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ESTONIA


 



In-depth Business Intelligence 

Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 6,413 5,500 5,100 100
         
GNI per capita
 US $ 4,130 3,870 3,780 74
Ranking is given out of 208 nations - (data from the World Bank)

Books on Estonia

REPUBLICAN REFERENCE

Area (sq.km) 
45,227 

Population
1,408,556

Principal 
ethnic groups 
Estonians 63.9%
Russians 29%
Ukrainians 2.7%

Capital 
Tallinn

Currency 
Kroon

President 
Arnold Rüütel

  

Update No: 286 - (28/10/04)

The government is unpopular
Estonian Prime Minister Juhan 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. 
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, was also characterised by 32 per cent of respondents as "dictatorial". 
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. It is very likely to give way at the next election to a coalition of more leftish parties.

The star of 'new Europe'
Estonia 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. But it is in many ways the most successful in having introduced market reforms that have brought great problems elsewhere, although Estonia has its share of social problems too.
One has 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 reform had actually been undertaken by the preceding government, the creation of the Estonian kroon in June 1992, with advice from the Bundesbank. 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 curve.
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; 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.
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.

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BANKING

Hansabank to open Tallinn offices

Estonia's largest banking group Hansabank will soon open two new branch offices in Tallinn, New Europe reported recently. On September 13th the bank opened a branch office in Kristiine Shopping Centre, one of the most popular shopping malls in Tallinn. The bank will also open a second branch office in Tondiraba shopping centre in Lasnamae, a large residential district. Priit Potisepp, head of Hansabank's office network division, said that location for new offices was chosen to enable customers to use bank services in connection with visiting the shopping centre.

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ENERGY

Tallin, Vilnius to strengthen regional energy policies

Estonia and Lithuania plan to strengthen their energy policies and pursue regional cooperation, Estonian President, Arnold Ruutel, said on October 4th in Vilnius, where he was on a three-day official visit, Deutsche Presse-Agentur (dpa) reported.
"We want to examine the possibilities of receiving gas supplies from Norway," he said. The former Soviet republics currently depend on Russia for supplies.
"Alternatives are necessary," Ruutel said. Also, as with other infrastructure projects, we are trying to include the Scandinavian countries as well as Poland. Ruutel's visit is the first official state visit to Lithuania by a foreign head of state since June 2003 when former Lithuanian President, Rolandas Paksas, was impeached on charges of corruption. Ruutel met with political leaders of Estonia and made a trip to the military airport Zokniai where Baltic air space is patrolled by NATO planes.

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INFORMATION TECHNOLOGY

Abobase Systems wins tender

Estonian IT solutions developer Abobase Systems won the government tender to develop infrastructure for joint telephone number portability, New Europe reported.
Abobase Systems was one of the 11 bidders for the tender under which the winner will develop a joint database for enabling portability of fixed-line and mobile telephone numbers. Since three bidders were not qualified by the tender committee, eight bidders competed for the project. Six bids were shortlisted. Number portability must be available in Estonia for fixed-line and mobile phone numbers by January 1st, 2005. Abobase Systems employs currently 70 people. The company's sales revenue was 5.9m Euro and net profit 505,000 Euro in 2003.

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