Lithuania seeks European aid for struggling businesses

(VILNIUS) - Lithuania, which is on the verge of recession, has launched talks with European institutions on loans to help shore up its business sector, Prime Minister Andrius Kubilius said on Friday.

"Talks are under way with various institutions, and the European Investment Bank is involved in the issue," Kubilius told reporters.

The Nordic Investment Bank was also seen as a likely rescuer for companies in this Baltic state, officials said.

Economy Minister Dainius Kreivys said Vilnius was seeking an injection of between 500 million and one billion litas (146 million-290 million euros, 198 million-397 million dollars) to help Lithuanian firms cope with the downturn.

"We should get the money by March," Kubilius added.

Lithuania has nonetheless said it does not need to follow the example of neighbouring recession casualty Latvia, which last month agreed a 7.5-billion-euro bailout with the International Monetary Fund, the European Union and Nordic states.

Until recently, Lithuania enjoyed a reputation as an economic "tiger" in the EU, which it joined in 2004.

Its growth was powered by exports, as well as robust domestic demand stoked by rising wages, loans and money sent home by the 300,000 Lithuanians who left to work abroad, mostly in Britain and Ireland, since the country joined the EU.

But once-solid consumption has tailed off in the face of high inflation and tighter domestic credit rules, and the global economic crisis has dented exports, hitting businesses hard and sparking mass lay-offs.

Lithuania's economy is believed to have grown 3.5 percent in 2008 -- final figures are yet to be released -- but will likely face a sharp recession this year, contracting 4.8 percent.

That compares with growth of 7.8 percent in 2006 and 8.9 percent in 2007.

Kubilius' conservative government, elected in October, has already brought in a series of belt-tightening measures.