• 2005-12-21
As states living on the edge of the European Union, one of the greatest challenges for the Baltics will be to maintain their integrity in an environment of creeping turpitude. With neighbors like Russia and Belarus, countries that do not subscribe to the rule of law, the Baltic states will be tempted to breach the rules. No other EU member 's barring Poland 's has to cope with similar levels of crossborder corruption. Slovenia has Croatia, for instance, but the latter is striving toward membership. Russia, on the other hand, isn't. (It wants in the WTO, but not the EU).

Thanks to energy prices, Russia has become an economic behemoth. Cash is aplenty, and corporate executives are looking at the "near abroad" as a natural expansion ground; they're letting their capital go to work. The Baltics are in a particularly attractive for two reasons 's their ports, and EU membership. What better 's no, cheaper 's way is there for a Russian business to gain entrance to EU markets than by purchasing an asset in the Baltics?

Estonian Railway is a case in point. Unlike Latvia or Lithuania, Estonia went out on a limb a few years ago and privatized its railroad 's including infrastructure. Understandably, not all politicians were ecstatic about it, and some were visibly distraught. But the deal went ahead, and a group of U.S. and Estonian businessmen purchased 66 percent of the company. Led by American Edward A. Burkhardt, new managers immediately took to modernizing the dilapidated Soviet rail system and creating a properly functioning enterprise. (See interview in this week's edition.)

Again, not everyone thought so 's Center Party chief Edgar Savisaar, a.k.a. "the rhino," in particular. Savisaar never hid his dislike of the rail privatization, but couldn't do anything about it. That is, not until April when he became economy minister 's a position he first occupied in the final years of the Soviet Union. He wasted no time exerting his vision on Estonia's strategic enterprises. As regards Estonian Railway, he has forbidden the company to re-evaluate its assets (after the past four years of investments, this is odious) and raise prices for infrastructure use. In other words, he is letting the company whither in an attempt to drive out its owners. Then he can slowly nationalize it and place loyal people at the helm.

As Burkhardt says, "My experience is that if a government makes a deal, the next government will comply with it. This is a norm around the world, but seems not to be in Estonia." Burkhardt is a Yale-educated, life-long railroad man; Savisaar is a historian/philosopher turned Soviet economic planner. Whom should Estonians entrust to run their railroad?

In the meantime, Savisaar's party made a splash by signing a memorandum of understanding with United Russia, the pro-Kremlin party in Russia that has virtually nothing to offer Estonia in terms of democratic development. The rhino claims he is trying to forge better relations with the bear, though many are skeptical about the necessity of cooperating with a party made up of Vladimir Putin's toadies.

Furthermore, time and time again we have seen Moscow's reaction to U.S. economic/military activity in its backyard (recall Williams International in Lithuania), so there is reason to believe that Russia has a hand in the misery that has swept over Estonian Railway. Keeping in mind that a Russian-owned company, Spacecom, has been in a constant tangle with Estonian Railway this year, and the picture becomes clearer.

It is amazing that Prime Minister Andrus Ansip is tolerating such shameless sabotage in one of the nation's most vital sectors.