Republic of Estonia joined the European Union in May 2004, shortly thereafter, Estonia entered ERM II mechanism in June 2004. This small open Baltic country is home to a population of 1.4 million (28 percent still speak ethnic Russian).
Economic Statistics
Total GDP as measured by purchasing power parity stands at $21.8 billion USD with corresponding GDP/Capita at $16,400 USD (2005). GDP at market price is at $12.5 billion USD (2005). GDP growth for year 2004 came in at 7.8 percent, 2005 at 7.1 percent, 2006 estimated at 6 percent. Inflation recently was higher than wanted at about 4.5 percent annually, inflation for 2006 forecasted to decline to 2.8 percent. External debt stands at $10 billion USD. Official reserve assets are measured at $1.94 billion USD (January 2006). Current account deficit is high at $1.4 billion USD equivalent to 10 to 11 percent of GDP, year 2004 came in short at 12.7 percent. Positively, the expected fiscal surplus came in higher at 1.7 percent of GDP. Unemployment is moderate at 8.1 percent.
CURRENCY: ISO Symbol ‘EEK’, Estonian kroon, krooni (plural). At time of review on February 7, 2006, the Estonian kroon was valued at 13.05 EEK to the US-dollar (USD) and/or 15.645 EEK to the Euroland euro (EUR). The kroon exchange rate is fixed to the euro at 15.6466 EEK under ERM II guidelines. This value is equivalent to the former exchange rate against the German mark at 8 EEK to the DEM incepted in 1992. The kroon is a freely convertible currency. ERM II mechanism provides for a minimum two year window for countries to show that they can keep their currencies stable while meeting euro membership targets (Maastricht treaty) on interest rates, inflation, debt and fiscal deficits. A fluctuation band of typically 15 percent is set initially, gradually narrowing as convergence nears. The kroon joined ERM II with its existing currency board in place.
CURRENCY HISTORY: in 1992, the kroon replaced the then circulating Soviet ruble at an exchange rate of 10 rubles to 1 kroon. The Soviet ruble had been circulating in Estonia since 1940 after the Soviet military invasion up until 1992. Previously, the original Estonian kroon began circulating in 1928. Historical exchange quotes for the kroon include year 2005 at 12.45 EEK to the US-dollar (USD), 2004 at 12.59, 2003 at 13.85, 2002 at 16.6, 2001 at 17.47, January 1998 at 14.52, 1997 at 13.88, 1996 at 12.03, 1995 at 11.46, 1994 at 12.99 and year 1993 at 13.22.
CURRENCY FORECAST: large current account deficit reflects potential kroon overvaluation which is partly attributed to the country’s energy deficit – oil & gas. Electronics and telecommunications with companies like Nokia based in Finland have set up subsidiary operations in Estonia. The arrival of the euro currency will provide greater stability to the overall Estonian economy. Economic risk includes credit & potential real estate bubble. On the plus side, Estonia now has low public debt to GDP. The Euroland euro currency to replace the kroon likely in the short-term as early as mid June 2006.
