Offering investors to lend for Lithuania’s military spending may make little financial sense, but it draws on patriotic feelings, observers say.
With the aim of boosting the country’s defence spending to at least 3 percent of GDP and to procure military hardware, the government has set up the Defence Fund this summer.
The public has been invited to donate or lend to the government by purchasing the so-called “defence bonds”.
“People who want to contribute to the financing of national defence can lend to the government cheaper than it borrows on the market for this purpose,” Finance Minister Gintarė Skaistė explains the idea behind the “defence bonds”.
They were launched last week, replacing treasury notes that were issued before. The difference from the latter is that when buyers purchase defence bonds, they know exactly what the money they’re lending to the government will be spent on.
The Finance Ministry does not specify how much it expects to raise this way. With the treasure notes, the government borrowed some 200 million euros last year.
“If they can raise one euro more through this form than through government treasury notes, I’d say it’s a success,” says Mantas Janavičius, board member of the Investors Association.
However, economists say that the defence bonds will not be attractive to investors: the annual interest rate they offer is only 2 percent.
Economist Eglė Džiugytė of Šiauliai Bank says the figure is completely arbitrary and does not make much financial sense.
“Someone dreamt it up, the figure 2 seemed nice, let’s put 2, I haven’t heard a single reason behind it,” she says.
Banks currently pay more than 3 percent interest on deposits in savings accounts. The government itself is paying more to borrow for other expenses.
The finance minister agrees that financial calculation alone will not make investors buy the defence bonds.
“If a person wants to maximise and invest their money into something that generates the highest returns, then surely defence bonds are not the way to do it,” says Skaistė.
The opposition is critical of the approach. “It seems that the government does not really want people to buy them, because the conditions offered are almost twice worse than of standard bonds,” says MP Dovilė Šakalienė, a member of the National Security and Defence Committee.
Estonia, for example, is offering more than three percent interest on defence bonds.
According to Janavičius of the Investors Association, however, people will buy defence bonds for other reasons.
“Whether the rate is, 0, 1 or 2 percent, should not have a direct impact, because what’s at stake here is patriotism,” he says.
Apart from patriotism, economists see no other reason why investors should buy defence bonds.
“It’s not an investment, it’s a social campaign,” says Indrė Dargytė, head of the investment platform BeMyBond.
Finance Minister Skaist herself admits that she does not expect to raise much from the defence bonds.
“The main revenue for the Defence Fund comes from tax changes,” she says. These come into force next year: a one-point raise in the corporate tax and additional excise duties on tobacco, alcohol and fuel.
The defence fund will be used to buy weapons and ammunition, and to build infrastructure for the German Brigade.
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