After the collapse of communism, Central and Eastern Europe and the Baltic countries launched several radical reforms and achieved remarkable economic growth. Some of these countries have trusted the invisible hand more, others less. As a result, not only have the results of reforms been different, but the impact of economic crises as well, says Mart Laar, prime minister of Estonia from 1992 to 1994 and from 1999 to 2002, and an advisor to the Georgian government on economics.
During the 1990s, the most radical and successful reforms came from the three Baltic States: Estonia, Latvia and Lithuania. Open markets, economic liberalisation, fast privatisation, stable currencies, flat tax rates all of these became the trademark of the “Baltic Tigers.” Early in the new millennium, the Baltic countries started to enjoy the fruits of their reforms, says Laar:
Yet times of rapid growth are unfortunately not always times of good decisions, says Laar. Governments thought they could afford a Western-style welfare state because the economy was doing so well. Conservative financial policy was weakened, lending was encouraged, chances to join the euro zone were missed, and social expenditures rose beyond the economy’s ability to bear them.
Combine these mistakes with corruption, weak government and loose control of the banking sector, and the results can be very difficult as in Latvia, which had to take out a loan from the IMF. Countries with a more effective visible hand, such as Lithuania and Estonia, are doing much better, says Laar:
Source: Mart Laar, Freedom Is Still the Best Policy, Wall Street Journal, February 13, 2009.
For text: http://online.wsj.com/article/SB123449222292880677.html
For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17
FMF Policy Bulletin/ 17 February 2009
