The Washington Diplomat

Of the three Baltic states, Estonia has been least affected by the global economic meltdown. That’s partly because the tiny country — smaller than New Hampshire and Vermont combined — identifies more closely with Scandinavia to the north than to Central Europe, which is the reference point for Lithuania, and to a lesser extent Latvia.

Throughout the Cold War, Estonians in the capital of Tallinn could easily watch Finnish-language TV broadcasts coming from Helsinki, only 80 kilometers away. Like the Finns and Swedes, the Estonians are predominantly Lutheran, whereas Lithuanians are mostly Catholic and Orthodox Christian.

“Estonia always promoted free trade, even before we joined the EU,” said the country’s ambassador in Washington, Väino Reinart. “Since 2004, we have been one of the EU’s strongest promoters of a liberalized market, and obviously, our membership in the EU has benefited our economy.”

Between 2000 and 2007, the country’s growth rate averaged 8 percent. But in 2008, it fell 3.6 percent. According to the Estonian Finance Ministry, GDP will tumble 8.5 percent this year, while the Bank of Estonia predicts a drop of anywhere between 5.5 and 8.9 percent — all of which explains why Estonia was smart to save its kroons for a rainy day.

“Since 2000, we were having budget surpluses every year, and we were able to accumulate reserves worth roughly 10 percent of GDP,” said Reinart. “We knew that the good years would not necessarily last forever.”

Nevertheless, like its Baltic neighbors, Estonia has seen unemployment jump from around 4.5 percent last year to around 10 percent now. Yet unlike Latvia and Lithuania, there’s been no social unrest, and no widespread anti-government demonstrations.

“You can say Estonia has been more careful [than Latvia or Lithuania], which is clearly demonstrated by our reserves. It has not been necessary for us to approach the IMF or the EU for additional credit, which Latvia has been forced to do.”

In fact, said Reinart, “Estonia is part of the consortium that put together the first credit package and made it available to Latvia last fall,” so it is, in effect, a donor country rather than a borrower.

Services — dominated by tourism, finance and the information-technology sector — comprises 64.8 percent of Estonia’s GDP, while industry makes up another 32.5 percent. Agriculture, once the mainstay of the region, contributes a minuscule 2.9 percent of GDP. Top markets for Estonian products are Finland, Sweden, Russia, Latvia and the United States, while leading exports are machinery and equipment (33 percent); wood and paper products (15 percent); textiles (14 percent); food products (8 percent); and furniture (7 percent).

With 1.98 million mobile phone lines and 780,000 Internet accounts for its 1.3 million people, Estonia is one of the most wired countries on Earth. Every gas station in Estonia offers free WiFi, more than 90 percent of banking is done online, and 90 percent of all 2008 tax returns were also filed online in Estonia, the country that gave the world Skype.

“Estonia’s population has traditionally been well-educated,” said Reinart. “Even a century ago, we had a literacy rate close to 100 percent. We’re future-oriented, and you’ve got to be inventive to be successful.”

Reinart, 46, was born and raised on the island of Saaremaa, just off Estonia’s Baltic coast. He studied radio electronics at Tallinn Technical University and did post-graduate studies in physics at the Estonian Academy of Sciences.

In 1992, he joined Estonia’s new Foreign Service, serving as the country’s representative in Vienna to the Organization for Security and Cooperation in Europe from 1995 to 1999. In 2002, he was appointed Estonia’s ambassador to the EU in Brussels, a job he stayed at until 2007, when he was transferred to Washington.

“I believe the government has been able to explain to the people what we’re faced with,” Reinart said, praising the current leadership of Prime Minister Andrus Ansip. “He has taken measures to cut back public spending, which is necessary to meet the EU’s criteria to join the eurozone” — an achievement Reinart says will be likely by 2011. “We’ve got to keep our budget deficit below 3 percent. Our public debt is supposed to be below 60 percent of GDP. In Estonia, it’s only 5 percent. Inflation used to be relatively high, but with all likelihood, we will meet the eurozone’s inflation criteria by November of this year.”

Elimination of the Estonian kroon, currently pegged at 15.646 to the euro, would do away with currency risk, Reinart noted.

Despite Estonia’s relative stability compared to its two Baltic allies, prominent political scientist Rhine Toomia warns that the Estonian government could collapse within a few months if the economic situation continues to decline.

“A critical time should come sometime by summer, and elections will make it even worse,” he told a radio program in mid-April. Toomia said the coalition government headed by Ansip had been near collapse several months ago, when there were fears it wouldn’t be able to survive negotiations over budget amendments.

Ansip himself warned that Estonia’s unemployment fund is on the verge of bankruptcy as it struggles to make payments, leaving only 80 million kroons ($6.8 million) out of a total budget of 2.7 billion kroons ($229 million).

Yet so far, Reinart’s 11-member embassy on Massachusetts Avenue hasn’t been affected much by the latest austerity directives from Tallinn. “We have not been prevented from carrying out our day-to-day activities by any means,” he said. “We are doing pretty well.”

Larry Luxner is news editor of The Washington Diplomat.