Analytics, Economics, Financial Services, Lithuania

Lithuania is expected to enter recession in the first quarter of 2009, and to see the economy contracting by about 5% for the whole of this year, after years of strong growth.

"If we fail to inject this money (from the stimulus package), the economy could contract much more," Prime Minister Andrius Kubilius told at a news conference.

He said the money should start entering the economy in May-June. The government plan aims at helping business to get credits, speed up the use of EU structural assistance and ease labour market regulations.

Lithuania also plans to start a wide program of building renovation to help the ailing construction sector.

"The program might help to save some 50,000 jobs in the construction sector," said Economy Minister Dainius Kreivys.

Kreivys told journalists it was the first such stimulus package in eastern and central Europe.

The banks, dominated by Scandinavian groups SEB and Swedbank, are expected to contribute some 30-50% of financing needs, with the rest of the money coming from the European Investment Bank, structural funds and the state budget.

"I see no reason why banks could refuse to lend on a mutually beneficial basis," the prime minister said.

Stasys Kropas, the head of the commercial bank association, said the government's participation might reduce the lending risk and lower the cost of money.

The banks, which saw their profits falling and bad debts growing, have tightened credit requirements.

Trade unions have already said they would not approve any relaxation of labour regulations to enable employers to fire people more easily.

The jobless rate has already jumped, hitting 7% in January from 5.7% in December.