Estonia’s Transition to a Market Economy

1. Estonia’s Transition to a Market Economy • By Mark Vickers • Estonia’s Historical Cultural Garden in Cleveland, OH • Habitat for Humanity project

2. GDP after Transition Worldbank.org Worldbank.org

3. Population Lithuania’s population is at 3.5 million Poland’s 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 Estonia’s 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 • Stalin’s 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/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. 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 Privatization

12. 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 Problems with Privatization

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 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/focus_on_estonia.php Europa Online. Estonia’s 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 O’Connor, 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 United States. Central Intelligence Agency. The World Factbook, 2005. Washington. GPO, 2005.