April 2, 2001

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street NW
Washington, D.C. 20431

Dear Mr. Köhler:

1. The key objective of Lithuania's economic policy is to promote sustained economic growth through continued macroeconomic stability and an acceleration of structural reforms, with membership in the European Union and NATO being our central policy goals. Our economic program is supported by the stand-by arrangement (SBA) that was approved by the Fund's Executive Board in March 2000. Implementation of the program has brought significant positive results, as confirmed at the time of the Executive Board's completion of the first program review on January 10, 2001.

2. Despite our best efforts, a single performance criterion for end-December 2000 was not observed—the elimination of central government expenditure arrears. At that time, LTL 41 million worth of arrears were recorded, due to technical difficulties related to clearing all payments at end-year. We regret that these arrears persisted and wish to inform you that all central government expenditure arrears have now been cleared. As such, we are now in a position to request the completion of the second review under the stand-by arrangement, in support of implementation of policies detailed in the Supplementary Memorandum on Economic Policies (SMEP) for the remainder of the term of the SBA. We also believe that we have met in full the final set of performance criteria under the SBA for end-March 2001. However, reliable data on the observance of these performance criteria will become available after April 15, 2001.

3. As before, we do not envisage making purchases under the arrangement, and we believe that the policies described in the SMEP are adequate to achieve our program objectives. However, we stand ready to take additional measures as necessary, in consultation with the Fund staff. We hope to initiate discussions with the Fund staff in May on a possible follow-up arrangement for the period from July 1, 2001-December 31, 2002, again to be treated on a precautionary basis and with a focus on continued fiscal consolidation, support of the currency board arrangement, and completion of remaining structural reforms, with a view to improving the business environment, targeting a reduction of the high rate of unemployment and early EU accession.

4. In line with our commitment to transparency in economic policies, we authorize the Fund to publish this letter following Executive Board approval of the second program review. We will publish this letter in Lithuania.