Tallinn, 8 March 1999 (RFE/RL) -- Estonia managed to achieve stable growth last year despite the Russian financial crisis and international experts have projected more solid growth figures for this year.
Projections from the International Monetary Fund, World Bank, and United Nations European Economic report say Estonia's economy will grow from 3.6 to 6 percent in 1999. All cite a continuing impact from the Russian crisis but say Estonia's continuing large trade with Western Europe is a positive sign.
Estonia is less dependent than Latvia and Lithuania on business or financial transactions with Russia.
According to the Estonian Statistical Office, only about 21 percent of all imports in 1998 came from Russia and about 14 percent of all exports were to Russia. Estonia's main trade partner has been the European Union, with 54 percent of all imports and 60 percent of all exports in 1998. This, experts say, explains why Estonia has managed to emerge relatively unscathed by the Russian crisis' fallout. However, Estonian GDP growth fell from 9.3 percent in the first quarter of 1998 (compared with the same quarter in 1997) to 1.8 percent in the third.
Unlike in Latvia, few Estonian banks had lent money to Russian partners, therefore few banks registered net losses when Russian banks declared insolvency last year.
Last year's turbulence in the Estonian banking sector is more attributable to domestic issues, according to Tallinn-based financiers. banking problems were nonetheless severe. Several banks have closed total losses were about $40 million or roughly 1.2 percent of total assets.
But the Bank of Estonia (Eesti Pank) says the open net foreign currency position of Estonian commercial banks improved by last November and remained positive with about 1,000 million Deutschemarks. Estonia's currency, the kroon, is pegged by a Currency Board to the D-mark at the ratio of 8 to one.
Estonia has managed to attract a considerable amount of Western investment. By the third quarter of 1998, foreign direct investment was slightly less than 3 billion German marks, with Finland being the largest single direct foreign investor. Most of the investments were made in industry (about 1 billion German marks) with wholesale and retail trade following. Conversely, Estonians invested about DM 250 million abroad, mostly in Latvia.
There are persistent problems with the current account deficit which, at 9.5 percent of GDP, is greater than that of most other European countries. This is also likely to be influenced negatively by the Russian contagion. Estonia's net foreign debt is 18 percent of GDP.
The Estonians traditionally see themselves as being front-runners in high-tech industries and communications. A survey by Estonian Telecom showed about 14 percent of all people in Estonia have mobile phones. More than 40,000 mobile phones were sold in Estonia in 1998 alone. This makes it among the leading countries in Central and Eastern Europe in mobile communications.
With an average of 33 stationary phones per 100 inhabitants, Estonia is on a par with Latvia, Hungary and the Czech Republic. Recently, the Telia of Sweden and Sonera of Finland bought jointly 46.5 percent of Eesti Telecom, the national operator.
Privatization in Estonia has largely been completed, with 1994 being the peak year for privatizations when, in the words of one expert, there was "one selloff agreement per day." The largest recent privatization deal was the purchase, by the German firm Hermann Koehne Bauunternehmung GmbH, of 49 percent of the state-owned Estonian railways. However, not all is so rosy in Estonia's economy. Unemployment is at an average of about 9 percent and is much higher in areas where ethnic Russians predominate.
Last month, the sales of industrial goods plummeted, falling 15 percent compared to January 1998 and 20 percent on the previous month. Some bankruptcies of industrial enterprises have been explained with tougher competition and the continuing pressures on world markets. Sales of foodstuffs and soft drinks were down 41 percent compared to January 1998, while electricity and heating production also declined though less dramatically.
The Estonian stock market performed badly in 1998, as the index fell by 66 percent, which followed an even sharper drop at the end of 1997. But, experts say, this should not be seen as dramatic as it would have been in Western countries. Few Estonian individuals or companies as yet own and trade stocks.