Lithuania acceded to the European Union in 2004. According to a 2002 assessment by the International Monetary Fund (IMF), the Bank of Lithuania (BoL) has achieved a high degree of transparency in the conduct of monetary policy. The Law on the BoL provides clear definitions of the BoL's goals and duties for the formulation and execution of monetary policy, and the BoL website effectively makes available to the public a great deal of information on its monetary policy as well as the source data and methodologies employed in its formulation and execution. Although Lithuania's 2007 bid to adopt the Euro was rejected due to its inability to bring inflation down to Maastricht reference levels, the IMF's 2007 Article IV Consultation notes that plans are in the works to reapply in 2009 or 2010. However, the IMF report expressed some doubts that this will occur on schedule, given current high inflation rates, and recommended the adoption of precautionary measures that might enhance Lithuania's prospects of achieving this goal. Lithuania is a subscriber to the IMF's Special Data Dissemination Standard and meets or exceeds all specifications for coverage, timeliness, and periodicity in the required datasets.

General Overview

As early as 2002, when the International Monetary Fund (IMF) conducted its last Financial System Stability Assessment (FSSA) for Lithuania, the country was judged to observe a high degree of monetary policy transparency, and the report noted that this transparency was continually improving as Lithuania moved forward toward accession to the European Union (EU). To achieve accession (which took place in 2004), Lithuania was obliged to harmonize its supervisory and regulatory frameworks to those employed by the EU. At the time of the 2002 FSSA, the IMF suggested that Lithuania work to make the linkages between monetary and financial policies more clear, render the supervisory framework more efficient, and strengthen crisis management among agencies. The 2002 FSSA also noted that the Law of the Bank of Lithuania (BoL) clearly spells out the central bank's roles and responsibilities, and that the BoL effectively employs its website to make monetary policy information available to the public.

The Law of the Bank of Lithuania (originally passed in 1994 and amended through 2006) confers on the BoL independence from government interference in the formulation and conduct of monetary policy. According to the provisions of the law, the BoL's primary objective is to achieve price stability, and the principle tools by which it is to achieve this end is through setting a fixed exchange rate, automatic money-market adjustments, and the application of an inflation-targeting mechanism. On accession to the EU, Lithuania assumed the obligation to adopt the Euro at the earliest possible date, and originally set its target adoption date in early 2007, according to the IMF's 2004 Article IV report (published in 2005). To achieve this, it entered the ERM-II mechanism shortly after accession. According to the Executive Director's Statement, included in the 2004 IMF report, the ERM-II authorities determined that "Lithuania would join the exchange rate mechanism with the standard fluctuation band, but with its existing currency board in place as a unilateral commitment" (p. 3). Lithuania's early 2007 bid to adopt the Euro, however, were rejected, because inflation remained too far above the Maastricht limit, according to the IMF's 2007 Article IV Consultation report. Current plans for Euro adoption have moved to a new deadline of 2009 or 2010, but the 2007 IMF report expressed some doubts that inflation can be brought to acceptable levels by that time.

The Bank of Lithuania's 2006 Annual Report (published in 2007) expressed confidence that, since all other requirements for Euro adoption are in place, Euro adoption might be reached in 2010. To achieve this, the BoL is following a strategy that pegs the litas to the Euro, and has reiterated its confidence that Lithuania's open economy and price- and wage-flexibility will permit it to reach its goal in a timely fashion. The annual report added that it views accountability to the public to be a key principle, particularly as it raises public confidence in the BoL's integrity and contributes to banking system stability. The BoL reports to the Lithuanian legislature twice yearly, at which time it responds to queries regarding monetary policy implementation. It issues 12 separate publications, including the Annual Report, the Monthly Bulletin, the Financial Stability Review, Banking Statistics Yearbook, and many others. All these publications are available in print form and on the website. As a member of the European System of Central Banks (ESCB), the BoL works closely with the European Central Bank (ECB) in complying with ESCB transparency specifications.

Lithuania became a subscriber to the IMF's Special Data Dissemination Standard (SDDS) in 1996, first posted its metadata on the SDDS website in 1997, and first met SDDS specifications in 1999. Currently, Lithuania meets or exceeds SDDS specifications for coverage, timeliness, and periodicity, and provides summary methodologies for all the requisite datasets.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

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The IMF's 2002 FSSA states that the "roles, responsibilities and objectives of the BoL are clearly defined in law" (p. 36). The Law of the Bank of Lithuania was originally passed in 1994 and has been amended several times since. It sets forth the BoL's primary and secondary objectives in monetary policy formulation and execution, the bank's responsibilities, and the mechanisms to be employed in achieving its aims. In its role as the sole issuer of currency, the BoL is governed by the Law on the Credibility of the Litas (the litas is the Lithuanian unit of exchange). Amendments to the Law of the Bank of Lithuania have added provisions regarding the BoL's accountability in the conduct of monetary policy, standards of confidentiality and ethical behavior, and the terms and conditions according to which BoL board members, officers, and staff may be dismissed for violation of the rules of conduct. Articles 10 through 17 of the Law of the Bank of Lithuania set forth the rules by which the BoL board of directors is constituted and the activities for which board members are responsible. The board consists of 11 members: a chairperson appointed by the president and approved by parliament, as well as three deputy chairs and seven additional members, all of whom are chosen by the chairperson with presidential approval. The texts of the laws governing the BoL's activities are all available on the BoL website.

