Books on Estonia
Update No: 287 - (29/11/04)
Parts congratulates Bush
Estonian Prime Minister Juhan Parts was ready to give Bush a lavish endorsement
on his electoral victory on November 2nd, too ready many Estonians thought, as
well as to commit Estonian troops to the coalition in Iraq after a second
Estonian soldier was killed there this autumn.
Congratulations came swiftly on the day after the election from Prime Minister
Parts, who promised to continue his country's support for the war on terrorism
and the U.S.-led coalition in Iraq, where Estonia has 45 soldiers. They are
committed to stay there until June, 2005 at the earliest.
Estonian PM most disliked party leader: poll
What is seen as slavish pro-Americanism has not endeared him to his own people.
Parts is considered the most inexperienced and arrogant party leader in the
Baltic country, which joined the European Union this year, a recent poll showed.
The head of Estonia's centre-right coalition government was described as
"inexperienced" by 34 per cent of the 1,000 people questioned in the
poll published in Estonian daily, Postimees. Estonia's ruling centre-right
parties were left empty-handed in the country's first election to the European
parliament in June as opposition parties took all six seats.
Another 27 per cent said Parts, head of the governing rightist Res Publica
party, is "arrogantly looking down on the people" and 44 per cent said
he "remains too far from ordinary people," according to the survey by
polling agency Turu-Uuringute.
"Two years in politics is too short a time to become acquainted with the
people," Parts told the newspaper in response to the results of the poll.
The head of Estonia's biggest opposition Centre Party, the mayor of Tallinn
Edgar Savisaar was considered a "competent leader" by 51 per cent of
respondents. But Savisaar, who was facing a vote of no confidence as mayor of
Tallinn on the same day, was also characterised by 32 per cent of respondents as
Nevertheless the economic news is generally very positive. GDP has been growing
solidly at 5% per annum on average for over a decade.
Estonia, which embraced economic liberalisation from the outset of independence
in 1991and has looked to neighbouring Scandinavian countries for inspiration,
has made big strides in building a modern economy.
Foreign investors, led by Swedes and Finns, may pump up to a billion euros
($1.27 billion) this year into the Baltic state, more than 15 times the amount
that entered Estonia in 1992.
How It All Began
Estonia, therefore, is in a different category from all the other recent
entrants to the EU, that is 'new Europe.' It is not the richest of them. That is
Slovenia. One has, indeed, to go back to the immediate aftermath of independence
in 1991 to find out why. Leading his coalition to election victory in the autumn
of 1992, the 'golden boy' of Estonian politics, the then 32-year-old Mart Laar,
formed a youthful government to push through many of the most difficult 'shock
therapy' reforms, guided by an extremely liberal economic outlook. It is an
irony that the Estonians now distrust their present prime minister for his
'inexperience' when their most successful one since independence was inevitably
very inexperienced, as were his ministers, many of them in their twenties.
The initial vital reform had actually been undertaken by the preceding
government, the creation of the Estonian kroon in June 1992, with advice from
the Bundesbank.. But it is in many ways the most successful in having introduced
market reforms that have brought great problems elsewhere, although Estonis has
its share of social problems too.
It was the first post-Soviet currency to be independent of the rouble and was
soon a success.
In the absence of a mantra on how to transform a command economy into a free
market economy, Laar then had to rely on some basic fundamental economic
thoughts, such as the idea that lower taxes will lead to higher economic growth
and eventually higher public revenues. This idea had been around for some time
-- many centuries and probably even millennia. But it was reinvigorated not
earlier than in the seventies, when the American economist Arthur Laffer,
sitting in a restaurant and explaining to a friend the mechanism behind it,
depicted a graph on a napkin, which later became world-famous as the Laffer
Though modest tax reductions became fashionable in its wake, the idea had never
been put into practice in a radical way. It was Estonia, benefiting from the
readiness of the population to adopt radical solutions, which set the ball
rolling with a flat-rate 26 per cent income tax. The philosophy behind the
flat-rate tax is simple. People that work more and earn more should not be
punished for it. Progressive taxes act as a disincentive. In Estonia, the
flat-rate tax fostered capital formation, lead to higher productivity levels,
higher wages, and job creation. Moreover, a flat income tax rate is easy to
collect and control. Today Estonia is even considering a further reduction in
tax rate, to 20%.
Moreover, Estonia abolished all import tariffs, it introduced a balanced budget
required by law, massive deregulation and so on. Estonia also abolished its
corporate tax on reinvested profits. These lessons have subsequently been
eagerly absorbed in other new member states. Now Poland, Hungary and Latvia have
all cut corporation tax to below 20%. Slovakia has introduced a 19% flat tax for
both corporate and personal income. In its economic policy design Estonia has
followed Milton Friedman's ideas of liberalism.
As Mart Laar stated: 'Especially in a transition country, where the economy has
to move from a fully government-controlled system to a market based one, it is
very important to free the private initiative and give freedom of action to
create economic value. The government must not punish entrepreneurial people; it
has to encourage them, also through the tax system. The government must ensure
the fair play only.
This is all a far cry from the thinking which seems to prevail in an number of
countries of 'old Europe'. Proposals to harmonize taxes invoke images of tax
cartels with minimum tax levels, squeezing the taxpayer and killing incentives.
Whereas, in the founding member states it often exceeds 30 per cent. In Germany
the rate is almost 40 per cent, and in Sweden it ranges between 30 per cent and
60 per cent.
Armenian, Estonian presidents discuss bilateral relations
Armenian President Robert Kocharian received Estonian President Arnold Ruutel
recently, who was paying a three-day official visit to Armenia. An official
reception ceremony took place at the Armenian presidential residence. After a
tete-a tete meeting of the two countries' leaders, extended talks were held. The
Armenian and Estonian presidents held a joint press conference after the meeting
and answered journalists' questions, Public Television of Armenia reported.
"We have just finished our meeting and discussed the full range of
bilateral relations, exchanged views on regional problems," Robert
"Our region, the South Caucasus, is a complicated region. We are interested
in the experience of the Baltic countries. We also discussed economic
cooperation. I am glad to inform you that an Estonian business delegation is
also in Yerevan and today we shall hold a business forum together," he
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