The Hon. Mart Laar (Former Prime Minister of Estonia)

06.02.2010 - Interview conducted by Jacob Stenberg

It has been 20 years since Estonian Independence, and Estonia's political, economic, and social outlook has changed dramatically. There has been a fundamental policy shift oriented towards the West, starting with the adoption of liberal democracy and free market capitalism, and culminating in Estonia joining NATO and the EU. During your tenure as Prime Minister of Estonia, innovative economic reforms were implemented to rebuild Estonia’s economy and create the phenomenon known as the “Baltic Tiger.” What guided your thinking while you were in government?

The first and most important inspiration was the possibility to decide your own things, which means make your own decisions without control-based freedom. This empowered us to do a lot of things and to make many reforms that were necessary. The second part was to return to Europe, as it has been our home for centuries. We were cut off from Europe due to the Communist occupation for 50 years. This is enormously important and a big inspiration for the people, because we were able to return 'home', which allowed us to make decisions that the Estonian people support. In this sense, Estonian politics have been quite stable. The government has changed quickly, but, at the same time, the main political lines, such as economic policy, social policy, and  foreign policy, have all stayed the same. Estonians made it a goal to return to Europe and NATO, and they worked very hard, which was why they achieved success.

In terms of economic achievements, what were your goals as Prime Minister and what do you think were the greatest economic achievements in your time?

I think what is most important is getting the country out of this crisis, where we started with 1000 percent inflation.  We began with a very bad outlook, working with a high unemployment rate. We were very down, the environment was in a catastrophic state, people were not even swimming in the Baltic sea because it was so polluted. My main task was to get the country out of that; it was achieved. That was the biggest achievement, because if it had not been done quickly, people would have lost hope. The second greatest achievement was that we empowered the people in an economic sense. We gave them freedom, and the possibility to make their own decisions. You cannot usually say that any government has made such an impact, but really it was the Estonian people who did it. The government only created the conditions for their success by cutting down government economic control, while at the same time building strong institutions and rule of law that can introduce these necessary laws. Its like in football when you have the players, but if there are no rules then the game will not work.  It is the same with the market, the market will not be strong without rule of law, strong institutions, and democracy.

Estonia is currently trying to follow Slovenia and Slovakia’s lead in adopting the euro as a single currency. What challenges does Estonia face in the plan to adopt the euro in 2011?

I think the most important thing was last year when we had a very large deficit, and had to cut the budget by nearly 20 percent to get it down to the Maastricht criteria.  We succeeded, which now means we are in good standing under the criteria and it looks like we will be members of the euro zone starting the first of January. It will be difficult, because we are looking at all the experiences of other countries and not all of them have been successful in the long run, for example, Greece, Portugal and Spain. Euro means that a lot of foreign investment will move through the country. Countries have to be very careful with this money and not make stupid decisions that will lead to a recession and many other economic problems. Money cannot solve all problems. In our current crisis it helped to deepen our problems, which means that our country and its companies must stay competitive and even gain competitiveness. There must be a long term budget plan that states we will stay out of the negative. We must take advantage of times of growth and run a surplus, not simply create bubble after bubble, which can happen so easily in economies.  Countries and their citizens must follow loan regulations and not get overly excited about new influxes of money, because money is not the most important thing in the world.

The Baltic States have been hit particularly hard by economic downturn. What industries do you see helping the Baltic States and, in particular, Estonia, rise up out of the global financial crisis?

We are industrialized countries. In Estonia 85 percent of our products are exports.  Therefore, we are dependent on the rest of the world, and, if the rest of the world stays down, we will have a hard time maintaining our export growth. Right now we are heavily focused on I.T. and technological communications, which are in their own right forming a new economy. I.T. will continue to move forward through research and communication. I hope these are the areas that will boost a new  economy in Estonia, because investments are coming in. I hope we are a success story after this crisis is over.

As a historian and a politician, do you see any particular historical antecedents that you would deem valuable for world leaders to draw upon when decideing how best to handle the economic situation?

You can find a lot of the historical mistakes if you do the research. A basic lesson in political history is that, whatever you do, you must make quick decisions. The same goes for government, because there is only a window of time to act. When you see that a situation is deteriorating, do not wait, because the longer one waits the worse it gets. Always be ready, and do not be afraid to make fast decisions, it is better to cut once, which means, if you do something, do it big, because the political problems that follow will only grow. When looking at history, some lessons are not concrete, but the ones that do vary from country to country always work.

Are you hopeful for the future of the world financial system?

Crises will come and go. The main question is how deep they will go and how the world will get out of them. Unfortunately, I am absolutely sure that crises will hit again; they will come. Therefore, when you are stable, and in a growth period, you must always think of the next crisis and be prepared, because then you will not be hit so badly. That is easy to say, because, when things are going well, everyone is optimistic and forgets that things can go wrong. In this context, it is important to look at what other challenges the world and its countries meet. With the current situation in the world, have we imagined what could happen to the western economy, looking at China and the very fast growth they have experienced there. But they have a very difficult financial situation to manage, and more or less an environmental catastrophe. China is in danger of external conflicts and we have not calculated what that means in relation to a western industry and a western economy, which is very connected to China.  So, when something happens, we won’t know what to do. We must take this under consideration and come up with a plan in case something happens internally in China. In regards to Russia, they had a 60 year period of instability, and they are currently having enormous problems. Russia needs to be more open and transparent, and must cooperate more with the West. Africa is also an immediate problem. We are facing many challenges and they are becoming more and more realistic. Europe must come up with solutions, but currently I am not optimistic and I think the world will stay the same.