TALLINN - The image of the Baltic states among investors is fairly positive, and whether it remains so in the future, as well as how long, depends upon the governments and the Balts themselves, participants of the East Capital Baltic summit held in Tallinn said last week.
Carl Bildt, former prime minister of Sweden and now chairman of the Kreab Group, a communication consultancy, called political stability one of the most important factors for the Baltics.
"The development of rural areas, which the CAP [Common Agricultural Policy] is mostly about today, is important for political stability, because an angry rural electorate tends to vote for parties who promise strange things," said Bildt.
Regarding Estonia, Bildt said that governments had had a good political persistency. "Cabinets came and went, but the main course of the country has been the same. Even now that NATO and EU memberships are achieved, a particular economic course remains," he said.
Bildt noticed that corruption is present throughout the Baltics but has stronger roots in Latvia, perhaps because there the transit sector accounts for the largest share of GDP as compared with Estonia and Lithuania.
Bengt Dennis, former chairman of the Central Bank of Sweden and an expert on the Baltic states, said that inflation, although almost nonexistent in Estonia at present, would likely grow to 3 percent by the end of 2004. In Latvia inflation would reach 4.8 percent and in Lithuania 2 percent, in his estimation.
Dennis added that although the current account deficit is of concern in Estonia and Latvia, the market remains calm thanks to these countries' good track record and high credibility of their central banks.
"It is clear that Estonia and Latvia will most likely successfully convert to the euro, and that keeps investors calm," said Dennis.
Now that they are part of the bloc, the major challenges for the Baltics will be to absorb structural funds and avoid misusing them. Also, the Baltics should also keep their fiscal policy in strict accordance to the Maastricht criteria and guarantee their credibility for joining the European currency zone, according to Dennis.
Rain Lohmus, chairman of LHV Ventures and one of the owners of LHV investment bank, said investors should be realistic about the euphoria around the e-services market in Estonia.
"In my opinion mostly the traditional areas such as industry, real estate, transport, tourism, retail trade and finance will contribute to overall growth," said Lohmus, adding that Estonia's corporate income tax regulations are a huge and underrated factor for capital formation.
Peter Elam Hakansson, chairman and fund manager of East Capital, said the misconceptions about Eastern Europe - such as crime, quality of management and the amount of freely disposable income - must be changed.
Are Loken, a private investor and a manager of a pension fund in Norway, said about 4 percent of the total volume of the Loken pension fund was invested in the Baltics and Russia.
"I think EU accession will have a long-term effect that might not come earlier than after one or two years," said Loken, adding that East European markets might outperform those in Western Europe in a little over three years.
According to HEX, the total capitalization of the Baltics' equity market is 6.7 billion euros, of which Estonia accounts for nearly 3 billion euros.
East Capital, an investment fund established in 1998 and focused entirely on Eastern Europe and Russia, announced the launch of its East Capital Baltic Index, which lists 70 companies from Estonia, Latvia and Lithuania at the conference last week.