Estonia

1
Estonias Transition to a Market Economy

• By Mark Vickers
• Estonias Historical Cultural Garden in
  Cleveland, OH
• Habitat for Humanity project

2
GDP after Transition

Worldbank.org
Worldbank.org
3
Population
Lithuanias population is at 3.5 million
Polands population is at35 million

• It is hard to even compare Estonia and the other
  Baltic states to other European countries due to
  its relatively small size

4
Geography

• Distinguishing characteristics
• Northern Europe
• Separated from Finland by the Gulf of Finland
• Solid trading partner
• Separated from Sweden by the Baltic Sea
• Bordered by Latvia and Russia

5
Fluctuations in Rule after first Declaration of
Independence

• Bolshevik Revolution in 1917
• First Independence in 1918
• Establishment of Riigikogu
• Saeima-Latvia
• Similar to Estonias parliament, but with more
  corruption
• Seimas-Lithuania
• Democratic rep., but dominated by Catholic Church
• Treaty between Russia and Estonia in 1920
• World War 2
• Estonia needed to choose side
• Nonagression pact of 1939
• Hitler-Stalin pact of 1939
• Break up of Baltics

6
Soviet Era

• Estonia and Latvia accused of conspiracy
• 1941 German attack on USSR
• USSR recaptures Estonia
• Stalins death in 1953
• Forced communes until Nikita Krushchev in 1953,
  who brought soviet republics
• Emergence of Estonian Communist Party
• Thaw Period in late 1960s
• Lasted until early 1980s
• Arts and literature flourished as well as economy

7
Estonia before independence and Transition

• Brezhnev-1964-1982
• Brought planning in early 1980s
• Russification in mid 1980s
• Communism and planning
• Proof that planning worked
• Soviet collapse
• Stagnation
• Hitler-Stalin pact declared illegal in 1989
• Communism abolished
• Free elections held

http//devdata.worldbank.org.proxy.lib.ohio-state.
edu/dataonline/
8
Independence and Transition

• Independence declared on Aug. 20 1991 from Soviet
  Union
• Parliamentary Republic of 1918 reestablished
• Major economic problems after gradual dropping of
  planning
• Cost of living index
• Real wages
• Fuel Prices and Rent
• Inflation (graph next pg.)

The Baltic States after Independence
9
http//devdata.worldbank.org.proxy.lib.ohio-state.
edu/dataonline/
10
Adjusting to Markets-Stabilization

• Reestablishment of the Parliamentary Republic in
  the Riigikogu
• Introduction of the Kroon in 1992
• Imports
• With increased purchasing power of kroon,
  interest of imports increased.
• Foreign markets become interested in investment
• Relative Balance of trade came in 1999
• Bank of Estonia established
• Foreign trade balanced
• Buy Estonian Campaign
• Good relations established with Finland

11
Privatization

• Gradual Small and medium scale privatization
• 95 of population was employed by state owned
  enterprises in 1989
• Submission of property claims through
  registration
• Law of Property ratified in 1990 by Prime
  Minister Edgar Savisaar
• Compensation or redistribution of property
• The Riigivaraamet created as property board to
  decide how to privitize small businesses
• Intro of the Kroon in 1992 spurred sales through
  auctions

• Gradual Large Scale Privatization in 1992
• Offered to domestic and foreign buyers
• Foreign investors would bid on enterprises
  through auctions
• Bidder a combination of a high bid and a solid
  development plan would receive the enterprise
• Estonian Privatization Agency set standards for
  foreign investors
• Certain amount of employees needed to be hired at
  all times

12
Problems with Privatization

• Problems
• How to sell unprofitable firms
• Housing privatization
• Paying for promised compensation to owners of
  property during Soviet era

• Solution
• Law of Privatization passed by The Riigivaraamet
• Voucher system put in place
• Citizens received vouchers based on work history
• Citizens could use vouchers to invest in
  investment funds or pension funds backed by the
  govt.
• Vouchers also given out as compensation

13
Response to Supply and Demand

• Consumption of goods
• Fixed exchange rate of the kroon allowed for
  foreign markets to sell products in Estonia
• Domestic and foreign purchase of goods increased
• 67 increase from 1995 to 2000
• Technology increases
• 57 of population had mobile phones in 2001

Changes in consumption structure of Estonia in 1995-2000. Changes in consumption structure of Estonia in 1995-2000. Changes in consumption structure of Estonia in 1995-2000.
Year 1995 2000
Share of groceries in purchases 45 35
Number of cars (thousands) 380 464
Number of travels abroad (thousands) 101 359
www.estonica.org
14
European Union

• Negotiations began in Brussels in 1998
• EU rules, the Aquis established in Estonia
  through The Draft Accession Treaty on April 8,
  2002.
• Official date of accession of Estonia to the EU
  was on May 4, 2004

15
My question as well as yours??

• When will Estonia be able to convert its currency
  to the Euro?
• Bringing down inflation rate from around 4.1 to
  EU average of about 1.5
• Stabilize budget deficit without printing more
  money
• Bringing down consumer prices
• Cutting government spending and cutting budgets
• Your questions???

16
References

• European Enlargement Information Campaign. March
  2004.
• http//www.european-movement.org/enlargement/focu
  s_on_estonia.php
• Europa Online. Estonias Experience in Accession
  Negotiations with the EU. 11 February 2005.
  www.europa.org
• Geography of Estonia. 2006 About.com Inc. The
  New York Times Company
• http//geography.about.com/library/cia/blcestonia.
  htm
• Gerner, Kristian and Stefan Hedlund, 1993. The
  Baltic States and the End of the Soviet Empire.
• Norgaard, Ole. 1996. The Baltic States After
  Transition. Cheltenham, UK. Brookfield,
• US. British Library of Congress
• OConnor, Kevin. 2003. The Greenwood Histories
  of The Modern Nations. The Histories of The
  Baltic States. Library of Congress. Westport,
  Connecticut.
• Orro, Peter. Interview. 16 January, 2006.
• The World Bank Group. 2004. WDI Online. The Ohio
  State Libraries http//devdata.worldbank.org.proxy
  .lib.ohio-state.edu/dataonline/
• Transition of Estonia. 1996.
  www.countrystudies.com