Estonia (09/97)

For the most current version of this Note, see Background Notes A-Z.


Official Name:
Republic of Estonia 

Area: 45,226 sq. km. (18,086 sq. miles); about the size of New Hampshire and Vermont.
Cities: Capital--Tallinn (pop. 420,470). Other cities--Tartu (101,901); Narva (75,211); Kohtla-Jarve (68,533); Parnu (51,807); Sillamae (19,804); Rakvere (20,100).
Terrain: Flat, average elevation 50m. Elevation is slightly higher in the east and southeast. Steep limestone banks and 1,520 islands mark the coastline.
Land use--22% arable land, 11% meadows and pasture, 31% forest and woodland, 21% other, 15% swamps and lakes. Coastal waters are somewhat polluted.
Climate: Temperate, with four seasons of near-equal length. Annual precipitation averages 61-71 cm. (28 in.).

Nationality: Noun and adjective--Estonian(s).
Population: 1.49 million.
Annual growth rate: .7%. Birth rate--16/1,000. Death rate--12/1,000. Migration rate--3/1,000. Density--35/sq. km. (90.4/sq. mi.). Urban dwellers--71%.
Ethnic groups: Estonians 64%, Russians 29%, Ukrainians 3%, Belarusians 2%.
Religions: Predominantly Lutheran; minorities of Russian Orthodox, Baptist.
Languages: Estonian. Most people also speak Russian.
Education: Years compulsory--12. By 1989, 12% of the adult populace completed college. Attendance--214,000 students at 561 schools, plus 24,000 university students. Literacy--100%.
Health: Infant mortality rate--9/1,000 births. Life expectancy--65 yrs. men, 74 yrs. women.
Work force (785,500 people): Agriculture--12%. Industry--32%. Housing--5%. Health care--6%. Education, culture--12%. Trade--9%. Transport--8%. Construction--10%. Other--4%. Government--2%.

Type: Parliamentary democracy.
Constitution: On June 28, 1992 Estonians ratified a constitution based on the 1938 model, offering legal continuity to the Republic of Estonia prior to Soviet occupation.
Branches: Executive-President (Chief of State), elected by Parliament every five years; Prime Minister (Head of Government). Legislative-Riigikogu (Parliament--101 members, 4-year term). Judicial--Supreme Court.
Administrative regions: 15 counties and 6 independent towns.
Political parties/coalitions: Coalition/Rural Union (PM Siimann/ex-Pres. Ruutel)-19/22 seats; Reform Party (ex-FM Kallas, Riigikogu Chair Savi)-19 seats; Center Party (ex-PM Savisaar, Rein Veidemann)-15 seats; Pro Patria/Nat'l. Independence (ex-PM Laar, Kelam)-8 seats; Moderates (ex-PM Andres Tarand, Lauristin)-6 seats; "Our Home is Estonia;" ("Russian" faction, Andrejev)-6 seats; Right-Wing (ex-Riigikogu Chairman Ulo Nugis)-5 seats.
Suffrage: 18 years-universal; non-citizen residents may vote in municipal elections.
Government budget: $1 billion. Defense: 1.2% of GDP.
National holidays: Feb. 24 (Independence Day), June 23 (Victory Day-anniversary of Battle of Vonnu in 1919).

GDP (1996): $3.7 billion. Growth rate--4.4%.
Per capita income: $2,748. 1996 inflation rate--23%. Unemployment--5.5%.
Natural resources: Oil shale, phosphorite, limestone, blue clay.
Agriculture/forestry (10% of 1995 GDP): milk and dairy products, meat, cereals, potatoes. Cultivable land-1.36 million hectares (60% arable, 18% meadow, 13% pasture).
Manufacturing/mining/energy (45% of GDP): electricity, oil shale, chemical products, electric motors, textiles, furniture, cellulose/paper products, building materials, processed foods.
Trade, hotel/dining (15% of GDP): Construction--8%. Public services--7%. Transport/communication--8%. Finance/real estate--4%. Other--3%. 1995 exports ($1.6 billion)--textiles/clothes 15%, machinery/equipment 12%, food 10%, wood/wood products 8%, chemicals 8%. Major markets--Finland (32%), Russia (16%), Sweden (9%), Germany (10%), U.S. (2%). 1995 Imports ($2.2 billion)--machinery/equipment 20%, minerals 13%, vehicles 10%, textiles/clothes 10%, food 8%. Partners--Finland (21%), Russia (18%), Sweden (11%), Latvia (8%), Germany (7%), USA (2%).
Exchange rate: 13.9 kroon EEK=US $1.
1995 Foreign capital investment: 6,000 foreign enterprises with investment of $230 million. Finland 52% of firms with 22% of capital; Sweden 11%/27%; Russia 13%/12%; Germany 4%/4%;U.S. 4%/7%.

