas of amendments to the Law on Employment, which was appended and titled the Law on the Support to the Unemployed. More opportunities were opened for training of the unemployed, for giving incentives to their motivation as well as that of employers creating new jobs. This law establishes that the amount of the unemployment benefit shall be dependable on the person's record of service.

Special emphasis is laid on the building-up of the system for effective rehabilitation of handicapped persons. The year 1996 was declared in Lithuania the year of the Handicapped. The Government approved a programme for the Year of the Handicapped as well as a plan of measures designed to implement it and allocated the necessary resources. Similar programmes elaborated specially for that purpose were being put into practice by the municipalities of cities and regions.

The institutions of social care, accommodating persons with physical and mental disabilities should be given more attention. The incapacitated people of Lithuania are lodged there, therefore the living conditions similar to those of living in a family should be created for them.

One of the main fields of activity in the sector of social assistance must be the expansion of network of small institutions of care aiming to adapt individual residence houses or available premises for accommodation of elderly people who are lonely or disabled. Occupation centres must be established which would be able to employ the disabled persons.

The state and society must take a special interest in the fate of homeless children. The numbers of such children are growing rapidly and, unfortunately, only a small number of them are orphans without both parents. More often than not, the parents of such children have abandoned their child completely due to various reasons: either they are deprived of their parenthood rights, are serving their sentence in the institutions of imprisonment or are alcohol abusers etc.

Most of abandoned children are brought up in state children's homes, but recently the foster families taking care of such children began to appear increasingly.

One of the first stages of child's integration into a foster family is the building-up of such families and their promotion. The Law on the Fundamentals of Protection of Child's Rights adopted in 1996 provides for that the state and local self-government institutions must create equal material conditions to care for a child in the state institutions and family-like environment. In foster families children enter into family-like relationships which are maintained into adulthood, and the children are thus secured their future.

The most serious obstacle for development of foster family care is the scarce material basis. In a state institution the child is allocated by the state 1000 Lt per month whereas in a foster family - only 150 Lt. Another difficulty preventing their free existence is the reluctance of municipalities to set up foster families and provide care to them. This is explained away by financial difficulties. Besides, such situation supports opinion prevalent among some members of society that children are accepted by families for the gains of profit.

Late last year I visited myself two of foster families in Panevëþys and Ðiauliai districts. I was able to find out myself to what a large extent the life of such a family depends on the good will of municipal officials. The municipality of Panevëþys district demonstrates its good will in trying to deal with problems of such a family. A contrary picture was revealed in the municipality of Ðiauliai district, which continued to delay registration of the foster family, failed to transfer the money allocated to it the Government etc.

In order to deal with such problems the following must be done: resources must be allocated in the municipal funds for setting up of foster families and financing thereof; a reserve fund for support of such families must be established in the Ministry of Social Security and Labour; regulations on foster families should be revised and renewed; regional activities of the children's rights protection agencies should be co-ordinated along social lines; and interest-free loans should be extended to foster families, and thus, conditions created for them to build up their future.

In order to implement the Law on the Fundamentals of Protection of Children's Rights projects amending and appending respective articles of the Code of Administrative Offences, the Code of Penal Procedure and the Code of Corrective Measures, as well as the Family and Marriage Code, the Civil Code, the Civil Procedure Code and the Law on the Office of Notary Public were drafted which aim at the improvement of protection of children's social and property rights. The projects have been submitted to the Seimas, and their adoption should be speeded up.

The national budget for the previous year did not foresee the resources to provide for free meals at secondary schools, whereas funds allocated for that purpose from the municipal budgets were insufficient. Upon the evaluation of existing situation whence allowances for children in asocial families do not reach the children, the National Budget for 1997 envisages an additional 40 million. Lt allocation to the Ministry of Social Security and Labour to provide for the meals for children from needy families at schools.

We are planning to draft an essentially new Law on Children's Custody in the immediate future. Until it is drafted and adopted the urgent issues on the provisional custody of children must see immediate solutions i.e. respective amendments must be introduced into laws and other legal acts in effect at the moment.

The condition of young families must not be forgotten. The sociological surveys revealed once again that young families are exposed to material deficiencies more frequently than other members of society. Extremely complicated for them is the issue of own dwelling. The Government should give specific attention to prepare a programme on extension of soft credits for housing for young families.

It is obvious that the political, economic and social changes taking place in the country just as in the rest of the world have an impact on the level of health care of people.

For the second year already fewer people are dying in Lithuania which leads to a conclusion that the rate of mortality is becoming stable. The mortality rate of the new-borns is displaying clear tendencies of decrease, and the same is true about women giving birth. The Government must prepare a national demographic programme and submit it to the Seimas.

However, the number of inhabitants of the country is steadily decreasing, and the main reason for this decrease is the falling rate of births. In 1996, 36 169 babies were born, i.e. it was by 2011 infants fewer than in 1995.

Adequate efforts are taken to ensure the necessary prophylactic of disabilities among children as the surgical orthopaedics for children is advancing and new methods of treatment and rehabilitation are applied. However, the indicators of health condition among the teenagers do not exhibit positive trends as the diseases of digestive system are becoming more frequent and a number of accidents involving them occur. The most frequent death causes among the children of up to 15 years of age are traumas and poisoning.

Evidently, the spread of mentioned diseases among children is greatly affected by the social environment which, on the one hand is poor care of children in the families, and on the other - of hygiene standards in the institutions of education. The situation with health care is preoccupying not only in respect with the high-school students, but the academic youth as well. It seems that the academic youth has been forgotten not only by State Health Care Supervision Service, but also SODRA state social security company. The students still cannot enjoy social guarantees and their recreation and medical treatment have been neglected.

The Government has been making an effort to deal with problems relating to promotion of health care, prophylactics of diseases as well as continuity and accessibility of the health care. Administration of this sector has been decentralised and legal and economic activities of the health care institutions improved. Though at slow speed, nevertheless attempts were made to reform the primary health care as well as enact the institute of the General Practitioner.

However, insufficient attention was paid to the affairs of the public health care agency. The State Public Health Monitoring Agency as well as the State Hygiene Inspection were established only at the end of 1996. It is a pity that the reform of public health care has been suspended.

The year 1996 was marked by significant achievements in providing for the legal framework of the health system. Laws on the Patients Rights and Compensation of Damages to Health, Institutions of Health Care, Health Insurance, Medical Practices, Stomatologic Care (Assistance), Control and Prophylactics of Contagious Diseases, Application of Economic Measures for Violations of the Legal Acts on Public Health Care, Donorship of Human Blood, Donorship and Transplantation of Human Tissue and Organs and other were adopted. Yet the number of laws on health care adopted by the Seimas has no effect on the course of reform if by-laws are not enacted in good time. Regrettably, this was precisely the case with Law on Health Insurance.

However, the progress also depends on the performance of people, and in this case - on the ability of health care staff to meet their obligations as professionals as well as citizens. Heads of health care institutions should take a more active part in the reform, and make better mediators between the ministry, the medical staff and the public. The citizens should also assume their burden of responsibility for their health and support the reform of health system.

Broader educational effort is needed to explain the new financing procedure of medical services through the establishing sickness funds. More active in this endeavour should be the heads of state and territorial sickness funds. The state sickness fund must ensure reimbursement of charges for health care services obtained by the insured citizens from the compulsory health insurance fund budget through the territorial sickness funds. The Government should regulate financing of the health care agencies.

I would like to dwell on several other problems.

On 29 March 1996 the Law on the Stomatologic Care (Assistance ) was adopted which regulates the provision of stomatologic care, as well as the rights and duties of dentists. This issue is especially urgent and important for population of the country as about 95-98% of our people are suffering from tooth decay. The actual stomatologic prophylactics does not exist yet at the moment and the quality of treatment at the state institutions of health care has become poor. Unfortunately, it must be admitted that the situation of stomatologic departments at the state policlinics is deplorable. Due to the lack of necessary medications and low wages the dentists are leaving their jobs at the public institutions of health care. The stomatologic care of children is the issue of particular concern. Though the programme on prevention of tooth decay for children has been prepared already, very scarce funds were allocated to it.

The question of establishment of nursery institutions in Lithuania is still urgent. Small-sized hospitals are not prospective. The departments of some city hospitals do not have the necessary facilities to provide for the intensive medical treatment, therefore they should in the nearest future be transformed into the hospitals or departments of sustainable treatment and nursery.