Coordination of monetary and fiscal policy is achieved through the operation of the Monetary and Fiscal Policy Coordination Committee, which liaises between the BoL and the Ministry of Finance. The distinction between these two policy functions is clearly established in Lithuanian law, according to the IMF's 2002 FSSA.

Open process for formulating and reporting monetary policy decisions.

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According to the 2002 IMF FSSA, the BoL's monetary policy formulation and reporting is very transparent. The BoL website makes available a variety of regular publications, bulletins and financial reports. The annual report is posted on the website for public viewing. Decisions arrived at during meetings of the BoL board are also made available shortly after the meeting is held. The BoL website also issues press releases and statements by board directors regarding monetary policy, its rationale, the bank's monetary operations, and other relevant topics, According to the 2002 IMF FSSA, the BoL has no legal obligation to consult with the public prior to making changes affecting monetary policy, it nonetheless announces such possible actions in advance and invites public commentary on its website.

The BoL's 2006 Annual Report states that the bank views accountability to the public to be a key principle, particularly as it raises public confidence in the BoL's integrity and contributes to banking system stability. The BoL reports to the Lithuanian legislature twice yearly, at which time it responds to queries regarding monetary policy implementation. It issues 12 separate publications, including the Annual Report, the Monthly Bulletin, the Financial Stability Review, Banking Statistics Yearbook, and many others. All these publications are available in print form and on the website. As a member of the ESCB, the BoL works closely with the ECB in complying with ESCB transparency specifications.

Public availability of information on monetary policy.

FC

The IMF's 2002 FSSA asserts that "the BoL maintains a high level of transparency by providing public access to information on monetary policy" (p. 37). The IMF SDDS website discloses that the BoL's provision of public access to monetary statistics is fully compliant with SDDS specifications for timeliness, coverage, and periodicity, that the BoL publishes advance release calendars for all datasets, one quarter prior to provisional release dates and no later than one week prior to actual release dates. In addition, summary methodologies are available covering all applicable datasets on the SDDS website. According to the 2002 FSSA, the BoL's practice with regard to this principle is highly transparent. This is borne out by the BoL website, which makes publicly available the central bank financial accounts, statements of banking system liquidity, and a broad range of other monetary policy-related data. The texts of all laws governing Lithuanian monetary policy are also available through the BoL website.

The BoL's 2006 Annual Report states that the bank views accountability to the public to be a key principle, particularly as it raises public confidence in the BoL's integrity and contributes to banking system stability. The BoL reports to the Lithuanian legislature twice yearly, at which time it responds to queries regarding monetary policy implementation. It issues 12 separate publications, including the Annual Report, the Monthly Bulletin, the Financial Stability Review, Banking Statistics Yearbook, and many others. All these publications are available in print form and on the website. As a member of the ESCB, the BoL works closely with the ECB in complying with ESCB transparency specifications.

Accountability and assurances of integrity by the central bank.

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According to the IMF's FSSA of 2002, "transparency practices with respect to accountability and assurances of integrity by the central bank are generally very good" (p. 38). The FSSA recommended that the BoL website publish all legislation that governs central bank integrity, and as of 2007, the website does, in fact, make this legislation available to the public. The Law of the Bank of Lithuania, as amended up to 2006, contains provisions covering the accountability and liability of BoL officers, board members, and staff, including rules barring board members from participating in any decisions that will constitute a conflict of interest. The law also provides for the dismissal of board members for cause. The Law on Statistics contains provisions regarding professionalism, integrity, and confidentiality that apply to all agencies involved in the compilation and dissemination of statistical data, including the BoL.

The annual report adds that it views accountability to the public to be a key principle, particularly as it raises public confidence in the BoL's integrity and contributes to banking system stability. The BoL reports to the Lithuanian legislature twice yearly, at which time it responds to queries regarding monetary policy implementation. It issues 12 separate publications, including the Annual Report, the Monthly Bulletin, the Financial Stability Review, Banking Statistics Yearbook, and many others. All these publications are available in print form and on the website. As a member of the ESCB, the BoL works closely with the ECB in complying with ESCB transparency specifications.