Between 57.3 and 59.5 latitude and 21.5 and 28.1 longitude, Estonia lies on the eastern shores of the Baltic Sea on the level northwestern part of the rising East European platform. Average elevation reaches only 50m (160 ft.). The climate resembles New England's. Shale and limestone deposits, along forests which cover 40% of the land, play key economic roles in this resource-poor country. Estonia boasts over 1,500 lakes, numerous bogs, and 3,794km of coastline marked by numerous bays, straits, and inlets. Tallinn's Muuga port offers one of Europe's finest warm-water harbor facilities.

Today, Estonia is slightly larger than Denmark, the Netherlands and Switzerland. Estonia's strategic location has precipitated many wars that were fought on its territory between two other rival powers at its expense. In 1944 the U.S.S.R. granted Russia the trans-Narva and Petseri regions on Estonia's eastern frontier, which still remain contested bilaterally.

The name "Eesti," or Estonia, is derived from the word "Aisti," the name given by the ancient Germans to the peoples living northeast of the Vistula River. The Roman historian Tacitus in the first century A.D. was the first to mention the Aisti, and early Scandinavians called the land south of the Gulf of Finland "Eistland," and the people "aistr." Estonians belong to the Baltic-Finnic group of the Finno-Ugric peoples, as do the Finns and Hungarians. Archaeological research supports the existence of human activity in the region as early as 8,000 BC but by 3,500 BC the principal ancestors of the Estonians had arrived from the east.

Estonians look like and consider themselves Nordics, evidenced through the strong cultural and religious influences gained over centuries during Germanic and Scandinavian colonization and settlement. This highly literate society places strong emphasis upon education, which is free and compulsory until age 16. The first book in Estonian was printed in 1525. Most Estonians belong to the Evangelical Lutheran Church, but a sizable minority are Russian Orthodox.

From 1945-1989 the percentage of ethnic Estonians in Estonia dropped from 94% to 61%, caused primarily by the Soviet program promoting mass immigration of urban industrial workers from Russia, Ukraine, and Belarus, as well as by wartime emigration and Stalin's mass deportations and executions. Estonia's citizenship law and constitution meet international and OSCE standards, guaranteeing universal human and civil rights.

Written with the Latin alphabet, Estonian is the language of the Estonian people and the official language of the country. One-third of the standard vocabulary is derived from adding suffixes to root words. The oldest known examples of written Estonian originate in 13th century chronicles. The Soviet era had imposed the official use of Russian, so most Estonians speak Russian as a second language while the resident Slavic populace speaks Russian as a first language.

Estonians are one of the longest settled European peoples, whose forebears, known as the "comb pottery" people, lived on the southeastern shores of the Baltic Sea over 5,000 years ago. Like other early agricultural societies, Estonians were organized into economically self-sufficient, male-dominated clans with few differences in wealth or social power. By the early Middle Ages most Estonians were small landholders, with farmsteads primarily organized by village. Estonian government remained decentralized, with local political and administrative subdivisions emerging only during the first century A.D. By then, Estonia had a population of over 150,000 people and remained the last corner of medieval Europe to be Christianized.

Estonia also managed to remain nominally independent from the Vikings to the west and Kievan Rus to the east, subject only to occasional forced tribute collections.

However, the Danes conquered Toompea, the hilled fortress at what is now the center of Tallinn, and in 1227 the German crusading order of the Sword Brethren defeated the last Estonian stronghold; the people were Christianized, colonized, and enserfed. Despite attempts to restore independence, Estonia was divided among three domains and small states were formed. Tallinn joined the Hanseatic League in 1248.