The establishment of the Nursery Specialists Organisation in Lithuania is a positive step as this organisation brought together nurses, medical assistants, obstetricians and other employees of nursery-related sector. At the moment within the system of the Ministry of Health Care there are about 600 places for sustainable treatment and nursery of in-patients which are planned to be increased to 2500 beds.

In general, the number of laces for in-patients in hospitals is too large. Currently per 10 thousand of population we have 107 in-patient places, of which only 70-75% are used. The last five years saw the reduction of places for in-patients in hospitals by 10% only. The average price for such a place per day in a general city hospital is 61 Lt. It must be increased so that envisaging shorter terms of treatment in hospitals improved and intensified treatment is ensured.

Some of health care services will have to be transferred from hospitals to general practitioners the number of which will grow, of course.

In 1996 we established the State Health Care Issues Commission and the State Service on Alcohol and Tobacco Control. The Council on Compulsory Health Insurance was also set up. Establishment of the National Health Council is still being delayed.

The State Pharmaceuticals Control Service at the Ministry of Health Care began operating. The Pharmaceutical Enterprises Inspectorate was re-established which controls pharmaceutical activities of the pharmaceutical industries, medicine supply enterprises and chemist's stores; it also takes a large interest in pharmaceuticals quality control and ensures a regular supply of medicines to the population.

The prices of medicines continued to grow in 1996 and during the first half year increased by 6,5%. The imported medication is expensive, whereas country's pharmaceutical industry is still outside the Government's focus of attention. While development of this industry is one of the principle instruments for solving the problem of provision of cheap and good quality medicines for the population.

New rules on compensation for medicines-related expenses must be drafted without delay.

In 1996 insufficient attention was paid to the issues of improvement of health care quality, introduction of rules on reimbursement for medicines for treatment at the out-patient's departments as well as reconstruction of health care institutions. Licensing of the health care institutions should be speeded up in view of impending implementation of Law on Health Insurance.

Though positive moves can be distinguished in the health care sector, a lot is still to be done. Problems arise in training and re-qualifying of medical staff as well as strengthening of health care at municipal and regional level, restructuring of health care agencies, also co-ordinating the medical science and developing it, and finally, implementing the laws on health care in effect already.

IV. LAW AND ORDER AND LEGAL ENFORCEMENT

The main issues for reform of the legal system are: building-up of national system of law and its integration into the European Community as well as operation of the institutions of justice and legal enforcement.

These aspects are directly inter-related. On the one hand, functioning of the institutions of justice and legal enforcement is based on laws and other legal acts, on the other hand, these institutions should ensure that laws and other legal acts are abided by and implemented.

In light of Lithuania's integration into the EU it is important to have well-considered and stable laws, fulfilling the interests and needs of all members of our society, protecting and safeguarding human rights and freedoms as well as meeting the principles and standards of international law.

Last year the Seimas adopted a significant number of important laws regulating the settlement of various social, economic, financial, legal and other issues.

As in the earlier years, the codified acts of law were being extensively amended and appended, namely, the Code of Administrative Offences, Penal Code, Civil Procedure Code, Penal Procedure Code and Civil Code. In general, our legislation still maintains a negative tendency of frequent change of operating laws. Obviously, this is partly the result of hasty drafting of laws as well as disregard of the opinion of scientists and other experts.

In order to safeguard the stability of laws and improve their quality the drafting teams should make use of the services of groups of qualified experts which would include specialists of different fields working for the interests of entire state and society, rather than a single agency or party.

The future of Lithuania's national legal system lies in its harmonisation with the European Union law. Aspiring to integrate into European structure we must create the legislation in accordance with the EU requirements. For that end we prepared and submitted to the European Union respective documents on co-ordination of our national laws with requirements of this Union, as well as undertook ratification of various conventions of the Council of Europe with provisions of which our legal acts must be harmonised. For example, in 1996 the Seimas ratified Paris Convention for the Protection of Industrial Property, Berne Convention for the protection of literary and artistic works, European Convention on the Legal Status of Children Born out of Wedlock of 1975, European Convention on the Conservation of European Wildlife and Natural Habitats and other international instruments. The integration of our national legal system into the common European legal system must remain a priority task for the legislative branch in the future.

More consideration should be given codification and systematising of laws. A number of codes in effect at present, though they have been amended and appended, were adopted in the Soviet period. The parliament of the previous office did not adopt the new Civil, Civil Procedure, Penal and Penal Procedure Codes. The only occasion for rejoicing is that the drafting groups have already accomplished their tasks and handed in the projects for consideration of the Seimas and the public. I am convinced that adoption of these codes of civil and penal law will add more stability to our legislation. Thus, I would encourage the Seimas to approve these codes without delay this year.

However, the practical benefits of laws are revealed only when they are abided by and their proper implementation and application is ensured. Violations of laws or their inadequate application is predetermined by both objective and subjective reasons. We should aim to draft the long-term legal acts reflecting not only the life of today's society but also the needs of the future . Should it be considered normal that a newly adopted law is subjected to amendments several times a month? Even officials of institutions of state power, governing, supervision and legal enforcement directly responsible for enforcement of laws, let only ordinary citizens, can hardly find their way in the multitude of laws and their amendments. It is equally important to secure a uniform application of laws. I hope that the Supreme Court of Lithuania shall more actively undertake formulation of uniform practices of court in the application of laws.

I would like to discuss further on activities of the institutions of justice and legal enforcement forming a constituent part of the legal system.

Courts are one of the most important institutions in the system of justice and legal enforcement. As from June 1996 the courts have been authorised to impose a preventive measure which is arrest. Adoption of Law on the Institutions of Mortgage created a new office, that of the mortgage judge. According to the new provisions of the Penal Procedure Code being drafted at present the judges shall be granted more rights to be exercised during the pre-trial period which should lead to creation of the corps of pre-trial investigation judges functioning in practice.

As the impact of courts on the life of society is becoming increasingly more evident thus higher standards are established as to quality of performance and functions of courts as well as qualifications and responsibility undertaken by judges. Last year the Seimas approved amendments to the Law on Courts proposed by me envisaging that a person applying for an office of a district court judge with no experience of work in courts must have one year of practice in court. It is my hope that this amendment will lead to improvement of qualifications of judges and the quality of their work.

Procrastination of hearings in court raise the indignation of population. One of the reasons for such procrastination was an uneven distribution of work load between the courts of different layers. Thus, initiated by me, last amendments were introduced by the Seimas in Law on Courts as well as the Codes of Civil and Penal Procedures envisaging redistribution of the flow of appeals.

However, the above mentioned amendments of laws alone will be insufficient to settle this problem. The Ministry of Justice should exercise a better control of investigation of cases by courts. Strict measure of punishment should be applied to judges procrastinating investigation of cases.

Several other problems are related to the system of judiciary and improvement of its functioning. Not all judges perform their duties conscientiously and ensure the adequate level of professionalism. Last year penal proceedings were instituted against two judges from the Area Court of Kaunas city for accepting bribes while disciplinary proceedings have been instituted against twenty other judges for various violations. However, it is my view that neither laws nor the disciplinary measure will help to improve the performance of judges and build-up the confidence of people if the members of judiciary themselves do not realise that to assume the office of a judge means to serve the people and keep to the letter and spirit of law.

I want to voice certain criticism in respect with institutions of legal enforcement directly fighting with organised crime, and first of all the Ministry of Interior and the police structures subordinate to it.

The crime situation in Lithuania is no exception in the context of many other Baltic and Eastern European countries undergoing a transformation from a totalitarian system to a democratic one with market economy. The problems of crime are urgent for Western states as well which, however, is no consolation for us. The crime in this country has seen no improvement so far. The crime rate continues to grow while the crime itself begins to assume new and more dangerous forms and become more organised and professional. The issue of our particular concern are crimes committed by minors, violence against children, smuggling, extortion of property, as well as the spread of drug abuse and prostitution.

As a separate subject I would like to tackle the problems of control and prevention of crimes committed by children and youth as well as the issue of protection of child's rights. Crimes committed by children and young people occupy a specific part in the crime situation; they are also one of the major social and legal problems encountered by the state. Almost half (45%) of all persons committing crimes are people of fourteen to twenty four years of age. Majority of young people committing crimes do not have any record of study or employment. More and more often among violators of laws are children of up to 14 years of age. As a rule, crimes committed by them are marked by exceptional cynicism and brutality. Use of narcotic, psychotropic and other toxic substances is spreading at a threatening rate among teenagers.

