TALLINN - Estonians are feeling the pinch as average wages in the second quarter, compared to the second quarter 2008, show monthly gross pay lower by 4.4 percent, dropping to 12,716 kroons (815 euros). Hourly pay, however, fell only slightly, by 1.4 percent, to 77.16 kroons per hour, reports news agency bbn.ee.
The reversal of the 16 year trend of progressive annual salary hikes started in this year's first quarter.
Real wages, taking into account changes in the consumer price index (inflation), also continued to fall in the second quarter. In the first and second quarters of 2009, real wages decreased by 4.5 percent and 4.1 percent, respectively.
The Ministry of Finance's economic forecast is similar to Estonian central bank predictions, which are that the economy is recovering and the gross domestic product's drop will ease next year.
Head of the macro-economics department at the Ministry of Finance Andrus Saalik says the economy will fall 12.3 percent this year with growth resuming next year, at 0.2 percent. Saalik reports that some indices have given positive signals over the past couple of months. "What matters is whether the real economic indicators reflect these as well," he added.
The Ministry, however, doesn't feel that the Estonian central bank's forecast, a 15 percent GDP decline, is realistic. "Recently we've said that what was done with the second supplementary budget is not enough, and more steps should be taken," said Saalik, referring to the central bank's comments that the government must cut 3 billion kroons (192.3 million euros) from the budget to fit the Maastricht criteria.
Saalik doesn't believe that the government has to sell its shares of Eesti Telekom, for example, to raise funds. "The budget doesn't set us direct limits which would put us over a barrel," he said. He says that Estonia has plenty of reserves built up, and has an available loan from the European Investment Bank.
One possibility is for the state to get money through dividends from its state-owned companies, especially Eesti Energia. Meelis Virkebau, member of Eesti Energia's supervisory board says that the state has already taken out from the company "more funds than the company would have wanted or planned."
Estonian Prime Minister Andrus Ansip claims that the Ministry of Finance's latest economic forecast isn't believable, it's too pessimistic. He says that the expected drop in GDP of 14.5 percent is "unbelievable for me," adding that "I believe Estonia will join the euro in 2011. We will not reach this goal only if something catastrophic happens, for instance, in the vein of Lehman Brothers."
Ansip says there is a "clear plan on how to keep the budget deficit below 3 percent. It consists of using EU subsidies more efficiently and taking dividends from state companies. The government must also cut government sector expenses." He stresses that pensions will not be reduced.
Ansip however mentions that Teliasonera's public offer "didn't bring a sparkle to his eyes, but the government will discuss it. I think that Eesti Telekom's share provides a good yield."
Discussing the possibility that Estonia fails to meet the Maastricht criteria to adopt the euro, he says that the cuts will still have been useful for Estonia. "I don't think we should have done something radically different in that case."
The current government won't bring the euro as they lack the political capability, the will and management abilities, warns chairman of the Social Democratic fraction, Eiki Nestor. Nestor said that "In light of the Ministry of Finance's new economic forecast, it is clear that the government needs to do everything so as not to end up behind the doors of the International Monetary Fund next year. This will happen if the government continues as it is doing."
Estonia's Finance Ministry's forecast shows a deeper contraction for the Baltic economy this year, as the Baltic region's recession shows few signs of easing, reports Bloomberg. The Baltic states' economies were the European Union's fastest growing, between 2004 and 2006, but have stumbled into the steepest declines among developing regions.
Property-investment and spending booms, financed mostly by Nordic bank lending, turned to bust as inflation soared, cheap credit evaporated and demand disappeared, along with export orders.