By 1236, the Sword Brethren allied with the Order of the Teutonic Knights and became known as the Livonian Order of the Teutonic Knights. Finding upkeep of the distant colony too costly, the Danes in 1346 sold their part of Estonia to the Livonian Order. Despite successful Russian raids and invasions in 1481 and 1558, the local German barons continued to rule Estonia and since 1524 preserved Estonian commitment to the Protestant Reformation. Northern Estonia submitted to Swedish control in 1561 during the Livonian Wars, and in 1582/3 southern Estonia (Livonia) became part of Poland's Duchy of Courland.

In 1625, mainland Estonia came entirely under Swedish rule, and in 1645, Sweden bought the island of Saaremaa from Denmark. In 1631, the Swedish king Gustav II Adolf granted the peasantry greater autonomy, opened the first known Estonian-language school in Tallinn, and in 1632 established a printing press and university in the city of Tartu. The Swedish defeat resulting in the 1721 Treaty of Nystad imposed Russian rule in what became modern Estonia. Nonetheless, the legal system, Lutheran church, local and town governments, and education remained mostly German until the late 19th century and partially until 1918.

By 1819, the Baltic provinces were the first in the Russian empire in which serfdom was abolished, spurring the peasants to own their own land or move to the cities. These moves created the economic foundation for the Estonian national cultural awakening that had lain dormant for some 600 years of foreign rule. Estonia was caught in a current of national awakening that began sweeping through Europe in the mid-1800s.

A cultural movement sprang forth to adopt the use of Estonian as the language of instruction in schools, all-Estonian song festivals were held regularly after 1869, and a national literature in Estonia developed. Kalevipoeg, Estonia's epic national poem, was published in 1861 in both Estonian and German.

More importantly, activists who agitated for a modern national culture also agitated for a modern national state.

As the 1905 Revolution swept through Estonia, the Estonians called for freedom of the press and assembly, for universal franchise, and for national autonomy. The 1905 uprisings were brutally suppressed and Estonian gains were minimal, but the tense stability that prevailed between 1905 and 1917 allowed Estonians to advance the aspiration of national statehood.

With the collapse of the Russian empire in World War I, Russia's Provisional Government granted national autonomy to Estonia. A popularly elected assembly (Maapaev) was formed but was quickly forced underground by opposing extremist political forces. The Committee of Elders of the underground Maapaev announced the Republic of Estonia on 24 February 1918, one day before German troops invaded. After the withdrawal of German troops in November 1918, fighting broke out between Bolshevik and Estonian troops. On February 2, 1920 the Treaty of Tartu-the Soviet Union's first foreign peace treaty-was signed by the Republic of Estonia and Soviet Russia. The terms of the treaty stated that Soviet Russia renounced in perpetuity all rights to the territory of Estonia.

Independence lasted twenty-two years. Estonia underwent a number of economic, social, and political reforms necessary to come to terms with its new status as a sovereign state. Economically and socially, land reform in 1919 was the most important step. Large estate holdings belonging to the Baltic nobility were redistributed among the peasants and especially among volunteers in the War of Independence. Loss of markets in the east led to considerable hardships until Estonia developed an export-based economy and domestic industries. Estonia's principal markets became Scandinavia, Great Britain, and Western Europe, with some exports to the United States and Soviet Union.

During its early independence Estonia operated under a liberal democratic constitution patterned on the Swiss model. However, with nine to 14 politically divergent parties, Estonia experienced 20 different parliamentary governments between 1919 and 1933. The Great Depression spawned the growth of powerful, far-rightist parties which successfully pushed popular support in 1933 for a new constitution granting much stronger executive powers. In a preemptive move against the far right, Estonia's first and also then-president, Konstantin Pats, dissolved parliament and governed the country by decree. By 1938 Estonia ratified a third, more balanced, and very liberal constitution, and elected a new parliament the following year.

The independence period was one of great cultural advancement. Estonian language schools were established, and artistic life of all kinds flourished. One of the more notable cultural acts of the independence period, unique in Western Europe at the time of its passage in 1925, was a guarantee of cultural autonomy to minority groups comprising at least 3,000 persons, and to Jews.

Estonia had pursued a policy of neutrality, but the signing of the Molotov-Ribbentrop Non-aggression Pact on August 23, 1939 signaled the end of independence. The agreement provided for the Soviet occupation of Estonia, Latvia, part of Finland, and later, Lithuania, in return for Nazi Germany's assuming control over most of Poland. After extensive diplomatic intrigue, the Estonian Soviet Socialist Republic was proclaimed on July 21, 1940, one month after Estonia was occupied by Soviet troops. The ESSR was formally accepted into the Soviet Union on August 6.

