Baltics feel effects of Russia's crisis: Estonian investors concerned

  • 1998-08-27
  • By Rebecca Santana
TALLINN - Estonian investors are keeping their fingers crossed that they will be able to come through all the upheaval in Russia without too many bruises.

World financial markets were rocked last week by Yeltsin's decision to devalue the ruble and move on Aug. 23 to dismiss his economic advisers. But many Estonian investors believe that they are in a good position to weather this particular Siberian storm.

"There's no direct danger for the Estonian financial markets and the Estonian economy," said Kaja Kell, spokeswoman for the Bank of Estonia.

Last week's trading saw an approximately 10 percent drop in companies doing business with Russia. The ones to suffer the most were Forekspank, Norma and agricultural producers. By the end of the week, the market was improving mostly due to investors buying up Hansapank shares. (See related story.)

"It could have been more, but it wasn't as much as expected," said Veikko Maripuu, head of sales for Talinvest Suprema Securities.

Many think that Estonia is in a better position than neighboring Latvia and Lithuania. Slightly less than 20 percent of Estonian foreign trade is with Russia, whereas 20 percent of Latvian trade and 25 percent of Lithuanian trade is with Russia.

The double tariffs imposed by Russia on Estonian goods might turn out to be a blessing in disguise in this particular crisis. Estonia is one of the only countries in the world to face double tariffs and as a result, they have been forced to look westward for foreign trade.

"We really hope that Estonia will survive better than the other Baltic countries," said Maripuu.

One of the areas that will be hardest hit is agriculture, where most of the Russian trade occurs. Peeter Raid, director of the Tallinn Dairy export division Epexim, in an interview with the daily Aripaev, predicted that dairy exports would drop from 30 - 40 million kroons ($ 2.1 - 2.8 million) to 14 million kroons per month.

Russian consumers are expected to buy more local goods as well as grow their own. Last week, the economic adviser to the prime minister, Heido Vitsur, said that the government will not consider increasing agricultural subsidies.

Vitsur also refused to consider the possiblity of devaluating the kroon. There was some confusion last week when one of the leading papers in Estonia quoted Vitsur as saying that Estonia might devaluate the kroon, a move taken by many Asian countries after their financial turmoil.

"It was a complete misunderstanding," said Vitsur. "Estonia can't and is not going to devaluate."

After his comments ran in the paper, just about everyone else in the financial sector scrambled to emphasize that Estonia would not devalue.

"No plan and no necessity," responded Kell, when asked whether the Bank of Estonia had any plans to devalue the kroon. She added that there was little reason to think that there would be a speculative attack on the kroon. "At present, we are more prepared for attacks on the kroon than the Estonian financial system has ever been before."

The main problem may be overcoming the misconceptions that many foreign investors have about the Baltics. There is still a tendency for foreign investors to associate Estonia and the Baltics with Russia, regardless of whether there is a strong economic connection. When foreign investors see turmoil in Russia they might be inclined to pull out of the Baltics as well.

"We don't have that great a connection on an economic level," said Maripuu. But on a psychological level foreign investors still connect Russia and the Baltics. "Seven years isn't much time."

Yeltsin's decision to devalue the ruble on Aug. 17, was widely expected and viewed as his only option. Prime Minister Sergei Kiriyenko, conferred with Yeltsin on the decision. Last weekend, he paid for that decision with his job when Yeltsin fired him and replaced him with the former prime minister, Viktor Chernomydrin.

All of the current maneuverings at the Kremlin leave many Estonian investors shaking their heads and wondering what will be next.