The main reasons for crimes committed by young people are the increasingly unstable families, spread of alcoholism, declining prestige of education and the difficult economic situation in the country. These processes predetermine growing indifference of parents towards education of their children and decline of morality.

A special prevention programme must be prepared in order to reduce the rate of crimes among young people and its implementation should be ensured. The family, school, police, non-governmental and health care institutions as well as the Church should co-operate in concerted effort to solve the problems of education and protection of rights of children and youth. During the last year people of Lithuania have been horrified by reports in media on the brutality of adults, often mothers and fathers (against their children). Children have been beaten, tortured, starved, abused sexually, raped and even killed. In my opinion, more stringent penal measures for violence against children must be introduced. Therefore, I have proposed respective projects amending and appending our Penal Code.

The spread of crime and its prevention is not just a legal problem, and without doubt, it pertains not only to the field of activities of the legal enforcement institutions. It is also a part of our economic, social, political and legal problems. However, it still must be admitted that the largest share of responsibility for it must be assumed by the said institutions.

The general conditions of legal enforcement to a greatest extent is predetermined by performance of the Ministry of Interior. Different measure have been employed to improve the functioning of agencies constituting this system which, however, did not lead to the expected results. It became necessary to suggest to the Minister of Interior the termination of his office, as well to remove from the offices the head of one of the central agencies, the Chief Commissary of the Border Police Department. The person, who assumed the responsibilities of minister, a civilian as it is requested in the Constitution, could not introduce essential changes during a short period. In my view, one of the main aims of reform of the interior is the transformation of the Ministry of Interior's system into an institution of strategic administration able to guide and control functioning of police commissariats and other agencies subordinate to it.

Until now such efforts have not been always successful which was revealed after the events in Panevëþys that alarmed the nation late last year. The police structures and the prosecutor's office of this city failed to give respond adequately to the situation as the criminal proceedings were instituted only on the account of murder fact without due account being taken of the fact of property extortion, and no measures to restrict the freedom of the suspected attackers were imposed while the latters could move unobstructed from one institution of health care to the other and finally go into hiding. The Senior Commissary of the city's police commissariat was dismissed from his office, while other police officers and officials of the prosecutor's office were punished. More than twenty persons were killed in this city during the last three years. There were cases when people were executed in the middle of the day, buildings exploded and cars stolen. The Panevëþys police and Prosecutor's Office were able to disclose only few of these crimes, thus they lost the confidence of people. One is led to assumption that the crime situation in this city has gone out of control. Only the lawful, determined and fruitful actions of police structures and the prosecutors' office may restore the confidence of people in them.

I hope that the new leadership of the ministry will be able to appraise the gravity of situation that we should be looking forward to better results of performance of Ministry of Interior agencies as well as decline of cases of collaboration of police officers with criminals, taking of bribes, neglectful performance of prescribed duties, inadequately operative respond to the statements of citizens and use of unlawful measure influence.

The situation on the Lithuanian state border remains the source of concern since the level of state border protection is poor and smuggling shows no evidence of decrease. The largest amounts of smuggled goods are brought in directly through customs check points by way of forging documents and bribing officials. Such situation was revealed as a result of actions organised at the state border by the State Security department. Officials of this department performed several successful operations during last year which enabled not only to seize large shipments of smuggled goods, but also disclose mechanism of their transportation and a number of its organisers, executives and officials who collaborated with them. Over 500 tons of spirit and 50 tons of other alcoholic substances as well as a shipment of cigarettes worth 1,5 million Lt. have been arrested. The guilty persons must face criminal charges. Seeking to protect economic foundations of the country, the State Security department has been active not only at the state border. Significant results were achieved investigating cases of corruption involving state officials, violations of laws in privatisation of state property and illegal banking activities. Certain efforts were taken to ensure the security of objects of strategic importance and to identify persons illegally storing radioactive materials and explosives, and bearing firearms and ammunition. A lot has been done in carrying out of other functions prescribed to it by law.

Unfortunately, we cannot speak about successful efforts of the customs and border police structures in prevention of smuggling. Those institutions are unable to eradicate corruption involving their own employees. The Customs department failed to computerise the border customs points and connect them into a single network. Provision of technical facilities for protection of state border has been unjustifiably delayed by the Border Police department. Though an international tender was announced, however, the above mentioned problems were not settled during the previous year either. It is necessary to realise one principal issue that is that minimal number of officials and a maximal amount of technical equipment must be involved in the protection of border, i.e. the influence of officials in controlling the flow of goods, transport and persons must be reduced to minimal.

However, fight against smuggling does not rest solely with agencies functioning at the border. The smuggling would become purposeless given there was no system of realisation of smuggled goods within the country. Whereas the system of realisation of smuggled goods in place at present is astoundingly efficient. No less surprising is the inactivity of agencies supposed to fight this vice. Upon the arrest of shipments containing smuggled goods only the executors are punished whereas the organisers of this illegal business most frequently remain unpunished and continue developing their activities. Police structures and the prosecutor's office do not display a too great enthusiasm to disclose them. Thus, one may have an impression that officials of the legal enforcement institutions take an interest in smuggling only insofar as it can yield material gain, the bonuses. Inefficient is also the work of officials of police departments investigating economic crimes. It is no secret that sometimes that officers from the guards police themselves escort the shipments in transit to places determined by criminals and 'closes their eyes' to cases when the shipments are misdirected into solitary farmsteads or warehouses of smuggled goods. However, we will fight the smuggling employing repressive measures alone. I think that certain economic adjusting measures must be introduced to render this business unprofitable.

Together with other financial and economic crimes, smuggling forms the basis for the shadow economy. Existence of certain indicators lead to assumption that the shadow economy in our country has been developed to a dangerous extent. It is the economic pillar of organised crime. Significant reduction of such crimes would constitute a serious attack on the criminal world.

It is not a secret that a large number of economic entities and natural persons show reluctance to pay the state, and evade taxes or pay only a part of them. Tax collection is administered poorly and for that reason it was necessary to correct the National Budget of 1996. However, both administrative and penal prosecution of persons failing to pay the taxes by way of different methods is conducted unsatisfyingly since last year saw a decrease in such cases of criminal prosecution, disclosure of such crimes and punishment of guilty persons. The police department on investigation of the economic crimes is inefficient and the Tax Inspectorate is not active.

The Prosecutor's Office assumes one of the central roles in the administration of justice and ensuring law and order. According to the Constitution and other legal acts the public prosecutors carry out criminal prosecution, prosecute criminal cases on behalf of the State and supervise the activities of the interrogative bodies. During 1996 the Prosecutor's Office prosecuted 12 204 criminal cases on behalf of the State, lodged 666 complaints and 230 appeals. The bulk of such complaints and appeals dealt with mild nature of punishments and necessity to apply laws envisaging responsibility for graver crimes or the cases of ungrounded acquittal.

In comparison with 1995, in 1996 the number of persons against whom cases were dismissed on the grounds of rehabilitation decreased by 45%, whereas number of those acquitted on the same grounds decreased by 24%.

Principally new divisions for fight with organised crime established in the Prosecutor's General Office and the Area Prosecutor's Offices achieved certain positive results. An increasingly greater number of organisers and leaders of organised criminal gangs face criminal prosecution.

Nevertheless, actions of interrogative and pre-trial interrogation bodies to counter the organised crime are not co-ordinated adequately. The institutions of legal enforcement supposed to be functioning as a smooth mechanism sometimes enter into a competition with each other, are unable to define their competencies, conceal information from one another and attempt to fight with organised crime each individually instead of uniting their forces. It was necessary for me to issue a decree in order for the Prosecutor's General Office, the Ministry of Interior and the State Security Department to set up joint working groups for fight against organised crime and corruption. Such groups have been established already, however, heads of the above mentioned institutions still find it difficult to appraise the indispensable nature of such co-operation.

Investigation of cases on violations in commercial banks is marked by lack of operativeness. For the past year in thirty three such cases criminal prosecution was instituted, however, only in thirteen of them the preliminary investigation of cases was completed. This is partly the result of inadequate preparation of evidence collected during the preliminary investigation which is the basis for institution of criminal proceedings, the large-scale nature of tasks, prolonged auditing as well as difficulties in seeking out the debtors or locating squandered or hidden property. The heads of the Prosecutor's Office and other institutions of legal enforcement must resort to all available measures to speed up the investigation of the said criminal cases and their referral to court.