Soviet occupation was accompanied by expropriation of property, Sovietization of cultural life and the installation of Stalinist communism in political life. Deportations also quickly followed, beginning on the night of June 14, 1941.

That night, more than 10,000 people, most of them women, children and the elderly, were taken from their homes and sent to Siberia in cattle cars. When Nazi Germany attacked the Soviet Union on June 22, most Estonians greeted the Germans with relatively open arms.

Two-and-a-half years of Nazi occupation amply demonstrated that German intentions were nearly as harsh as Soviet aggression:

Estonia became a part of "Ostland," and about 5,500 Estonians died in concentration camps. However, few Estonians welcomed the Red Army's return to the frontier in January 1944. Without much support from retreating German troops, Estonian conscripts engaged the Soviets in a slow, bloody, nine-month battle. Some 10% of the population fled to the West between 1940 and 1944. By late September, Soviet forces expelled the last German troops from Estonia, ushering in a second phase of Soviet rule. That year, Moscow also moved to transfer the Estonian Narva and Petseri border districts, which held a large percentage of ethnic Russians, to Russian control.

For the next decade in the countryside, an anti-Soviet guerrilla movement known as "the Forest Brethren" existed in the countryside. Composed of formerly conscripted Estonian soldiers from the German Army, fugitives from the Soviet military draft or security police arrest, and those seeking revenge for mass deportations, the Forest Brethren used abandoned German and Soviet equipment and worked in groups or alone. In the hope that protracted resistance would encourage Allied intervention for the restoration of Estonian independence, the movement reached its zenith in 1946-48 with an estimated 5,000-30,000 followers and held effective military control in some rural areas.

After the war the Estonian Communist Party (ECP) became the pre-eminent organization in the republic. Most of these new members were Russified Estonians who had spent most of their lives in the Soviet Union. Not surprisingly, Estonians were reluctant to join the ECP and thus take part in the Sovietization of their own country. The ethnic Estonian share in the total ECP membership went from 90% in 1941 to 48% in 1952.

After Stalin's death, Party membership vastly expanded its social base to include more ethnic Estonians. By the mid-1960s, the percentage of ethnic Estonian membership stabilized near 50%. On the eve of perestroika the ECP claimed about 100,000 members; less than half were ethnic Estonians and comprised less than 2% of the country's population. Russians or Russified Estonians continued to dominate the party's upper echelons.

A positive aspect of the post-Stalin era in Estonia was a re-opening in the late 1950s of citizens' contacts with foreign countries. Ties were also reactivated with Finland, boosting a flourishing black market. In the mid-1960s, Estonians began watching Finnish television. This electronic "window on the West" afforded Estonians more information on current affairs and more access to Western culture and thought than any other group in the Soviet Union. This heightened media environment was important in preparing Estonians for their vanguard role in extending perestroika during the Gorbachev era.

By the 1970s, national concerns, including worries about ecological ruin, became the major theme of dissent in Estonia. In the late 1970s, Estonian society grew increasingly concerned about the threat of cultural Russification to the Estonian language and national identity. By 1981, Russian was taught in the first grade of Estonian language schools and was also introduced into the Estonian pre-school teaching. These acts prompted 40 established intellectuals to write a letter to Moscow and the republic authorities. This "Letter of the Forty" spoke out against the use of force against protesters and the increasing threat to the Estonian language and culture. In October of 1980, the youth of Tallinn also demonstrated against toughened Russification policies, particularly in education.

By the beginning of the Gorbachev era, concern over the cultural survival of the Estonian people had reached a critical point. Although these complaints were first couched in environmental terms, they quickly became the grist of straightforward political national feelings. In this regard the two decades of independent statehood were pivotal.

The ECP remained stable in the early perestroika years and appeared strong at its 19th Congress in 1986. By 1988, however, the ECP's weakness had become clear when it was unable to assume more than a passive role and was relegated to a reactive position.

Praising the 1980 "Letter of the Forty," Vaino Valjas replaced Karl Vaino as Party Chief and thereby temporarily enhanced the ECP's reputation along with his own. Nevertheless, the Party continued its downward spiral of influence in 1989 and 1990. In November 1989, the Writers' Union Party Organization voted to suspend its activity and the Estonian Komsomol disbanded.

