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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Banks lost half a billion in four months

Banks operating in Estonia made a combined loss of 505 million kroons in four months.

Postimees writes that the data available for the first quarter shows that Swedbank lost 298 million kroons, SEB lost 40 million and Sampo 54 million kroons. The only large bank that made a profit was Nordea (95 million kroons).

In comparison, in four months 2008 the banks made an aggregate 1.3 billion kroons in profit.

According to analysts, most of these losses are still virtual, made up of loan provisions made by the banks. But even central bankers expect the situation to rapidly become worse.

The banks ended last year with a combined net profit of 4 billion that was about half less than in 2007, but about 10 percent more than in 2006.

Altough Estonian central bank Eesti Pank maintains that the banks operating in Estonia are well capitalised and can handle the loan losses, it admits that overdue loans as a share of total credit rose to 5.2 percent in April. This is as much as the central bank expected to see at the end of 2009.

"On a positive side, banks operating in Estonia have made sufficient loan provisions for 2009," said Siret Vildo from Eesti Pank's financial sector policy unit.

The central bank said it will issue a new report on the situation in banking and loan losses in three weeks.

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Opinion: Estonia enters the era of self-pity

Estonians have quickly discovered the feeling of self-pity, Tõnn Sarv writes in Eesti Ekspress.

“Estonia is going from one extreme to the other. It was good to be proud, as the lyrics of a famous song said. Estonia was about to discover its Nokia and reach five richest countries. And then everything changed. Now we are one of the least attractive countries that have been deserted a long time ago by any sensible person.

Well, yes, Both are issues of faith. I don’t know whether a Slovak should feel less proud for being a Slovak. Or what countries or nations are even less attractive than Estonia.

Every faith needs confirmation. Throughout the whole Soviet times it was believed that we were the most Western, most successful and the richest region in the red empire. We believed that it was our singing revolution that brought down the USSR. And that until now the biggest worry of the Russian president is how to handle Estonia.

It now seems that this thinking is changing and radically so.

People are now believe that we are a pitiful, meaningless, weak and stupid nation. Living in a cold and wretched weather. Everybody is angry and accusing each other. The government is impotent, the country is bankrupt. You can no longer count on anything. Those who can should flee.

Well, I don’t know. Self-pity is similar to self-pride, you can go too far with it. After all, the question is not whether everybody thinks the same way. Nor even what everybody things. Also media does not mean much.

This is likely to become a fashion trend and a popular cool attitude. The critical mass of opinion leaders will be filled and as soon as you say that you like living in Estonia you are pitiful. Because the right people are doing everything they can do leave.

But we have had these times of pity and pessimism also before. And not only we. Russia went through it in 1990s. We are getting to it now. With a bang.

We have depressive Estonian small towns. There was the time when Estonia was restoring monuments of freedom. Now no-one can understand why we need another one in the middle of Tallinn. It used to be good to be proud. Now it is pitiful and bad and everybody agrees to the ideas of Sami Lotila.

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

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