The institutions of legal enforcement should change the strategy of their activity and concentrate more on the prognoses of criminal processes and prevention of law offences and involve general public into such efforts. It is obvious that society's help and co-operation is indispensable for reduction of crime rate. The police structures must give up the still characteristic to it repressive attitude towards citizens and instead of attempting to command society, aspire to service and protect it against attempted crimes since police is the power of society itself and its aim and function is to protect the lawful interests, freedom and security of an individual, who is a member of society. Such requirements are enshrined in the European Charter of Police Structures and these requirements are raised to the police, just as the other institutions of power, by the Constitution of the Republic of Lithuania. Therefore, in my view, it would be worthwhile to adopt a new Law on which would comply with requirements of a democratic nation and create the preconditions for the Lithuanian police to enter a qualitatively new level of performance.

V. EDUCATION. SCIENCE. CULTURE

Education is the engine of country's economic, social, cultural and political advancement. In order to reveal the creative powers and abilities of youth, adequate material basis alongside with qualified teachers are needed. Applaudable occasions last year were opening of new secondary schools in Jaðiûnai, Rudamina and Semeliðkës in the Eastern part of Lithuania, as well as the Utena Grammar School, secondary school in Alytus and a high-school in Ðiauliai.

The year 1996 saw a further implementation of the projects on computerisation of Lithuania's secondary schools, schools of vocational training and higher education: from 1500 computers at the start of the year their number increased to 3700 by the end of the year. Besides, the initial installation of computer software was completed and related literature published.

In the 1996/97 school year the primary school has been in fact is working on the basis of a reformed teaching programme. The newly drawn up programmes on curricula of taught subjects offer wider opportunities of differentiated studies. New programmes corresponding to the requirements of education reform have also been introduced for students of 5th grade. During 1996/97 seventy three new text-books and seven original text-books for children with disabilities were issued. Last year also saw establishment of the Examinations Centre which would aim to prepare a new system of examination.

The Lithuanian teacher training system is also being improved and nearly one half of all teachers in secondary schools have already been certified and granted a higher category of qualification. However, there still is a lack of 1,5 thousand teachers specialists, especially teachers of foreign and Lithuanian language. It must not be forgotten that 1996 was marked by hot debates in the Seimas of the Republic of Lithuania and the teachers community on the aims of reform of education and its course. One of the reasons for this being the fact that the Law on Education was approved by the Supreme Council as early as 1991, however, the legal enforcement of provisions of Education Reform programme is still pending.

The contents of teaching should be reformed according to the project on the reform of vocational training (PHARE), which aims to prepare new programmes of teaching for nine groups of professions classified as preferential, ensure further training of teachers as well as renew the teaching facilities. At present twenty nine institutions of vocational training are involved in the implementation of this project. They are already using the teaching programmes which conform to the European Union standards.

The curricula of higher schools were renewed by 60% last year. The schools of higher learning link the prospects of their future with the sector of non-university higher learning of the European Union countries. However, the building-up of the non-university sector in the country has become a prolonged process. The schools of higher learning should reach a speedier agreement on the concept of higher non-university education.

In comparison with 1995 the entrance competition into the institutions of higher learning increased: in 1995 the competition of those applying to enrol into the institutions of higher learning was in average 2,3 applicants per place, whereas in 1996 - 2,8 applicants per place. It is evident, however, that the Government must issue a very responsible and grounded statement about the number specialists needed from specific fields and secure financing of their training. The institutions of higher learning should compete with each other to be the executives of such orders. At present the universities, academies and institutes are increasingly attempting to broaden the training of specialists in different fields despite the fact that other schools of higher learning are already training specialists for particular occupation. The Conference of Rectors does not take any co-ordinating effort whatsoever as to the number of persons enrolled in the institutions of higher learning, while some lecturers are even giving lectures on the same course at several schools simultaneously.

The material basis of the institutions of higher learning was improved. The Klaipëda University created just recently on the basis of separate departments and divisions was faced with the painful problem of premises. Last year with allocations from the budget and funds provided by sponsors it managed to renovate a new campus and now the former barracks are housing the university centre.

Though gradually, however, yet majority of Lithuanian scientific institutions are adjusting their activities to the new requirements of independent Lithuania and undertake both the fundamental and applied research. The publication of Lithuanian Metrics continues, preparation of the Great Lithuanian Dictionary is almost completed, and the 11th volume of the Collection of Lithuanian Folk Songs, Songs of Marriage (fifth book) was issued. The Institute of Biotechnology achieved new prioritative results on a global scale in the investigation of the DNA phenomenon of restriction-modification. Application of genetic engineering methods enabled to construct an especially effective biologically active producents of proteins. The photometry system created by Vilnius astronomers was successfully applied in the astronomy observatories of New Zealand and Australia for astronomical observations of constellations of stars of the Southern hemisphere.

The scientific institutes, centres and faculties are trying to integrate funds from various sources, as well as the foreign aid allocated for the implementation of various programmes. Integration into the European Union programmes is taking place on an increasingly wider scale. For example, the scientists of Vilnius university are participating in TEMPUS (15 projects), COPERNICUS (4), INCO-COPERNICUS (3) and PECO (2) programmes. Resources of the State Science and Studies Foundation are more effectively utilised for the implementation of the inter-institutional scientific programmes such as Laser Photosensibilisation in the Therapy of Tumours, Resources of Cultured Plants, National Metrological Supply Programme and others. The mathematicians, specialists of informatics and linguists began implementing a par of the 1996-2000 programme on usage and development of Lithuanian language and are compiling the database of computer terms . At the moment, twenty six scientific institutes, centres and departments are involved in the implementation of national programme on the Ecological Sustainability of Lithuania. Undertaken by thirteen scientific institutes, centres and departments implementation of the programme on the Nuclear Power Engineering and Environment is underway. Of particular importance are the efforts of scientists of Lithuanian Power Engineering Institute on investigations of security of Ignalina Nuclear power plant, ensuring its metrological supply and analysing and working out the models on the prospects of development of Lithuania's power engineering and its economic optimisation. Two more national scientific programmes were launched in 1996 : on Geology and Fundamentals of Molecular Technology: genetic structures, functions and regulation of genetic impact.

Certain progress can also be pointed out in the strengthening of material basis of Lithuanian science. For several years already the construction of storage facilities for Lithuanian Language Institute has been taking place. Though not without difficulties, however, after several years time the security of priceless Lithuania's property, monuments of its linguistics and folkloristics as well as the most valuable manuscripts will finally be ensured. I hope that this year the Government will give more consideration to the science.

The 1996 was the year of particularly intensive life of literature, music, painting, other arts and the culture in general. We can be proud of a significant number of artists of great talent properly representing our national culture in the country and abroad. The Lithuanian State Chamber Orchestra, Lithuanian National and State Symphonic Orchestras, Kaunas State Choir, our opera and ballet stars, other artists gave successful and numerous performances and concerts in the most famous concert halls of the world. They were awarded various awards, also forged new contacts with creative community elsewhere and signed new contracts. As a pleasant surprise come the multitude of original verse and prose books representing various genres of literature, art exhibitions, folklore festivals as well as festivals of ethnic culture, those of towns and cities. The plentiful of events point out to the activity of creative community and also to the popularity their art enjoys with the audience. In particular important is the fact that concerts, performances, exhibitions and other cultural events are held not only in Vilnius, Kaunas or other large cities , but in towns and rural areas as well.

The state is gradually undertaking the support of preferential programmes. An event of particular significance was implementation of the Route of Baroque programme which gave a meaningful shape to many cultural initiatives. We were able to come together and commemorate the 450th anniversary of the first Lithuanian book, the Catechism by Martynas Maþvydas. We still find ourselves under the impressions of many events held, beautiful scientific manuals issued, verses of poets read and festivals organised in all the remotest corners of our country on this occasion. We are happy that not without the efforts of friends of our book and our culture this anniversary was widely commemorated all over the world.

We have a unique Old Town of Vilnius which two years ago was put on the World Heritage List as a result of attempts of the United Nations Education, Science and Culture Organisation (UNESCO). Efforts should be united to preserve, revive and utilise it, moreover, that there are opportunities to obtain a loan from the World Bank for this purpose. The experts of Lithuania aided by consultants from Denmark and Great Britain prepared a project on revival of the Old Town. In accordance with the Law on Protection of Immovable Cultural Properties, the rules on protection of the Old Town of Vilnius are almost completed.