In February 1990, Estonia's Supreme Soviet eliminated paragraph 6 of the republic's constitution which had guaranteed the Party's leading role in society. The final blow came at the ECP's 20th Congress in March 1990 when it voted to break with the CPSU. The Party splintered into three branches, then consolidated into a pro-CPSU (Moscow) and an independent ECP.

As the ECP waned, other political movements, groupings, and parties moved to fill the power vacuum. The first and most important was the Estonian Popular Front, established in April 1988 with its own platform, leadership, and broad constituency. The Greens and the dissident-led Estonian National Independence Party soon followed. By 1989, the political spectrum widened and new parties were formed and re-formed almost daily.

A number of changes in the republic's government brought about by political advances in the late 1980s played a major role in forming a legal framework for political change. This involved the republic's Supreme Soviet being transformed into an authentic regional law-making body. This relatively conservative legislature managed to pass a number of laws, notably a package of laws that addressed the most sensitive ethnic concerns. These laws included the early declaration of sovereignty (November 1988); a law on economic independence (May 1989) confirmed by the U.S.S.R. Supreme Soviet that November; a language law making Estonian the official language (January 1989); and local and republic election laws stipulating residency requirements for voting and candidacy (August, November 1989).

Although not all non-Estonians supported full independence, they were divided in their goals for the republic. In March 1990 some 18% of Russian speakers supported the idea of fully independent Estonia, up from 7% the previous autumn, and only a small group of Estonians were opposed to full independence in early 1990. Estonia held free elections for the 105-member Supreme Council on March 18, 1990. All residents of Estonia were eligible to participate in the elections, including the approximately 50,000 Soviet troops stationed there. The Popular Front coalition, composed of left and centrist parties and led by former Central Planning Committee official Edgar Savisaar, held a parliamentary majority.

Despite the emergence of the new lawmaking body, an alternative legislature developed in Estonia. In February 1990, a body known as the Congress of Estonia was elected in unofficial and unsanctioned elections. Supporters of the Congress argued that the inter-war republic continued to exist de jure: Since Estonia was forcibly annexed by the U.S.S.R., only citizens of that republic and their descendants could decide Estonia's future.

Through a strict, nonconfrontational policy in pursuing independence, Estonia managed to avoid the violence which Latvia and Lithuania incurred in the bloody January 1991 crackdowns and in the border-customs post guard murders that summer. During the August coup in the U.S.S.R., Estonia was able to maintain constant operation and control of its telecommunications facilities, thereby offering the West a clear view into the latest coup developments and serving as a conduit for swift Western support and recognition of Estonia's redeclaration of independence on August 20. Following Europe's lead, the U.S. formally reestablished diplomatic relations with Estonia on September 2, and the U.S.S.R. Supreme Soviet offered recognition on September 6.

During the subsequent cold winter which compounded Estonia's economic restructuring problems, Prime Minister Edgar Savisaar demanded emergency powers to deal with the economic and fuel crises. A consequent no-confidence vote by the Supreme Council caused the Popular Front leader to resign, and a new government led by former Transportation Minister Tiit Vahi took office.

After more than three years of negotiations, on August 31, 1994, the armed forces of the Russian Federation withdrew from Estonia. Several hundred civilian-clad Russian military remained at the nuclear submarine training reactor facility at Paldiski until September 30, 1995, in order to remove equipment and help decommission the facility.

On June 28, 1992, Estonian voters approved the constitutional assembly's draft constitution and implementation act, which established a parliamentary government with a President as chief of State and with a government headed by a Prime Minister.

The Riigikogu, a unicameral legislative body, is the highest organ of state authority. It initiates and approves legislation sponsored by the Prime Minister. The Prime Minister has full responsibility and control over his cabinet.

Free and fair parliamentary and presidential elections were held on September 20, 1992. Approximately 68% of the country's 637,000 registered voters cast ballots. The leading presidential contenders, President Ruutel and former Foreign Minister Lennart Meri, faced a secret parliamentary vote to determine the winner. Ruutel's former association with the ruling Communist Party probably helped Meri win on the first ballot. Meri chose 32-year old historian and Christian Democratic Party founder Mart Laar as prime minister.

