News

The Estonian Development Fund presented a vision of the steps needed for bringing the Estonian economy out of the crisis and laying the foundation for new growth to the Riigikogu in the form of a white paper. The experts who worked with the Development Fund believe that in order to speed up needed changes and handle the crisis, it is necessary to agree and initiate a crisis package of strategic steps in Estonia the latest by this autumn.

The white paper was presented to the Riigikogu at a meeting with the speaker Mrs Ene Ergma on Friday, June 19. The white paper, together with an accompanying letter signed by the authored experts, was also sent to other decision-makers who influence the progress of the Estonian economy. The signatories call to support the proposals of the white paper, to complement them and to rapidly start the joint elaboration of the crisis package. The appeal is: the crisis package must be put together quickly and in broad-based cooperation.

The underlying starting point of the white paper is that the situation in the Estonian economy is critical and can decline even further. The hardest times of the crisis are expected to begin in autumn 2009. Estonia has no grounds to wait for a significant improvement in the economic situation even when the foreign markets turn to growth again.

The state must become significantly more active in supporting and activating the economy. For this, we have to be ready to review, upon need, some point of views and positions rooted in the existing economic policy.

Systemic measures are needed if we want emerge from the crisis, simple state budget cuts and transition to the euro will not be enough. These do not by themselves solve the continual main concern in the Estonian economy: the structural weaknesses. There is also a danger to remain after the crisis still reliant on the economic sectors and activities that do not allow for a considerable rise in value-added and competitiveness within the economy. Estonia should also be ready for the case if the transition to the euro will not be possible at the ideally hoped time: we have to make ready a "plan B", which should be the crisis package.

Within this package, it is necessary to support quick restructuring of the economy and the associated long-term growth of the enterprises' competitiveness. On the one hand, this requires attracting new capital for investments into the economy and developing the human capital. On the other hand, in parallel we must deal with easing the direct impacts of the crisis. It is important to develop enterprises exporting capacity and sustain employment. In the white paper, the experts have made several concrete steps proposals for the crisis package in these four directions.

The Estonian Development Fund's mission is to create a long-term growth vision for the Estonian economy, for which it undertakes various foresight and analysis work. "However, today the first task is to emerge from of the crisis as painless as possible and ensure that the current crisis-pressured decisions would be smart also in a longer perspective," said the Development Fund's CEO, Ott Pärna. "It is precisely for this reason why we initiated the compilation of the now finished white paper as preparatory work for the Growth Vision foresight work, inviting along the best experts and thinkers."

The white paper was prepared by a group of experts consisting of Urmas Varblane, Marju Lauristin (both professors at the University of Tartu), Jaan Pillesaar (Chairman of the Supervisory Board of AS Helmes), Erik Terk (Director of the Estonian Institute for Futures Studies), Taavi Veskimägi (Member of the Riigikogu), Raivo Vare (consultant and member of the Supervisory Board of the Estonian Cooperation Assembly), Siim Sikkut, Marek Tiits, Heido Vitsur and Ott Pärna (all from the Estonian Development Fund).

A draft of the white paper was first introduced and discussed at the Development Fund's Futures Forum 2 "World - Options - Decisions" on 27 April 2009.

The white paper can be found at the website http://www.arengufond.ee/publications (only in Estonian).

Further information:

Siim Sikkut, Estonian Development Fund (siim.sikkut[A]arengufond.ee, +372 616 1065)

Everything that will happen in the Estonian Economy depends on the people.

Marju Lauristin, Futures Forum 2, 27.04.2009

Specific proposals by the white paper regarding the content of the crisis package:

1. Steps for attracting new capital necessary for investments

• Offering motivation packages for (foreign) investors
• Establishing a high-level representative or "czar" post by the government for investor communication and motivation package related deal-making
• Lower taxation rates on dividend income
• Ensuring the capitalization of private equity and venture capital companies with cornerstone investments
• Instituting a tax relief on securities investments for private persons, similar to the existing relief on enterprise investments
• Improving the coordination between governmental offices, particularly at prime minister's level, for effective utilisation of EU Structural Funds

2. Steps for developing the human capital:

• Increasing the flexibility of retraining, including allowing for another university degree at the state's expense and creating mechanisms to ensure the training of the workforce required for investors
• Attracting high-level specialists with international experience to Estonia and creating a favourable environment for them to stay by setting a cap on (social) taxes as a recruitment incentive
• General reduction in employment taxes together with relevant rearrangements in the funding of health and social insurance systems

3. Steps for supporting the export capacity growth

• Direct communication with current major exporters
• More intensive state sales work and establishment of supporting (infra)structures in promising foreign markets
• More emphasis on national economic interests in foreign policy

4. Steps for empowering the labour force and sustaining jobs:

• Putting a special focus within skill conversion and retraining measures on increasing entrepreneurial abilities and acquiring relevant skills
• Favouring the establishment of new enterprises, including instituting a "new entrepreneur's wage" scheme and reducing the capital requirements and bureaucracy of enterprise registration
• Significantly increasing the availability of retraining, including abolishing the fringe benefit tax from training expenses
• Enabling temporary tax preferences for enterprises that create or maintain jobs
• Supporting the maintenance of internal market jobs with state orders, including making investments for increasing energy efficiency and by developing state-level infrastructures with pension fund finances