The end of last year saw a restoration of buildings of the Old Armoury of the Lower Castle in which the National Lithuanian Museum on the History of State and Culture is planning to open new exhibitions in the nearest future. Alongside, the archaeological and architectural investigation of the Palace of Rulers continues, and the preliminary building-up of a project is taking place. Restoration and consecration of the sculptures on the old Archicathedral was an event of genuine spiritual festival. Another occasion for rejoicing is the final unveiling of the long- awaited sculpture of Gediminas.

Kaunas decorated itself with memorial sculptures of the Presidents of the Republic of Lithuania Aleksandras Stulginskis, Kazys Grinius and Antanas Smetona at the houses of the former President's Office.

I assess positively adoption of Law on the Associations of Artists, which establishes legal ownership of their property - the indispensable precondition for their independence and provision of support to their members. I think that the Seimas and Government should put more effort to increase the remuneration of artistic groups, high class performers and actors as well as other employees of cultural sector and settle the issue of their pensions.

Manifestation of culture entails not only the creative activities, but also functioning of the different cultural institutions. According to the results of social surveys, library is becoming an important centre of education and culture receiving large numbers of visitors. As a result of the rise of prices of different publications, many find library the only place where they can access different publications and periodicals. Unfortunately, the libraries are unable to ensure adequate collection of scientific literature and fiction as well as periodicals in Lithuanian and foreign languages. During the seven years of independent existence not a single library has been constructed in Lithuania. Opening of construction of the new library for Vilnius University is still being delayed. Therefore, in the nearest future we must create an efficient programme on development of library and information network.

I have mentioned the issue of representation of our culture abroad, but would like to point out that it could take place on a wider scale. The Ministries of Foreign Affairs and Culture should co-ordinate their efforts in promotion of cultural exchange and introduction of Lithuania, its history and culture to the general public in other countries.

Alongside with the many significant events and facts of our cultural life one also comes across the anti-cultural manifestations. Under the guise of trendiness and freedom, violence, brutality and disregard for the norms of morality are being propagated by such anti-culture which tends to assume a more aggressive character. We can resist it only through explicit orientation of society and the state towards the riches of national culture, traditions and new values. Regrettably, as a result of a contradictory standpoint of the Ministry of Culture, the Cultural Congress which was held on 29 June did not produce adequate effect as it could have given the central guiding lines of our cultural policy.

We are still concerned about threats to our native language. The indignation of people with distortion of Lithuanian language signals that schools of all levels, the mass media and the governmental institutions must give due consideration to the issue of culture of native tongue.

In view of approaching one thousandth anniversary of mentioning of Lithuania's name (2009) we should bring ourselves together in order to appraise the traditions of our old statehood, to define the sources of our national culture and our identity. This anniversary should be celebrated by states, it should bring the states together and consolidate the collective and individual initiatives.

The greatest sports event of last year were the XXVI Anniversary Olympic Games in Atlanta. As many as 61 Lithuanian sportsmen participated in the Games and were rather successful. Our men basketball team was a winners of the bronze medal while several athletes were among the top six.

The Lithuanian athletes improved the world record (in triathlon), they won silver in the world championship (women cyclists), and Þuvëdra sport dance group from Klaipëda was a winner of silver medals in both European and world championships.

Our handicapped sportsmen performed outstandingly in the Paraolympic Games in Atlanta. The representatives of Lithuania returned with 11 medals, 3 out of which were golden!

It is a pleasure to see Lithuania hosting the international sports events more and more often. Such occasions do not only present nice events for people of our country, but they also render the opportunity for us to show our country to the world. Among other events the World Championship of Latin American sport dance groups held in Vilnius, the World Championship of Ice Hockey Group C held in Elektrënai and Kaunas, the Championship of Ultra Triathlon in Panevëþys should be distinguished. In 1997 Lithuania will host one of the major sports events in Europe, the Second Games of the Baltic Sea States which would involve participation of teams from Denmark, Estonia, Latvia, Poland, Russia, Finland, Sweden, Germany and Lithuania. The teams will consist of outstanding sportsmen from these countries. Therefore, the task of preparation for these games must be undertaken not only by the sports organisations, but it should be treated a matter of national prestige.

VI. NATIONAL SECURITY AND DEFENCE

The ultimate task of our state domestic and foreign policy is to ensure Lithuania's national security. National security can be guaranteed only by providing conditions for a free and democratic development of the nation and the state, by safeguarding and defending independence of the Lithuanian state, its territorial integrity and constitutional order. These are the guiding principles of the formation of our national defence policy. The main defence policy principles have already been formed. We stated them officially in the Discussion Document on NATO enlargement, where two essential and complementary objectives of Lithuania's defence policy were outlined: to create a defence system for Lithuania which would be able to put up effective resistance in the case of armed attack, and to seek interaction with NATO forces. For this purpose the Lithuanian armed forces are already being prepared in line with NATO standards. In 1996 an individual Lithuania's "Partnership for Peace" was prepared and adopted. Last year Lithuania was judged to be one of the most active partners in joint NATO events. Lithuania participated in 23 joint exercises, three of which took place on the Lithuanian territory, and in over one hundred other partnership events. It has become a tradition to conduct joint training not only with the Latvian and the Estonian, but with the American, Danish and Polish servicemen.

Participation in peace keeping operations is another priority direction of the integration into the European security structures. Our soldiers were highly commended by NATO and Danish military commands. During the peace enforcement mission in the Balkans Lithuania paid the highest price - a soldier's life. Despite of this, Lithuania is resolved to continue this noble mission and be not simply a security consumer but to disseminate it actively. In 1996 our participation on this mission was expanded. In October, a Lithuanian platoon which served within the Danish battalion in Bosnia was replaced by a company. In my opinion, this testifies to our ability to fulfil our obligations to the European and, simultaneously, to the Lithuanian security.

Last year regional co-operation was developed further. This is very important for the enhancement of security.

Lithuania has accomplished successfully all the work on the formation of the Joint Lithuanian, Latvian and Estonian Peace Keeping Battalion (BALTBAT) as was planned for 1996.

Consultations of experts on the creation of the Regional Air Space Control System initiated by the United States were continued. The instalment of the sea surveillance system supported by Sweden is about to be completed. Its command control and communications centre will be based in Klaipëda.

A foundation has been laid for the formation of a joint Lithuanian-Polish battalion.

Preparatory work has begun for the creation of a joint Lithuanian, Latvian and Estonian naval formation (BALTRON) intended for mine clearing in the Baltic Sea. Lithuania is a co-ordinator of the project.

In the field of international military co-operation there are tangible positive results, while they are more difficult to see in the strengthening of the national defence capacity. Normal functions of the national defence system were hindered by a slow development of the legislation and insufficient and inconsistent funding.

The laws on the National Defence Service, Military Conscription, and Mobilisation and Reserve adopted at the end of 1996 created a legal basis for a proper functioning of national defence and the all the defence system. There is still much to be done in the drafting of legal acts dealing with the national defence system, nevertheless, I would like to believe that the ice has moved.

There are other improvements as well. An especially big improvement was made in air space surveillance. An up-to-date intelligence information centre was installed with the Czech equipment. Information can be sent to this centre automatically from all radar sites that operate within both civil and military systems. We believe that when we expand the radar surveillance perimeter with the help of Polish radar systems which have already arrived, we shall have an efficient and complex military and civil air space control system.

While strengthening Lithuania's defence capacity, an evident advancement has been made in equipping the armed forces with anti-tank weaponry and Western communications equipment, and changing the transport system. The first few artillery subunits have been formed. It is time to think about an air defence system.

However, the National Defence Ministry should bear its share of criticism for not having taken measures to establish a foundation for a centralised equipment maintenance and fuel supply system, as this caused unnecessary waste of large funds.

The issue of the creation of military industry was not dealt with, although Lithuania's industrial capacity is sufficient to supply the armed forces with our own ammunition, explosives, dummies and other means. It is especially important to discuss the issue of our own cartridge production.

I am pleased to hear that Lithuanian servicemen take an active part in international military exercises. However, only a small number of them did, while the main emphasis should be put on the combat preparedness of the whole armed forces. Last year there were exercises on the coast at the armed forces level and staff exercises at all levels. This is not sufficient, though. It is inexcusable that issues of mobilisation and preparation of the mobilisation reserve are being dealt with only now.

