How would I rescue Estonia?

Crisis is the time for re-thinking and there are options available for Estonia, writes economist Hardo Aasmäe.

Aasmäe writes in Eesti Ekspress that, shortly, the way out would be to create a state-owned commercial bank, savings and loan societies, increase income tax rate back to 26 percent and have every party bring into Estonia one billion kroons in investment projects.

“This is not an ordinary crisis that usually repeat in every 10 or 12 years. This is a the most significant and complex crisis that we have seen so far. Therefore, we cannot simply do as we did last time since it would be the same as using cavalry to attack a tank division. We need to re-think things and must not be ashamed to do so. Getting smarter is not prohibited. The worst in crisis is to feel pity, cry and blame each other.

The crisis in Estonia has three legs. First, the budget crisis that we fuelled with the bloated budget and excise duty raises in 2008. This way our budget was unrealistic already when the crisis arrived. Second, the impact of world recession on our small and open economy. Third, structural crisis caused by our rapid development to 20,000 USD per capita.

Aasmäe provides the following possibilities for solving the crisis:

1) budget cuts and balanced budget will not save the Estonian economy. These are only emergency measures that keep the country going. Instead, the government should come up with a realistic action plan that could include cutting the budget.

2) Estonian finance market must be restructured and become more active. At present 90 percent of Estonian banking is controlled by Swedes and depend on them. Therefore, the state could set up a state commercial bank by using government reserves. It could keep budget funds and other reserves. Later the bank could be listed.

3) Estonia should start supporting setting up loan and saving societies. The start could be the housing societies that handle tens of billions of kroons a year combined. They could bring flexibility to the market of small loans.

4) Every party should make its best to attract into Estonia one billion-kroons foreign investment such as Tallinn City Government by renting out Linnahall to US real estate developers.

5) Admit that the euro train has gone for the time being. Euro will not help us emerge from the crisis.

6) bring back income tax rate to 26 percent for few years. Every percentage is about a billion kroons to the budget.

Source http://balticbusinessnews.com/default2.aspx

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