In February 1992, and with amendments in January 1995, the Riigikogu renewed Estonia's liberal 1938 citizenship law, which also provides equal civil protection to resident aliens. Dual citizenship is allowed for Estonians and their families who fled the Soviet occupation. Accordingly, those who were citizens in 1940 are citizens now. Those who arrived subsequently can become citizens one year following a four-year residence retroactive to March 30, 1990 and demonstrate comprehension of Estonian. Most non-citizen ethnic Slavs (35% of the populace) became eligible for naturalization in March 1993. The government funds Estonian language training.

In nationwide municipal elections held on October 17, 1993, opposition party and ethnic Russian candidates gained a majority in most areas, especially in Tallinn and the Northeast. After having survived a number of government scandals and controversies (over his handling of an Israeli arms deal, bank failures, ruble sales, and alleged misconduct of certain ministers), Mart Laar resigned in August 1994, after losing a parliamentary vote of confidence. The popular, nonpartisan former Minister of Environment, Andres Tarand, was appointed as Laar's successor.

Nearly 70% of the electorate voted in parliamentary elections held March 5, 1995. The Coalition Party (former PM Vahi) and the Rural Union (ex-ESSR Chairman Ruutel)-"KMU"-garnered one-third of the vote for a plurality. The Reform Party (Estonian Bank Director Siim Kallas) got 16% of the vote, and the Centrist Party (former PM Savisaar) 14%. Pro Patria (former PM Laar) and the National Independence Party received 7%, the Moderates (acting PM Tarand) 6%, "Our Home is Estonia" (Russians) 6%, and the right-wingers (Riigikogu chairman Nugis) 5%. The new government, led once again by Tiit Vahi, has continued to pursue the same style of economic reform and Western integration that characterized Estonia since 1992.

With the August 1995 discovery that some Estonian politicians had been subjected to illegal surveillance, including wiretaps (referred to as Estonia's "Watergate"), the country faced its most severe political and constitutional test since regaining independence in 1991. After dismissing Interior Minister Edgar Savisaar for his implication in the scandal, Prime Minister Vahi submitted his cabinet's resignation. President Meri subsequently tapped Vahi to form a new coalition, which resulted in Vahi's alliance with the Reform Party. In meeting that test, Estonia again demonstrated that it is a normal democratic country based on rule of law and with a vibrant free press.

In 1996, Estonia ratified a border agreement with Latvia and completed work with Russia on a technical border agreement that Estonia is ready to sign. President Meri was re-elected in free and fair indirect elections in August and September. Free and fair nationwide municipal elections were held in October. In November, the Reform Party pulled out of the government when its majority partner, the Coalition Party, signed an agreement with the rival Center Party to cooperate in the municipal government councils. The Coalition Party survived the cabinet crisis as a minority government when the Prime Minister appointed several popular non-partisan candidates in ministerial posts.

Key Government Officials
President--Lennart Meri
Prime Minister--Mart Siimann (CP)
Foreign Affairs--Toomas Ilves (non-partisan)
Social Affairs--Tiiu Aro (CP)
Education--Mait Klaassen (CP)
Transport and Communications--Raivo Vare (CP)
Economy--Jaak Leimann (non-partisan)
Justice--Paul Varul (CP)
Defense--Andrus Oovel (CP)
Environment--Villu Reiljan (CP)
Agriculture--Andres Varik (CP)
Finance--Mart Opmann (CP)
EU Affairs--Andra Veidemann (PP)
Culture--Jaak Allik (CP)
State Chancellor--Uno Veering (CP)
Regional Issues--Peep Aru (CP)
Riigikogu Chairman-Toomas Savi (RP)

Estonia maintains an embassy in the United States at 2131 Massachusetts Avenue, NW; Washington DC 20005 (tel: 202-588-0101). It operates a consulate at 630 Fifth Ave., Suite 2415, New York, NY 10020 (tel: 212-247-7634).

For centuries until 1920, Estonian agriculture consisted of native peasants working large feudal-type estates held by ethnic German landlords. In the previous decades, centralized Czarist rule had contributed a rather large industrial sector dominated by the world's largest cotton mill, a ruined post-war economy, and an inflated ruble currency.

By the early 1930s, Estonia entirely transformed its economy, despite considerable hardship, dislocation, and unemployment. Compensating the German landowners for their holdings, the government confiscated the estates and divided them into small farms which subsequently formed the basis of Estonian prosperity.

