In the Baltics, the word "billion" is a stranger. It appears every so often, and usually in relation to something going on in Russia or the United States. The local business papers use it seldom. So when a billion-euro deal is struck, it tends to makes one's eyes spin. Last week, Lithuania celebrated the biggest deal in its history, as Poland's PKN Orlen bought 84.4 percent interest in the Mazeikiu Nafta refinery, the largest corporation in the Baltics. The Poles paid a staggering $2.3 billion for the asset, a sum that, to put things in perspective, is equal to about one-fifth of Estonia's gross domestic product.
That the deal was pulled off is miraculous. There was litigation on three continents, and a fire that ravaged part of the refinery in October. Spurned by being left out, the Russians even turned off the tap, leaving Mazeikiu Nafta without feedstock. Nothing went right, yet in the end persistence won the day. The Poles held fast to their goal, and now Lithuanians are $850 million richer.
The "deal of the decade" was a fitting end to what was arguably "the year of the decade." Forget about 2004, the year of accessions. 2006 was the year when the Baltic engine fired on all cylinders, with economic expansion reaching double-digits in two countries (Estonia and Latvia) and increasing wealth at an impressive rate. Estonia passed Poland in terms of GDP per capita, and appears set to move up the ladder steadily and determinedly.
Politically, the year was no less eventful and successful. In Latvia, voters kept the standing government in office, a first in the Baltics, signalling a new era of stability. Most importantly, Estonian politicians dumped the stodgy, uninspiring Arnold Ruutel and elected Toomas Hendrik Ilves as head of state. Ilves, who spend most of his adult life in the United States, will bring a fresh, perspicacious attitude to the Estonian presidency, and act as a much-needed check on rising Center Party demagoguery.
Through the year, Lithuanian politics remained full of intrigue and grime. We don't pretend to understand its mechanisms. Prime Minister Algirdas Brazauskas stepped down after five years straight in the post - another Baltic record. This was a welcome development, since Brazauskas was increasingly incapable of controlling the situation in the Cabinet and, by his behavior, feeding the opposition's accusatory appetite. He should have resigned earlier.
As far as 2007, challenges remain. All three Baltic states are haemorrhaging workers; high-paying jobs in the West are too good to pass up. The result is labor scarcity at home, one serious enough that, if unaddressed, will derail development. Thus the primary task for Baltic leaders next year will be to establish the foundation for knowledge-and-technology-based economies that will create value-added jobs. Cheap labor will soon be a thing of the past, and only if they act now will the Baltic states be able to compete in 10 years and duplicate the Irish miracle of the 1990's.