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Regional Outlook : 2 Baltic Nations Look West and East for Their Fortunes : Estonia and Latvia are rising from the Soviet wreckage, leaving Russia and Lithuania behind.

March 15, 1994|MATT BIVENS | SPECIAL TO THE TIMES

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, putting a spotlight on the Baltic region, where Latvia is also pressing forward.

Although the Estonian economy shrank 20% in 1992 and 2% in 1993, the International Monetary Fund has predicted 6% growth this year. That would make it the fastest-growing economy of any in Europe or the former Soviet Union.

World Bank officials have told the U.S. Embassy in Tallinn, the Estonian capital, that "they would not be surprised to see 5% (annual growth) from this year to the year 2000," said Ingrid Kollist, the embassy's economic officer. "They're very bullish on Estonia."

Estonian officials say unemployment runs 2% nationally, and here in Tallinn--a charming European village turned boom town--it is virtually zero. The newspapers are full of help wanted ads.

Thousands of new businesses crop up annually, and Estonian exports doubled in value from 1991 to 1993, from 5 billion kroons to 10 billion ($725 million).

Much of the credit goes to the cruelly conservative policies of the Laar government: Social programs have been butchered, while state-owned factories have been told to turn a profit or fold. That and conservative monetary policies have kept the Estonian kroon stable and held inflation to 33% for 1993. In Russia, by comparison, annual inflation pushing 1,000% is the norm.

"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, the government seat.

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

Laar, a historian, still attends the occasional fraternity party at the Estonian Students Society. He grins boyishly as he recounts his not-so-distant college days: He seems to have spent half his time hanging out with underground rock musicians, the other half gathering oral histories about resistance to the Soviet occupation of Estonia in the 1940s and 1950s.

"Who in this country has the experience for today's problems? No one," remarked Juri Luik, Laar's 27-year-old foreign minister. "We at least gathered our experience from Western books, and we're now trying to implement those ideas," he said. And not without complaint.

Many Estonians say life is harder than ever. Average monthly salaries are about 1,200 kroons ($87), while senior citizens scrape by on monthly state pensions of 500 kroons ($36). Surveys suggest Estonians spend 40% of their income on food alone.

The budget is balanced, but government salaries and pensions are so low that Tallinn's firemen frequently picket the Parliament. Approval ratings for Laar's government hover around 10%.

Farmers, who make up a surly, subsidy-fattened lobby throughout the former Soviet Union, are particularly unhappy. Yet when farmers gathered earlier 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 in his office. "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."

Such nonchalance, according to 28-year-old Estonian Defense Minister Indrek Kannik, is the prerogative of youth.

"Younger people have their whole lives ahead of them," he said. "They are more willing to make unpopular decisions."

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--usually leaving the state sector for the private.

No other former Soviet republic has enjoyed such success. In nearby Lithuania, for example, a largely Communist government elected in 1992 and the powerful farmers lobby have gummed up efforts at reform. Inflation in 1993 was 183%, while salaries are about half those in Estonia.

Russia and Ukraine, drifting politically, have only fitfully tried to wean inefficient state-run factories from government money. Former Russian Economics Minister Yegor T. Gaidar had advocated Estonian-style radical reform, but the Russian Parliament thwarted his efforts and engineered his downfall this winter.

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