Now with own currency, Estonia is in poverty shock

July 15, 1992|By Will Englund | Will Englund,Staff Writer

TALLINN, Estonia -- Proud as can be, Estonians are savoring their new crisp money, their very own kroons in place of rubles -- but there sure aren't many of them.

On the first day of summer, Estonia took the plunge and issued what is supposed to be real money, backed by real wealth -- the first of the former Soviet republics to do so.

The only problem is, there isn't much real wealth here. Residents were allowed to exchange their rubles up to a limit of 150 kroons -- worth $12.50. That's how much most people had to live on until the next payday, in mid-July.

"To be quite honest, you really have to try hard now to make it," said Maimu Rinaldo, a shopper who discovered to her dismay recently that the new kroon has sent prices ratcheting up toward world levels.

So, mixed with national pride over the handsome bills is a large dose of poverty shock. In its first two weeks, the government issued a total of 600 million kroons, to individuals, businesses and banks. That's about $33 worth for each Estonian.

It has put Estonians face-to-face with their own impoverishment. Sweeping away the ruble sweeps away convenient fictions as well: that there was money to buy things, for instance, or that prices had nothing to do with costs, or that it made sense for Soviet-style factories to keep working, even when there were no buyers for their products.

The big Volta Electric Motor Works here shut down last week,

sending its 1,800 workers on an enforced summer vacation from which few are likely to return to work.

No one in the government objected to pouring worthless rubles into worthless enterprises. Real money is a different story.

Estonia is in the forefront of monetary reform in the former Soviet Union. It is the first republic to turn to something approaching a hard currency. But the hard times to come -- an inevitable consequence of the end of the ruble illusion -- will be a harbinger of change throughout the 15 republics.

This little nation on the Baltic decided to ditch the ruble, said Kaupo Pollisinski, of the Central Bank, because "we needed the ability to pilot ourselves."

There was no way the country could hope to find its way to economic health again with a system based on a ruble that's printed in Moscow, the capital of another country, and printed by the bushelful. Albeit a free-floating ruble since last week.

Interest rates here were hovering around 10 percent -- a month. No one knew the value of a company, the amount of its debt, or how much it was owed. The Gross Domestic Product was a fiction because factories kept merrily producing even as sales dropped away to nothing.

The kroon is backed by $120 million in hard-currency reserves. Estonians, all 1.5 million of them, gave the kroon a big vote of confidence when it came out, lining up sometimes for hours to buy kroons in exchange for rubles, up to the limit of 150 kroons. So far, residents have also been changing $250,000 worth of hard currency into kroons every day -- an unexpectedly large sum of dollars, Finnish marks and Swedish kronor coming out of the cupboards and from under the mattresses of ordinary people.

Most telling, stores and vendors by and large are accepting only kroons. The parallel dollar economy has almost dropped from sight.

The danger is that the kroon economy may also drop from sight soon -- with nothing to replace it -- unless things start moving.

Examples come big and small. The Volta factory, for instance, was a Soviet monolith. Its black-brick shops and yards sprawl over a powerfully grim compound in the heart of Tallinn's Russian section. Russian is the language of the Volta factory; its smells are distinctly Russian. Of the raw materials used here when the plant cranked out a million rubles worth of electric motors every day, 100 percent came from Russia. All but 7 percent of the motors went back to Russia.

The Russians of Estonia -- 40 percent of the population -- are for the most part factory workers, and they are already unhappy over new citizenship requirements, language requirements and the demise of communism generally.

Now 1,800 more Russian workingmen have been put on mandatory vacations and told they probably won't have their jobs by fall.

The managers of the factory have no money to buy raw materials at international prices, have no prospect of receiving money if they ship any more motors back to Russia, and don't understand how they could do business with Russia even if there was money to be had (although there is in theory a complicated joint exchange agreement between Moscow and Tallinn).

"We can't even buy a pen now," said Jury Khatchatrian, the export manager. "But if this place shuts down it would be a moral catastrophe."

At the other end of the economic scale is a small design firm that for 30 years planned houses and other buildings for collective farms. Lembit Pakosta, the project chief, said the company was facing bankruptcy because the end of communism has spelled the end of collective farms.

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