estonia’s transition to a market economy by mark vickers estonia’s historical cultural garden in...
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Estonia’s Transition to a Market Economy
By Mark Vickers Estonia’s Historical
Cultural Garden in Cleveland, OH Habitat for
Humanity project
Real GDP growth Rate
-20
-15
-10
-5
0
5
10
15
1989 1993 2003
Estonia
Latvia
Lithuania
Poland
GDP Converted to US Dollars in Billions
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
1989 1993 2003
Estonia
Latvia
GDP after Transition
Worldbank.org Worldbank.org
Population
0
5000000
10000000
15000000
20000000
25000000
30000000
35000000
40000000
45000000
1989 1995 2004
Estonia
Finland
Poland
•It is hard to even compare Estonia and the other Baltic states to other European countries due to its relatively small size
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
1989 1993 2003
Estonia
Latvia
Lithuania
Lithuania’s population is at 3.5 million Poland’s population is at35 million
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
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
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
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
Russia's Impact on inflation in Estonia
0
200
400
600
800
1000
1993 1994 1995 1996
Inflation , consumerprices (annual %) inEstonia
Inflation, consumerprices (annual %) inRussia
http://devdata.worldbank.org.proxy.lib.ohio-state.edu/dataonline/
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.)
Percent change by year of Real Wages
-50
-40
-30
-20
-10
0
10
20
30
40
1990 1991 1992 1993 1994
Estonia
Latvia
Lithuania
“The Baltic States after Independence”
Inflation of Food and Consumer Prices
0
200
400
600
800
1000
1200
1400
1600
1800
1992 1993 1994 1995 1996
Inflation, food prices(annual %) inEstoniaInflation, food prices(annual %) Russia
Inflation, consumerprices (annual %) inRussiaInflation, consumerprices (annual %) inEstonia
http://devdata.worldbank.org.proxy.lib.ohio-state.edu/dataonline/
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
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
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
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.
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
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
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???
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.
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