Transcript Ireand and Estonia

Ireland and Estonia: the
Economic Miracles of the
EU
Prepared by
Asie Mustafa &
Tatyana Hristova
Pre-accession Economic History of Ireland
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Until the 1950s: strong protectionist policies (tariffs, bans
on foreign ownership, etc.), which gave perverse results;
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National debt reached 128% at a certain point;
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Emigration soared (400,000 people Ireland between 1951
and 1961); Brain Drain;
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High level of economic dependence on the state through
their ownership of major sectors and various programs
for economic stabilization (IDA in the 1950s);
Ireland Today
►
One of the fastest growing economies in the developed
world:
 Celtic Tiger I (1990s – 2001,2002)
 Celtic Tiger II (2003 – present)
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Open economy: international mobility of labor and capital
►
Employment growth (96,000 net job increases only during
2005)
►
From being an agrarian and manufacturing-based
economy, today Ireland is increasingly dependent on high
technology and international services
What Created the Tiger?
Nothing fundamentally innovative; Ireland simply
proves “that fortune favors the prepared”.
►
Ireland is FDI-friendly:
 Low corporate tax of 12.5%
 Low level of bureaucracy: a company needs 44 hours
to register as a domestic company, opposed to 500
hours in Bulgaria
 Well-educated and productive workforce, not lowwaged
 Tax credits for incremental expenditure on R&D
 Double taxation agreements with over 44 countries
What Created the Tiger?
►
Cooperation among government, employers and trade
unions:
 Program for National Recovery (1987) : fiscal and
monetary stabilization, tax reform, pay moderation,
sectoral development;
 Program for Economic and Social Progress (1991 to
1993)
 Program for Competitiveness and Work (1994)
►
Over the period of these programs, economic growth was
twice the EU average, inflation had fallen to one of the
lowest levels in the EU and employment was growing
What Created the Tiger?
►
Constructive governmental reforms in problematic
industry sectors:
 In the 1980s, the Irish telecommunication system was
perhaps the worst in Western Europe (overstaffed,
expensive and low-quality service);
 The government recognized this weakness as a burden
on foreign investors and initiated reforms;
 Instead of offering it to the private market, they
committed a large capital investment
 It became the largest employer in Ireland
 Service was significantly improved
Estonia - Baltic’s Very Own ‘Tiger’
►
►
Baltic Tigers is a term that refers to Estonia, Lithuania,
Latvia.
Estonia is, among the three considered countries, the
one that is performing best and growing at the fastest
rate.
Data from IMF
From a Communist Past to a Model
of Modern Economy
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Estonia regains independence in 1991 ( later than the other excommunist countries)
Gateway between East and West BUT aggressively pursuing
economic reform and integration with the West.
Reforms start immediately after 1992, with Mart Laar being the
force behind those reforms.
Mart Laar 32 years old when becomes PM in 1992, serves 2
mandates – 1992-1996 and 1999-2002.
He is a historian not an economist, and claims that he has read
only one economic book - “Free to Choose” by Milton Friedman.
Transition Period with Numerous
Reforms
► Rapid privatisation and restructuring
 Privatization of the state-owned companies started
in 1992.
 Privatization Law enacted in 1993.
 Including infrastructure, eg complete liberalisation
of the telecom market, airlines and transport.
 The level of state aid one of the lowest in EU
 The sale of assets, generally based on an open
tender system, has been notable for its high degree
of efficiency and relative absence of corruption.
Creating an Investor Friendly Environment
► Banking sector
 Soft credits to inefficient enterprises were
discontinued
- Foreign investment in the Estonian banking
system
-
Currency
- Ruble was removed from circulation and Kroon
was introduced – 1992
- Fixed exchange rate at the D-Mark, later on the
Euro
Creating an Investor Friendly
Environment
► Liberal
1991
trade and investment regime since
-equal treatment of local and foreign investors
► Tax
system–motivating, transparent, simple
– flat income tax rate (20%), tax-exempt personal
income EEK 24 000 per year
 corporate income tax on dividends only,
reinvested profits not taxed
► Property
rights
 Norestrictions on foreign citizens and foreign
E-Estonia – Leader in the World in the Field of
E-Governance
• e-government project (august 2000)
• e-tax board - income tax
statements can be filled out
via internet (spring 2001)
• digital signature act came
into force (december 2000)
• 90% electronic transactions,
80% of the population using internet banking (end 2005)
• e-billing (july 2000)
• e-voting - the first case world-wide of a country that has actually passed
overall e-voting laws
Main Lessons from Estonia and
Ireland
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There is not a single formula for success,
however some patterns can be observed in
both countries:
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Education of the workforce
Sectoral development
Revised tax policy
Transparency and fighting against corruption
► Economic
success is driven by political unity
and determination.