I am pleased that during the debates on the budget of 1997, the Seimas decided to increase considerably budget allocations for national defence. The law on the Basics of National Security adopted in December last year proves Lithuania's resolve to create an effective national defence system.

VII. FOREIGN POLICY

The major changes that began in the end of the nineties in international relations are modifying the political structure of our Old Continent, the main feature of which is a more profound economic and political integration, respect for lasting democratic values and human rights.

Not long ago another three sates - Austria, Finland and Sweden - hoisted flags of the European Union. As many as ten Central and Eastern European states have signed the Association Agreement with the European Union. It is likely that soon the first Central European states will begin their negotiations on the accession to NATO. Despite complicated circumstances and disparities, the strategic partnership between the West and Russia is expanding. It is perhaps for the first time this century that our states do not feel any military threat and, therefore, can focus their main attention on economic and social problems of their respective countries.

Lithuania, as an integral part of Europe, not only feels constant impact of the unfolding processes but takes an active part in international politics. This is manifest through the activities at various international organisations where vital Lithuania's interests are presented or defended, the expansion and intensification of bilateral state relations through various initiatives, and active co-operation within regional structures. All this consolidates the country's political, economic and military security, creates favourable conditions for the development of the economy and, eventually, for the welfare of all our citizens.

This is how I would describe in general features the background against which we promote our country's interests and seek their implementation.

I would like to single out once again the main elements of the foreign policy strategy, which have been stable ever since the restoration of Lithuania's statehood, and every year their implementation requires more vigorous involvement of all the state institutions.

These elements are:

to integrate fully into the European and North Atlantic political, economic and security structures;

to ensure and develop good and constructive relations with the neighbouring states;

to pursue positive and mutually beneficial co-operation with all the democratic and friendly countries;

to develop regional co-operation of every kind and proportion.

These main tasks of our foreign policy are determined by Lithuania's geopolitical situation. At the same time they are the goals of our sate, as it is maintained often that a country's foreign policy is determined by its internal policy. Therefore, not only our short-term future will depend on it but Lithuania of the twenty first century.

Today, by making a brief summary of our foreign policy of the last and previous years, I can assert that in general Lithuania does not have major unsettled political problems in relations with other states. However, just their absence does not make us feel complacent.

In its foreign policy the Lithuanian Government as well as our diplomatic corps have to deal with one issue - to seek strong support from other states to ensure our security and integration. It is necessary to settle the problem of visa free entry for the Lithuanian citizens to the main Western European countries, intensify negotiations on joining the Schengen agreement. Special attention must continuously be given to the promotion of economic co-operation, conclusion and implementation of agreements, improvement of investment climate in Lithuania.

Historically and culturally our state belongs to the Western civilisation, living by its values and ideals. It sees its future in the family of democratic and prospering European states. Therefore, one of the major priorities of our foreign policy is a full-fledged membership in the European Union.

On June 20 last year , the Seimas, having amended Article 47 of the Constitution, ratified the Europe (Association) Agreement. So far only the European Parliament and eleven EU member states have ratified it. At Lithuania's initiative, the Baltic states issued a joint letter urging the EU leadership to speed up in other countries as well the process of ratification of Europe Agreements between the Baltic states and the European Union.

Lithuania together with Poland submitted a joint initiative on the intensification of a political dialogue between the EU and the associated countries. Our partners showed much interest in this initiative.

Lithuania filled in the questionnaire of the European Commission in good time. On the basis of the answers, the Commission will formulate its opinion about the state of preparedness of our state for the EU membership. Even before the final judgement on the answers is passed, we can already say that one of the most important remaining problems is the inconsistency of our laws with the requirements of the European Union. Quite often laws are drafted in the Government and are adopted rather hastily in the Seimas. These institutions should make use of the experience of the European countries and create new or transform the existing administrative structures necessary for the harmonisation and implementation of laws.

Lithuania has constantly been focusing on co-operation with the European Union in the field of law enforcement, especially with respect to illegal migration and organised crime. I spoke about these problems in December last year in Dublin, at the Summit of the EU and associated countries. In 1996, at Lithuania's initiative, the European Commission allocated ECU 6 million for the consolidation of control of the eastern border of the three Baltic states. Germany has also granted a support of DM 3 million for the protection of our borders. Almost half of this grant was used last year for the acquisition of border communication equipment and computers.

A free trade agreement is an economic bridge between Lithuania and the EU. Although last year trade and economic co-operation with the EU countries expanded considerably, our enterprises find it difficult to get through to European markets. Therefore, the efforts of both domestic and foreign policies should be oriented towards an all-round support to domestic enterprises. Export Support Fund is a very important and necessary step made by the Government in this direction. In my opinion, the Government should prepare immediately a special complex programme which would help our businessmen to establish themselves and compete on the markets of other countries.

It is my belief that we must have a unified policy for investments in Lithuania and create a national programme to attract investments. It has already become a tradition for me, as the President, to meet with ambassadors of foreign states. Meetings between our senior executive officials and major investors in Lithuania should also become common practice.

All our actions have one goal - to become a member of the European Union. Even now Lithuania is ready to begin negotiations on the accession to the European Union and suggests that in June this year, at the EU Amsterdam Summit a specific date for the beginning of negotiations be established. We support the proposal to begin negotiations with all the applicant countries simultaneously. We shall seek to finish negotiations in the first group of candidates. Nevertheless, we understand that this is a long-term process which will demand not only big efforts in transforming our whole life, but the understanding and support of our citizens.

Another important task of our foreign policy is integration into NATO while closely co-operating with the Alliance members, Poland, other Central European and the Baltic states, and other countries. Lithuania views its integration into the European Union and Transatlantic defence structures as interrelated and complementary processes. They imply the extension of the zone of stability, enhanced security and well-being into Central Europe. By seeking to become a NATO member, Lithuania is not escalating the existing or foreseeable threat. This aspiration stems from the general rationale of the Euroatlantic processes.

Uncertain security situation of Lithuania as well as of the other Baltic states can weaken security in the Baltic Sea region and in all Europe. Lithuania's security policy is based not only on the military aspect, but on the principles of economic and democratic reforms, social well-being and good neighbourly relations.

In reply to NATO Enlargement Study Lithuania formulated its position and the main directions of the preparation for accession into the North Atlantic Alliance in the Discussion Document which was presented to NATO Secretary General Javier Solana during his official visit in Lithuania.

We have always given special attention to bilateral relations. Good and mutually beneficial relations with both the West and the East is one of the preconditions for our integration into the European Union and NATO as well as regional co-operation. One of the principal provisions of Lithuania's foreign policy - good relations with our neighbours - is also one of the most effective conditions enhancing Lithuania's security and facilitating our contribution to the regional and European security.

First, I would like to speak about our relations with Poland. Today they can be described as the best throughout the entire history of our two countries. We view this neighbour as out strategic partner in our integration into the European Union and NATO and in consolidating security and stability in the region.

Last year is notable for intensified co-operation between the two countries in all areas. Significant agreements were signed on national borders and free trade - this completed the legal foundation of the interstate relations. There were regular high level meetings and consultations between the officials of both countries. The intense and successful co-operation between the Lithuanian and Polish municipalities, cities and regions was formalised when a Lithuanian-Polish interstate commission for cross-border co-operation was established and initiatives encouraging mutual understanding and rapprochement of the Lithuanian and Polish nations were started.

In 1997 the Government has to give a priority to the improvement of the Lithuanian-Polish border crossing capacity, co-operation in combating organised crime, smuggling and illegal migration, as well as implementation of the projects Via Baltica, building of a railway of European standards from the Lithuanian-Polish border to Kaunas, connecting power grids of both countries.

The impulse for the development of our relations was given in spring 1996 by the visit of Polish President Aleksandr Kwasniewski in Lithuania. The commonalty of the aspirations of both countries was expressed in a declaration by the Polish President and myself, signed on a Polish naval ship on the Baltic Sea in autumn last year. The declaration says: "the Republic of Lithuania and the Republic of Poland will continue to support each other in the processes of integration into the European Union, the Western European Union and NATO and to co-operate closely in holding regular consultations at various levels."

In addition, in Vilnius and Warsaw, Adomas Mickevièius foundations for Lithuanian-Polish co-operation were established, and this year in Vilnius these foundations will hold a conference under the patronage of the Presidents of both countries - "Reconciliation of Nations and Good Neighbourly Relations - a Guarantee For Security and Stability In Europe." The aim of the conference is to demonstrate how good neighbourly relations promote co-operation, enhance common security and help to improve considerably the well-being of the countries.

