The Estonian exception

 It sometimes makes sense to lump together Estonia, Latvia, and Lithuania into a grouping called the Baltic states – when talking about their common 20thcentury experience of foreign domination, for instance, or, more recently, entry into NATO and the EU. 

But in the most fundamental ways – histories, languages, and, now, economies – they are different. Nothing has shown that more clearly recently than Estonia’s outpacing its neighbors as it climbs out of the financial hole of the worldwide recession. 

“Estonia is recovering first because the economy was stronger in the beginning,” said Heikki Maki, vice president of Elcoteq, a Finnish electronics manufacturer operating in Estonia since 1992.  

Maki said Estonia’s quicker path to recovery justifies Elcoteq’s decision to keep its Tallinn factory open. 

“Estonia ran fiscal surpluses during the good years and built up a fiscal buffer,” said Christoph Rosenberg, who is responsible for coordinating the IMF’s policy advice to Estonia. “It did let down its guard a bit in the very last year of the boom by allowing expenditures to increase, but it was kept relatively under control, and the structural deficit was not as big as it could have been.”

Neither Latvia nor Lithuania expects its economy to grow again until 2011. Latvia in particular has been ravaged by the financial crisis. Its coalition government fell apart in March, and since December demonstrators have been camped in downtown Riga, demanding the government take action against joblessness.

Estonia, however, has already begun to recover. The Finance Ministry predicts 1 percent growth in 2010, while SEB, a Nordic bank that does business in Estonia, predicts growth of 2 percent, soon to be followed by declines in unemployment and inflation. The situation is far from rosy, but Estonia is emerging from the crisis not only faster than the other Baltic countries, but also with a mix of prudence and optimism that will define its growth for years to come.

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