By 1929, a stable currency, the kroon (or crown), was established, and by 1939, Estonia's living standard compared well with Sweden's. Trade focused on the local market and the West, particularly Germany and the United Kingdom. Only 3% of all commerce was with the U.S.S.R.

The U.S.S.R.'s forcible annexation of Estonia in 1940 and the ensuing Nazi and Soviet destruction during World War II crippled the Estonian economy. Post-war Sovietization of life continued with the integration of Estonia's economy and industry into the U.S.S.R.'s centrally planned structure. Over 56% of Estonian farms were collectivized in the month of April 1949 alone. Moscow expanded on those Estonian industries which had locally available raw materials, such as oil-shale mining and phosphorites. As a laboratory for economic experiments, especially in industrial management techniques, Estonia enjoyed more success and greater prosperity than other regions under Soviet rule. As the author of the then-radical "Self-Accounting Estonia" plan in 1988, Prime Minister Savisaar succeeded by early 1992 in freeing most prices and encouraging privatization and foreign investment far earlier than other former Soviet-bloc countries. This experimentation with Western capitalism has promoted Estonia's clear advantage in reorienting to Western markets and business practice.

Upon re-establishing independence, Estonia has styled itself as the gateway between East and West and aggressively pursued economic reform and integration with the West. Estonia's market reforms put it among the economic leaders in the former COMECON area. A balanced budget, flat-rate income tax, free trade regime, fully convertible currency, competitive commercial banking sector, and hospitable environment for foreign investment helped Estonia sign an EU Europe Agreement in June 1995 without transition period. On July 15, the European Commission recommended that the EU invite Estonia to commence accession talks in early 1998. These policies have also helped reduce inflation from 90% a month in early 1992 to about 1% a month in 1997.

Estonia has also made excellent progress in regard to structural adjustment. Industrial production is expected to increase 8% in 1997. Since late 1995, more than 90% of small- and medium-scale privatization was complete, and the national privatization agency had privatized over 50% of large enterprises, including engineering, sea, air, and railway transport, healthcare, and insurance sectors. The privatization law provides equal opportunities for domestic and foreign individuals as well as corporations. The constitution requires a balanced budget, and Estonia's intellectual property protection laws are among Europe's strongest. In early 1992 both liquidity problems and structural weakness stemming form the communist era precipitated a banking crisis. As a result, effective bankruptcy legislation was enacted and privately owned, well-managed banks emerged as market leaders. Today, near-ideal conditions for the banking sector exist. Foreigners are not restricted from buying bank shares or acquiring majority holdings. Tallinn Stock Exchange opened in early 1996, and is fully electronic. It is estimated that the unregistered economy provides almost 14% of annual GDP.

Trade has continued to expand since 1994; the current account deficit, a whopping 10% of 1996 GDP or one-third of imports, reflects a corresponding demand for relatively low-interest, foreign-built durable goods (homes, cars, major appliances). Nevertheless, in 1996 Estonia's balance-of-payments was positive by $90 million because of a capital and finance account that doubled the 1995 figure. Estonia supplies 60% of its own energy converted from peat, wood, hydroelectric plants, and oil shale. Estonia has no domestic capacity to refine crude oil, and thus depends heavily on exports from Western Europe and Russia. Oil shale energy, telecommunications, textiles, chemical products, banking, services, food and fishing, timber, shipbuilding, electronics, and transportation are key sectors of the economy. The ice-free port of Muuga, near Tallinn, is an underutilized modern facility featuring good transshipment capability, a high-capacity grain elevator, chill/frozen storage, and brand-new oil tanker off-loading capabilities.

Estonia still faces challenges, including a slow pace of establishing and putting into effect a legal framework compatible with a market economy. Laws to streamline the privatization process, facilitate the transfer of real property, privatize housing and establish a commission for the enforcement of competition and anti-monopoly laws were enacted in late 1993, but have not yet been fully implemented. Housing privatization is moving relatively slowly. The same circumstances apply in regard to agricultural privatization, which has caused severe problems for farmers needing collateral to be eligible for loans.

