Baltic Tigers: The Limits of Unfettered Liberalization

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Acknowledgements

My thanks go to the participants of the international conference ‘Trans-national Governance and Policy-Making in the Baltic Sea Region and Beyond’, organized by and held at the Institute for European Studies at The University of British Columbia in Vancouver in September 2008.

Notes

Notes

1 In terms of domestic structures, the three economies exhibit rather different features, Estonia being the ‘strange’ case in that its overall very liberal economic environment comes with strong labor-protection regulations (Adam et al. 2009)

2 Daniel J. Mitchell, a senior fellow at the ultra-liberal Cato Institute, praised the Estonian flat rate tax regime as a huge success on the road of unfettered capitalism, and as a model also for advanced capitalist market economies (2007).

3 It is puzzling that so many international observers, including the economic experts of the EU Commission, were aware of the potentially devastating effects of foreign indebtedness yet simultaneously seemed to aspire for ongoing economic growth. Domestic experts such as Vanags and Hansen (2008, pp. 5–28) were also aware of the ending boom cycle but focused on the potential rise of inflation instead of the severe credit crunch. Simple economic theory teaches us that the latter comes with debt deflation, not a rise in inflation.

4 For a detailed analysis of this see pp. 77–91 of the OECD survey of Estonia (2009).

5 Globe Investor, The Globe and Mail Online, available at: http://www.theglobeandmail.com/globe-investor/, accessed 11 August 2009.

6 Levy-Yeyati estimates a depreciation of about 50% for the Latvian lat in order to restore financial trust (2009).

7 Some of those packages were accorded additionally by the World Bank, the European Bank of Reconstruction and Development and also supported by groups of individual countries.

8 Due to the meltdown of housing prices (in Estonia and Latvia, house prices shrunk by around 16% and 36%, respectively) the collateral of private actors drastically decreased, making it much more difficult to refinance over-indebted households (Stokes & Rogovic 2009).