There have been discussions recently as to the nature and efficiency of co-operation with Latvia and Estonia, the drive of the Baltic states towards the European and Transatlantic economic, political and security structures. During these discussions different and often controversial opinions can be heard. However, it is my opinion that, the existing objective differences notwithstanding, the unity of Lithuania, Latvia and Estonia, the co-operation between our states must survive and be one of the top priorities in our activities. At the same time this co-operation is by no means Lithuania's political self-confinement.

In 1996, presidents, heads of government, foreign affairs ministers and other members of government of the Baltic states held a number of meetings. Trilateral and other urgent questions were discussed at the meetings. I am convinced that such practice is very necessary indeed and must be continued.

Relations with Latvia are mostly developed on a trilateral basis, nevertheless bilateral relations are also expanded. Last year I was on a state visit in Latvia. This was the first state visit of a Lithuanian President in this country. We reconfirmed the principles of good neighbourly relations and defined guidelines for the future. Unfortunately, it often happens that interests of neighbouring states clash. Recently this has happened to Latvia [and Lithuania]. Disagreement of interests on the division of the economic zone at sea are of a temporary nature and it should not affect the further development of friendly mutual relations between our states. I am convinced that negotiations with this neighbour will continue and that a just and mutually acceptable solution will be found.

Lithuania's relations with its Eastern neighbours are constructive. Our relations with Russia have settled down, there are no unsettled political problems. In its relations with this country Lithuania will continue to maintain a clear and consistent position - co-operation based on the principles of good neighbourly relations, mutual understanding, equality and mutual benefit.

The Lithuanian-Russian relations should be given an impetus by the Lithuanian-Russian border delimitation treaty which is planned to be signed in the first half of this year. It will strengthen security and stability of Lithuania and the entire region.

Granting the status of a special economic zone to Kaliningrad provided for new opportunities for the development of economic relations. Last year our export to this region grew considerably. In its plans Lithuania has to include the Kaliningrad region as one of the priority regions for economic co-operation, and to give all-round support to its economic, political and cultural integration into the community of the Baltic Sea states.

The growing flow of illegal migration has become one of the most acute problems in the Baltic Sea region. Lithuania is of the opinion that such migration can be stopped if illegal migrants are returned (readmitted). A readmission agreement was signed with the Ukraine in 1996. We are making efforts to intensify negotiations on a similar agreement with Russia and Belarus. It would be very good if we succeeded in preparing such agreements this year.

In 1996 the work on the demarcation and installation of the Lithuanian-Belarussian border began and will be continued. It is my hope that trade and economic relations between our states will expand, especially by utilising the capacity of Lithuania's transport infrastructure and access to the Baltic Sea.

We are interested in good neighbourly relations with Belarus and, therefore, we cannot remain untouched by the developments in this country. The statement of the Lithuanian, Polish and Ukrainian Presidents on this issue is significant not only as a joint initiative but a co-ordinated attitude towards the situation in a neighbouring state.

Multilateral fora facilitated bilateral relations with member countries of the European Union and NATO. However, they should not dominate over bilateral relations. International organisations are composed of individual countries which have diverse opinions on various issues. Active political dialogue with different states can also give tangible results. We maintain active co-operation with Germany, the United Kingdom and France. The support of those countries is especially important for us; some of the decisions concerning our acceptance to the European and Transatlantic structures depends to a large extent on their opinion. At the same time, these are the states with whom we pursue good economic and cultural relations. This is especially true of Germany. However, in order to explain Lithuania's position on strategic issues better and to make the international climate favourable for our goals, it is necessary to expand such activities with other countries as well.

A legal basis for bilateral co-operation is being developed with considerable success. Various treaties and agreements were signed with almost all Western European states. The issues of Lithuania's diplomatic representation in Portugal, Greece and Ireland have been resolved. In 1996 I visited Bosnia and Brussels, Copenhagen and Washington - the European and Transatlantic structures of utmost importance to Lithuania's' integration based in capitals and headquarters of international organisations.

Interparliamentary relations are no less important. Apart from traditional ties between the Baltic and Nordic parliaments, as well as Lithuanian and Polish members of parliament, I would like to single out the visits of parliamentarians from France, Germany and the United Kingdom to Lithuania. In future we should pursue active co-operation with these parliaments with which we already have established relations, and to forge new parliamentary contacts in the countries whose approach towards Lithuania's strategic interests is more cautious.

Among the key tasks of Lithuania's foreign policy is to deepen bilateral relations with the Untied States. Last year, during my visit to the United States I met with President Bill Clinton, the Defence Secretary and members of the Congress. We discussed development of bilateral relations and the issues of security of the Baltic states. It is my hope that this important dialogue will be continued.

Allow me to emphasise the major role that the US is playing in ensuring the security of the Baltic states and supporting Lithuania's aspiration to become a member of the North Atlantic Alliance and of the European Union. I am convinced that relations with this country will continue to expand and strengthen, that economic and cultural co-operation will be more intense. This year we should prepare and sign with the US a treaty on investment promotion and protection.

Bilateral relations are affected by meetings of top officials. Finnish President Martti Ahtisaari visited Lithuania. At summits in Florence, Lisbon and Dublin we discussed major issues of co-operation with heads of states of the United Kingdom, Spain, Italy, Sweden and other countries. This year we shall try to invigorate bilateral relations with Greece, France, Portugal, Italy and Hungary. More attention should be focused on the ties with South European region. Our objective is to seek a more active and constructive support of the countries of that region for our efforts to be integrated in European and Transatlantic structures.

Lithuania gives especial attention to relations with the Ukraine as an Eastern European state which strives actively for active participation in the European integration. In 1996 we tried to pursue a regular political dialogue on both bilateral and multilateral issues. The visit of Ukrainian President Leonid Kuchma to Lithuania was a great contributions towards this end. During the visit we signed important political, legal and economic agreements.

The official visit of Moldovan President Mirchea Snegur revitalised relations between our two states. The export of Lithuanian goods will get support from the agreement on trade and economic co-operation signed with Moldova in 1996.

My visit to Georgia laid the foundation for an efficient co-operation in the spheres of economy, trade, transport and other fields.

It is necessary to single out relations with Israel and the world Jewish Diaspora. Lithuanian and Jewish nations are linked by a centuries- old tradition of living in accord. Despite tragic historical events, which have already been given an evaluation, two states - Lithuania and Israel - strive for constructive co-operation. During the last two years there were significant changes in relations with Israel. Personal contacts of both heads of state also contributed to this. The agreement on investment promotion and protection ratified in the Seimas will facilitate the expansion of economic ties.

In 1996 we continued a dialogue on urgent issues of instituting proceedings against war criminals, genocide, restitution, anti- Semitism.

Development of regional co-operation is among the priorities of Lithuania's foreign policy. Speaking about this activity it should be pointed out that we belong to several regions at once: the Baltic Sea area, Central Europe and the Baltic states.

Development of relations with Central European countries consolidates the historical place of Lithuania in the Central European region. Apart from the good relations with Poland mentioned above, I would like to draw attention to the need to promote political and economic co-operation with the other countries of the Central European Free Trade Agreement (CEFTA): the Czech Republic, Hungary and Slovakia. This should become one of the priorities of our foreign policy. I take this opportunity to recall the visit of Czech President Vaclav Havel to Lithuania, the intensifying co-operation with the other CEFTA countries. My official visit in Bulgaria laid the foundation for co-operation in the economy, trade, research and technology. Last year we signed free trade agreements with Poland, the Czech Republic, Slovenia and Slovakia; we also started negotiations with Hungary. This allows us to expand considerably not only the volume of bilateral trade; it also brings us closer to CEFTA membership.

In 1996 we continued co-operation with the North European countries. The Baltic-Nordic co-operation "5+3" has become more intense. In April 1996 in Vilnius, there was the first joint meeting of the ministers of the Baltic and Nordic Councils of Ministers responsible for co-operation. The strategy worked out by the Nordic countries for co-operation with the neighbouring regions is a manifestation of the importance placed by the Nordic countries on co-operation with the Baltic states; our institutions also contributed to its preparation. I would like to single out bilateral relations between Lithuania and Denmark, especially our practical co-operation in the military sphere and peace keeping.