Estonia has paid a price in terms of eroded standards of living, especially for the large portion of the population on fixed pensions. However, it is reaping the macroeconomic dividends from its "shock therapy," and is the first country from the former Soviet area to experience such a spectacular turnaround. After having declined for four consecutive years by a cumulative total of more than 50%, Estonia's GDP increased by 5% in 1994, and has increased about 4% annually ever since. During those first 4 years, employment declined 15% and average real wages and real disposable income declined 60%. Since 1994, by contrast, real wages have increased by about 5% annually and unemployment has stabilized.

Estonia has made a determined effort to integrate its economic relations with the West. Trade with Russia, which once accounted for the overwhelming majority of Estonia's imports and exports, now accounts for only one-fifth of all trade; almost all the rest of its trade now is directed toward the West. Since 1994, Estonia has signed agreements with the U.S. on trade and intellectual property protection, investment, avoidance of double taxation, and science and technology cooperation. American companies have invested $56 million in Estonia, or 8% of its total foreign direct investment; a number of major potential privatization deals with U.S. companies are pending. In 1996, the U.S. exported $83 million of goods and services to Estonia and imported $60 million. Given this base, U.S. firms should consider Estonia for significant investment and re-export opportunities.

Estonia's defense system is based upon the Swedish-Finnish concept of a rapid response force composed of a mobilization base and a small group of career professionals. The army consists of three battalions of 714 men each, and there is a mandatory 1-year draft period of active duty. Alternative conscription for 18 months for conscientious objectors is available. The navy has about 75 personnel, and the air force is rudimentary. Border guards fall under the Interior Ministry's supervision. Comprised of 250-300 men each, the seven border guard districts, including a "coast guard," are responsible for border protection and passport and customs duties, as well as smuggling and drug trafficking interdiction. A volunteer paramilitary organization, "kaitseliit," has about 6,000 personnel and serves as a type of national guard.

Estonia joined the United Nations on September 18, 1991, and is a signatory to a number of UN organizations and other international agreements. It also is a member of the Organization on Security and Cooperation in Europe, Partnership for Peace, the North Atlantic Coordinating Council, and the Council of Europe, which presidency it held in 1996. Estonia is unaffiliated directly with any political alliance but welcomes further cooperation and integration with NATO, the EU, and other Western organizations. Estonia enjoys visa-free travel with its Nordic neighbors and with Latvia and Lithuania.

Estonia maintains embassies in the United States, Argentina, Australia, Austria, Belarus, Belgium, Brazil, Chile, Denmark, Finland, France, Germany, India, Israel, Korea, Latvia, Lithuania, Pakistan, Poland, Russia, South Africa, Sweden, Switzerland, Turkey, Ukraine, and United Kingdom. It operates missions in Canada, Hungary, Norway, the Netherlands, to the United Nations, and a Consulate General in Toronto, Canada. Honorary consuls are located in Australia, Austria, Switzerland, and in Seattle.

The United States established diplomatic relations with Estonia on July 28, 1922. U.S. representation accredited to Estonia served from the U.S. Legation in Riga, Latvia, until June 30, 1930, when a legation was established with a non-resident minister. The Soviet invasion forced the closure of Legation Tallinn on September 5, 1940, but Estonian representation in the United States has continued uninterrupted for over 70 years. The U.S. never recognized the forcible incorporation of Estonia into the U.S.S.R., and views the present Government of Estonia as a legal continuation of the inter-war republic. Estonia has enjoyed Most-Favored-Nation (MFN) treatment with the U.S. since December 1991. Through 1996, the U.S. committed over $45 million to assist Estonia's economic and political transformation and to address humanitarian needs. Estonia's graduation in September 1996 from USAID's assistance programs recognizes its position as a leading economic reformer in Central and Eastern Europe.

Estonia is a member of the UN, OSCE, NACC, COE, UNCTAD, ICFTU, IAEA, IMO, ICAO, FAO, WIPO, IMF, WB/EBRD, and other UN-related organizations.

Principal U.S. Officials
Ambassador--Walter Andrusyszyn
Political Officer--Imre Lipping
Economic Officer--David J. Katz
Admin. Officer--Matthew Weiller
Consular Officer--Henry Hand
Public Affairs Officer--Victoria Middleton
Defense Attache--Commander Peter Hendricksen (USN)

The U.S. Embassy in Estonia is located at Kentmanni 20, Tallinn [tel. (372-6)312-021/4].