segunda-feira, dezembro 13, 2004
Estonian Economic Miracle: A Model For Developing Countries
On May 1, 2004, Estonia joined the European Union, having already been a member of the World Trade Organization. This tiny country of 1.5 million emerged as one of the fastest growing economies in the world, and a nation that is studied by governments around the world, as they try to copy Estonia's spectacular success that occurred despite suffering under Soviet repression for half a century.
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As part of the country's re-orientation towards the West, the government in Tallinn decided to embrace foreign trade, with Europe quickly replacing Russia as the main partner. Driven in part by Estonia's embrace of foreign trade and in part by large-scale privatization of government assets, investment poured into the country. The state's money became stable, with the government controlling supply and increasing dollar reserves. This allowed enterpreneurs to have greater confidence in long-term investments. By 1993, the economy fully recovered. That year, the country ran a budget surplus of about 5%. Within a few short years, wages were far above what they were under communism.
In 1994, Estonia became among the first in the world to adopt the flat tax, with a uniform rate of 26% regardless of the income a person makes. Rejecting claims of unfairness in taxing the poor and the rich at the same percentage rate, Tallinn decided to take on this radical experiement -- and succeeded wildly, as the nation's economy boomed.
Today, Estonia has the highest GDP per person, almost $13,000, of any country that used to be part of the USSR. Multiple former Soviet Republics have begun adopting Estonian policies. One the most popular Estonian policies has been the flat tax, which was adopted by Russia (13%), Ukraine (13%) and Latvia (25%). Slovakia, another formerly communist nation, recently adopted a 19% flat income tax. Even China is now seriously considering adopting a flat tax. As a result, all countries saw increased investment, both domestic and foreign, as well as increased tax revenue due to a decrease in tax-evasion.
The Estonian economic miracle also disproved the claims by the International Monetary Fund (IMF) that de-valuation of money is good for developing economies. Just as importantly, it disproved claims that formerly occupied, small states cannot rapidly develop due to their history as a colonized people.
The model of economic progress developed by Estonians should serve as an example to all the other developing nations in the world that seek to quickly improve the well-being of their people.
posted by Miguel Noronha 10:44 da manhã
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