Lithuania's foreign policy is not confined to Europe and North America. We have political and economic interests in Asia, Australia and Latin America. Relations between Lithuania and Latin America intensified after my visit to Argentina, Uruguay, Brazil and Venezuela. This was the first visit ever of the Lithuania President to South America. The agreements signed during the visit will facilitate closer bilateral ties with the countries of this region.

We should look for new markets for Lithuanian goods and new investors in Asia which knows so little about us. It is necessary to look for and attract businessmen and investors from the rich Asian countries.

Participation in the activities of international organisations and fora offers new opportunities to explain Lithuania's position on the integration into the European Union, NATO and other regional structures of economic co-operation and security. Such organisations are the Council of Europe, Western European Union, Organisation for Security and Co-operation in Europe (OSCE), United Nations and special agencies of the United Nations.

Lithuania is becoming an increasingly active participant in the disarmament processes. Our country began an accession procedure with respect to the 1972 Convention on the Prohibition of the Development, Production and Stockpiling of Bacteriological (Biological) and Toxin Weapons and or Their Destruction, and the 1993 Convention on the Prohibition of Development, Production, Stock-piling and Use of Chemical Weapons. In October 1996 Lithuania signed the Comprehensive Nuclear Test Ban Treaty. Last year we applied for membership in the Disarmament Conference in Geneva. At the OSCE Summit in Lisbon in December 1996 Lithuania expressed a wish to participate in the verification process of the Conventional Armed Forces in Central Europe.

Lithuania should redouble its efforts in seeking membership in the Organisation for European Co-operation and Development (OECD) and the World Trade Organisation (WTO). Full membership in those organisation would give us greater possibilities to attract more investments and to establish economic relations with a larger number of countries.

Speaking about foreign policy, I would like to emphasise the importance of our relations with the Lithuanian communities abroad. Especially notable is the selflessness and resolve of the Lithuanian Diaspora in defending Lithuania's interests in the government institutions of the US, Canada, Australia, Latin America and other countries. We shall give our wholehearted support to this activity. In our turn, we should also take more care of the rights and interests of our citizens and compatriots abroad.

During my visit in Latin America I met with the representatives of the Lithuanian émigré community there. These meetings contributed to closer relations between Latin America and Lithuania, encouraged to seek possibilities for the émigré community to join in Lithuania's political, economic and cultural life, to consolidate Lithuanian culture and traditions.

There are no state subsidised or privately funded research centres in Lithuania yet that would be engaged in analysing international politics. Therefore, we feel a shortage of qualified foreign policy analytical studies. The first attempts in this direction are being made at the Institute of international Relations and Political Science of Vilnius University. But this is just a small fraction in this sphere. I should think that Lithuania also needs an academic periodical on foreign policy issues. The Government should try and find financial resources for it.

In conclusion I would like to note that the foreign policy sections in the programmes of the Seimas majority coalition and of the Government coincide with the foreign policy strategy formed and pursued by myself as the country's President. Therefore, I am pleased to say that no marked changes in Lithuania's foreign policy are expected. The succession and continuity of foreign policy after the change of the Government following the Seimas elections testify to a certain degree of maturity of our state and its political system.

VIII. LITHUANIA AS PART OF THE MODERN WORLD

The development of our state after 1990 has shown that a state which succeeds in building its image and knows how to present it to the world gains a great deal. The chances of integration into the world economic and political structures, the size of foreign investment, and the international prestige of our country depend on the international assessment of our economic and political situation. It is important that Lithuania should show itself to the world as a country which has preserved and cherished its national traditions, its ancient language and a unique culture. Image building is a strategic objective of Lithuania's policy. Usually, countries which take care of their image, present to the world their economic, cultural and political values. By this they seek to establish themselves in the international community, receive recognition, approval or support in overcoming economic and political crises in the country.

The building of Lithuania's image is directly connected with the ensuring of security of information of the state and its institutions. This can be achieved by regular and reliable information to the public of foreign states about the activities of all our state institutions. It is especially important to present adequately the goals and directions of Lithuania's foreign policy or, if necessary, to defend the country's interests. Therefore, it is my belief that one of the main tasks is a timely and purposeful dissemination of information abroad about Lithuania's political principles and international interests. International standing of a state, its society and values are the foundation on which long-term favourable or hostile attitudes are formed. The goal of Lithuania's strategic international public relations is to establish and maintain relations with the public or social groups of those countries which have an impact on the success of our state's activities in different spheres.

There have been regular discussions lately among our public about Lithuania's image. It is no secret that it is only recently that we began to take measures in this regard. In principle, image building is a common result of a country's' activities in different spheres. Our present image in the world is not wholly satisfactory. Frequent amendments of our laws and decisions, the prevailing image of an ill-wishing and unprofessional Lithuanian civil servant, growing crime rate, border problem, the work of customs and tax inspectors, negative attitude towards foreign investors are harmful to our image. There is too little not just economic information; there is not enough information about Lithuania in foreign languages, and the one that is available is not well prepared. The image of the country can be also harmed by irresponsible and hasty statements by politicians.

On the other hand, usually, unfavourable judgements or established opinion about Lithuania, its different spheres of activities does not correspond reality. Many foreigners, upon a closer acquaintance with Lithuania, stress that in reality our state is better than the image which is being disseminated. The economic interest of foreign investors does not subside. Investors are attracted by the convenient geographical location of the country, a satisfactory transport system, a high intellectual potential of Lithuanian enterprises, cheap work force and adequate work discipline.

Lithuania's inclusion in the European integration processes opens up wide possibilities for the renewal of our country's political and economic life, for a successful development of our state. The success of these development will depend on how purposefully and precisely we shall implement the EU accession policy, how successfully we shall be able to solve issues related to the new position of our country on the international scene. In my opinion, at present we are enjoying a sufficient amount of attention of the world; the only thing that is lacking is a more conceptualised and objective image of Lithuania presented to the international community. Lithuania should be viewed in the world as a sovereign state with a number of apparent advantages. It is necessary to ensure that in the Internet computer network there is no more misleading or ungrounded information about Lithuania. This has become possible when a National Information Metadata Centre was established at the end of last year. The Centre gathers, processes and distributes information in the computer network about different state institutions and their activities. Shortly, this Centre will complete a unified system of management of information about Lithuania distributed by computer network to the Lithuanian public or consumers abroad. Then we can expect a conceptualised image of Lithuania on Internet. Not only Lithuania but also other states and international organisations taking interests in our country will benefit if the world community is provided with accurate, co-ordinated and objective information about the real situation in various spheres of activities of the state, Lithuania's values, its interests and directions of foreign policy.

One of the key tasks is to make proper use of the existing information infrastructure. Information units of various agencies that are operating at present fall under different jurisdiction. This is determines the specific features of their activity and encumbers its co-ordination. A present the procedure of information exchange among state institutions is not regulated. It is especially difficult to co-ordinate information possessed by various state agencies, to distribute it to the public and foreign embassies in Lithuania and foreign mass media. It is not easy to present our country's foreign policy to the international community through such information infrastructure.

This situation is changing gradually. To speed up integration of Lithuania's information policy, industry and infrastructure, a State Information Policy Council was set up with the President's Office. A new institution has emerged which is in charge of the interoperability of agencies working in the sphere of state information policy. The Council is obliged to prepare proposals for the President, the Seimas and the Government concerning the national policy in the sphere of information and the strategy of building an objective image of the state inside the country and abroad, to co-ordinate the activities of information departments of ministries and other agencies, to co-ordinate the drafting of laws and standard acts on information, communication, mass media and informatics.

Generally speaking, this is but a fracture of the national information policy. The main purpose of this policy is to ensure a smooth application and consumption of information resources, information services and information systems, as well as to satisfy the needs of information consumers, co-ordinate the activity of different information systems, to ensure the conformity of legal acts, and access to regional and international information networks and systems.

We can say that Lithuania's image, just like Lithuania's reality is changing for the better. Upon signing the EU Association Agreement the country's strategic location is viewed from a different perspective; it becomes more important. Lithuania must take an active part in the activities of international organisations and show initiative.

It is not by chance that I decided to conclude my annual report on the note of Lithuania's image. It is here that all the problems of our life, all our achievements converge most vividly. It is my greatest wish to see Lithuania's image in future coincide with the vision of our state that we cherish, the image that would embrace all our greatest aspirations and ideals. We, on our part, with a systemic and comprehensive vision of a modern state in place, shall be better equipped to shape our domestic and foreign policy, our economic and social development, to solve the problems of state administration, security, law enforcement and technological progress.