Estonia: Rising From the Ashes

TALLINN, Estonia -- What would you expect from Europe's youngest prime minister -- a man who recruits cabinet members from among his fraternity brothers? Who used to ride from village to town on a bicycle, collecting stories of Stalinist oppression and thumbing his nose at the KGB? Who relaxes to the music of Guns 'N' Roses?


Radical reform.


Here in Estonia, a country of forests and swamps about the size of West Virginia, Prime Minister Mart Laar, 33, and his team have raised their young country from the economic wreckage of the Soviet Union.


Although GDP shrank 20 percent in 1992 and 2 percent in 1993, Laar says that the International Monetary Fund is predicting 6 percent growth in 1994. That would make the Estonian economy the fastest growing of any in Europe or the former Soviet Union.


"The World Bank has informally said to our ambassador that they would not be surprised to see 5 percent growth for every year from this year to the year 2000," said Ingrid Kollist, economic officer at the U.S. Embassy in Tallinn. "They're very bullish on Estonia."


Official unemployment is 2 percent, and in Tallinn -- a charming European village turned boom-town -- unemployment is virtually zero and the newspapers are full of help-wanted ads.


Thousands of new businesses crop up annually, while Estonian exports nearly doubled in value last year, from 5.5 billion kroons in 1992 to 10 billion kroons ($725 million) in 1993.


The Laar government has butchered social programs, while state-owned factories have been told to turn a profit or fold. Many have done the latter: In 1993 agricultural production fell 20 percent, manufacturing 27 percent.


That and conservative monetary policies have kept the Estonian kroon stable and held inflation to 33 percent for 1993, down from 40 percent for 1992. In Russia, inflation was 900 percent last year and 2,600 percent the year before, while industrial production has fallen 31.3 percent and GDP 29 percent since 1991.


"If you look into history, we have done exactly what Germany did after World War II -- only Estonia is doing it without the Marshall Plan," Laar said in an interview in Toompea Castle.


Laar and his ministers developed their game plan in college, poring over economic textbooks at Estonia's elite Tartu University -- the school Estonians with political aspirations dream of attending.


Laar, a blond, stocky historian still attends the occasional fraternity party at the Estonian Students Society. He grins boyishly as he recounts his not-so-distant college days, when he apparently spent half his time hanging out with underground rock bands, the other half gathering oral histories about resistance to the Soviet occupation of Estonia in the 1940s and '50s.


Many of Laar's ministers are still in their 20s. Juri Luik, Laar's 27-year-old foreign minister and a fraternity brother, has a ready answer to skeptical questions about his age.


"Who in this country has the experience for today's problems? No one," Luik said. "We at least gathered our experience from Western books, and we're now trying to implement those ideas."


Many Estonians say life is harder than ever. The budget is balanced, but government salaries and pensions are low. Average monthly salaries are about 1,200 kroons ($87), while senior citizens scrape by on monthly state pensions of 500 kroons ($36). Although a dollar stretches far here, surveys show Estonians spend 40 percent of their income on food alone. Approval ratings for Laar's government hover around 10 percent.


Farmers, who make up a surly, subsidy-fattened lobby, are particularly unhappy. Yet when farmers gathered early this month for an angry conference to demand more subsidies, Laar coolly suggested they package their products more attractively and hope Estonians will buy them.


"Of course we are not very popular," Laar said. "People complain that we don't like the elderly, we don't like children, we don't like sports.


"This is the toughest moment for any government: when the economy zooms up but there's no money in people's pockets."


Popular or not, Laar's program works. Two years ago, there were 2,000 private companies in Estonia. Today, estimates range from 40,000 to 60,000. Thirty percent of the population last year switched jobs.


No other former Soviet republic has enjoyed such success. In nearby Lithuania, for example, a largely communist government was elected in 1992 and the powerful farmers lobby have gummed up efforts at reform. Inflation in 1993 was 188 percent, while salaries are about half of those in Estonia.


Only Estonia's neighbor Latvia is doing half as well. Latvia's GDP shrank by 33.8 percent in 1992 and 19.9 percent in 1993, but economists say the economy bottomed out this year and should begin growing. Riga, meanwhile, is blossoming into a banking center for Russian flight capital, and the currency has steadily climbed.


Estonia has greatly benefitted from its special relationship with Finland. Most of the $65 million in foreign investment Estonia enjoyed in 1993 was Finnish, while 80 percent of the tourists visiting Estonia last year were Finns. Estonian and Finnish are similar languages, and Estonians, who could tune into Finnish television even in the pre-Gorbachev era, had a headstart on glasnost.


Thanks to Finnish television, for example, Estonians understand the importance of a pretty wrapper in sales. Estonian yogurt would look at home on the shelves of a Western grocery store; Latvian yogurt is wrapped in a faded label that looks as if it has been lying in the sun for weeks.


Estonian products have poured into northwest Russia in the past six months. Russians who would never buy anything "Soviet" snatch them up, convinced by the fancy packaging that they are buying Finnish.