RADIO FREE EUROPE/RADIO LIBERTY, PRAGUE, CZECH REPUBLIC
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RFE/RL NEWSLINE  13 May 1999

VOJVODINA ISSUE DOMINATES HUNGARIAN POLITICS. Hungarian
Foreign Minister Janos Martonyi and representatives of
all six parliamentary parties agreed on 12 May that
autonomy for Vojvodina should not be linked to the
resolution of the Kosova crisis, Hungarian media
reported. Martonyi said the government is preparing a
comprehensive concept on the issue. Independent
Smallholder deputy chairman Zsolt Lanyi said cabinet
members share his view on Vojvodina's independence but
"do not dare to say so." He said no cabinet member has
reproached him for his earlier statements (see "RFE/RL
Newsline," 11 May 1999). Laszlo Jozsa, deputy chairman
of the Federation of Vojvodina Hungarians, said the
possible transformation of the province into an
independent state has no basis in reality. Prime
Minister Viktor Orban on 11 May told Hungarian Radio
that Budapest will help Vojvodina's ethnic Hungarian
minority regain autonomy as the international situation
changes. MSZ

ESTONIA'S BUDGET CRISIS CASTS SHADOW OVER ECONOMIC
PERFORMANCE

by Michael Wyzan

	Estonia, which has long had one of the best
performing transition economies, has
uncharacteristically made news recently because of a
budget crisis. The government on 4 May approved a
"negative supplementary budget," under which
expenditures this year would be cut by 1.03 billion
kroons ($71 million). The document foresees reductions
in government investment and subsidies to the private
sector. The IMF promptly warned that cuts of at least
twice that level are required.
	The emergence of these fiscal problems contrasts
with the good news about economic policy and performance
that typically emanates from Tallinn. Estonia has
weathered the Russian financial crisis far better than
the other two Baltic States. It has also succeeded in
cooling off the economy, which overheated in 1997, and
reorienting its exports to EU markets.
	The budget problems result, to a certain extent,
from a slowdown in economic growth, as value-added and
excise tax receipts have been disappointing. GDP growth
slowed from 11.4 percent in 1997 to about 4 percent last
year. Although the 1999 budget was based on a growth
forecast of 5.5 percent, the IMF now predicts that the
economy will grow by 2.5 percent this year. Sales of
industrial production rose by 0.8 percent in 1998 and
fell by 11.4 percent in January-March 1999, compared
with the same period in 1998.
	Nonetheless, the most obvious fiscal problems are
occurring on the expenditure side. While total
consolidated budget revenues at the end of February were
3.238 billion kroons, up by 26.4 percent (in nominal
terms) over the same period in 1997, expenditures were
4.063 billion, an increase of 58.2 percent. Indeed, the
share of government expenditures in GDP is projected to
rise to 42 percent of GDP this year (even after the
budget cuts) from about 36 percent in 1996.
	Increased spending is related to promises made in
1998 by a centrist coalition government (which was
replaced by a right-wing coalition after the elections
of March 1999) that included a party representing rural
interests. In the wake of the Russian crisis--which hit
the agricultural and food sectors hard--and of weather-
related poor harvests, promises were made to increase
agricultural subsidies and raise agricultural
procurement prices. In the end, farmers received 227
million kroons in subsidies. There have also been
problems with controlling extra-budgetary spending in
such areas as pensions.
	Nonetheless, the situation is not as alarming as it
appears. The sale of stakes in Eesti Telekom to Telia of
Sweden and Sonora of Finland will bring more than $300
million to the budget this year.
	More broadly, many economic indicators show that
the economy continues to perform well, if somewhat worse
than before the outbreak of the Russian crisis. The
slowing of GDP growth last year was helpful in reducing
the current account deficit from a high 12 percent of
GDP in 1997. The deficit was down to a less worrying 8.6
percent last year.
	Especially encouraging is the fact that exports
grew from $2.2 billion in 1997 to $3.2 billion in 1998,
at a time when Latvian and Lithuanian exports fell.
Estonia has been successful in reorienting its exports
toward the EU. In 1998, the EU bought 55 percent of
Estonian exports, compared with 48 percent in 1993.
Finland and Sweden together took 36 percent of Estonia's
exports last year.
	The importance of Russia as a trading partner has
declined, with exports and imports falling from 23
percent and 17 percent of the respective totals in 1993
to 13 percent and 11 percent in 1998. By January 1999,
that country accounted for only 8.7 percent of Estonian
exports.
	Estonia's strong export performance is especially
impressive in the light of the rapid growth of wages, as
expressed in dollars or constant kroons. The gross
monthly wage reached $363 in December (compared with
$321 a year earlier), higher than in all other
transition countries except Croatia, the Czech Republic,
Hungary, Poland, and Slovenia.
	Real wages in kroons grew by about 4 percent last
year, an increase that was approximately matched by
labor productivity. This contrasts with Latvia and
Lithuania, where real wage growth far outstripped
productivity in 1998. The coexistence of healthy export
growth and rising real wages suggests that significant
restructuring is occurring at the enterprise level.
	Estonia's budget problems do not suggest that the
country is no longer a stellar economic performer. They
do imply, however, that the era of exemplary policy-
making, as reflected in balanced budgets, has been
replaced by a political process more similar to those of
other transition countries. Reports last week that the
government is working on a bill that would for the first
time since independence impose import tariffs is another
indicator of this trend.

The author is a research scholar at the International
Institute for Applied Systems Analysis in Laxenburg,
Austria.

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