Geert Bekaert and Campbell R. Harvey's


Chronology of Economic, Political and Financial Events in Emerging Markets




Major Political and Economic Events


Banking crises(1992-1994): in 1992, insolvent banks accounted for 41% of financial system assets. In 1994, Social Bank controlling 10% of financial system assets was insolvent. Causes: (1)implementation of currency board brought growing bad debt problem of some banks to surface; (2) deficient bank management and inappropriate lending policies; (3) frozen deposit in Russia; (4) collapse of Social Bank caused by bad loans and fraud. Overall change in macro policy: monetary policy continues to be governed by currency board arrangement and fiscal policy remains high.a2


Social Bank which controlled 10% of financial system assets was involved in banking crisis. Causes for 1992-94 banking crises: (1) implementation of currency board brought growing bad debt problem of some banks to surface which could no longer earn large profits from foreign exchange trading, or by onlending central bank credit at high spread; (2)deficient bank management and inappropriate lending policies; (3) frozen deposits in Russia; (4) collapse of Social Bank caused by bad loans and fraud. Government resolution mechanism: (1)12 banks were liquidated among them, Tartu Bank (accounting for 15% of commercial bank assets) and Social Bank (at point in time it experienced problems was 3rd largest bank); (2) 2 other insolvent banks were merged and new entity was to be recapitalized; at the same time frozen assets and deposits of two banks were to be moved to Central Bank and placed in fund known as VEB fund; former depositors of two banks received tradeable certificate of this fund; (3)in order to restore public confidence in banking system, wholesale banks were required to apply for licensing.


New prudential ratios for banks, set at international acceptable levels, became effective.a3


The introduction of the Insider Trading Laws.a4


The Tallin Stock Exchange opened, and foreign investment service firms can operate there.ll


(Provisions specific to commercial banks and other credit institutions) Net liabilities to foreign credit institutions were subject to a reserve requirement.a3(first entry)


ADR effective date. (Company=EESTI UHISPANK - 144A , Exchange=PORTAL)a11


IFC announced the launching of the IFCG Estonia Index, which had a base date of December 1997=100 and was not included in the IFCG Composite Index. Estonia Index had ten stocks, dominated by Hansabank, which represented about 62% of market capitalization.


New controversial legislation imposed taxes on dividends paid to foreign residents.


Interest rate dropped from 15.7% to 9.5% since the beginning of the year and 1998 GDP was expected to grow at 6%.


The BOE reduced the cash component of the mandatory reserve requirement to 20%.a3


Financial guarantees provided by commercial banks to other financial institutions became subject to the mandatory reserve requirement.a3


Two Swedish banks bid for Hansabank actively.


Union bank of Estonia, the second biggest banking group in the Baltic region, announced a strategic partnership with the Swedish Bank SEB and the International Finance Corporation.


The IPO of Estonia Telecom had been heavily oversubscribed.


The three-party center-right coalition won the election, signaling that economic policy would remain in place.


First quarter GDP fell 5.8% year-on-year, much lower than the expected 2%.


The government lowered its GDP growth forecast for 1999 from 2.2% to 0.4%. It shifted corporate income tax from net profits to distributed profits, imposing tariffs to make up for revenue losses.


The central bank forecasted zero-to-negative economic growth in 1999.


EU confirmed Estonia as a tier-one candidate.


The foreign investment code was further liberalized with the abolition of corporate tax on profits if they were reinvested domestically. GDP surged to 5.2%. The Tallinn Stock Exchange started trading the Baltic List of 13 companies, 5 of which were Estonian. Parliament passed amendments to the securities market act, including a minority buyout law to protect smaller shareholders and a simplified licensing procedure for European Union brokerages. The government approved the State Property Program for 2000.


The IMF approved a US$39 million standby credit.


The Baltic exchanges signed a letter of intent to join the Norex alliance by the middle of 2001.


Estonia was ranked as one of the leaders among 42 developing countries on their "e-readiness" in an international study. The Secretary-General of the Council of the European Union, Javier Solana, said that Estonia was ready to join the economic union. Domestic pension was reformed. SEB Group announced a cash buyout of Eesti Uhispank of Estonia. The government submitted to parliament the 2001 balanced draft budget, aimed at restraining domestic demand.


SEB Group acquired over 95% of shares in Eesti Uhispank, the leading bank in Estonia.


Largest monthly trade deficit in the year at US$160 million.


The Rail Estonia consortium won the tender for 66% of Estonian Railways. The Tallinn Olympic Yachting Center failed to be privatized, contributing to a budget deficit of about 350 million kroons (US$21 million).


Estonia Railways was privatized. Estonia is the first of the Baltic States to fully complete the privatization of all state-owned companies.


HEX, owner of the Helsinki Stock Exchange, took majority control of the Tallinn Stock Exchange.


Arnold Ruutel won the presidency.


S&P raised Estonia's foreign currency debt ratings. Prime Minister Mart Laar abruptly resigned.


President Ruutel signs into law a bill scrapping the requirement for candidates for public office to be proficient in the Estonian language.


Siim Kallas becomes prime minister in a new coalition government in which his Reform Party shares power with Centre Party.


The Finance Ministry has declared the sovereign's first Eurobond launch a success.


NATO summit in Prague includes Estonia on list of countries formally invited to join the alliance.


EU summit in Copenhagen formally invites Estonia to join.


Estonia's parliament approved amendments to bankruptcy legislation. Among other things, the new law reduces the stages that creditors have to go through to receive funds after the court has satisfied their claims, and aims to reduce the abuse of power by bankruptcy trustees.b1


Estonian Parties Agree on Gradual Income Tax Decrease by 2% each year over the next three years to 20% in 2006. b1


General election sees leftist Centre Party and conservative Union for the Republic Res Publica emerge with 28 seats each. Coalition talks follow.


President Ruutel invites Res Publica leader Juhan Parts to be premier in coalition government with Reform Party and People's Union. b6


A three-party, centre-right coalition, which has committed itself to cutting income tax and reducing the bureaucratic burden, will form the new Estonian government.


Estonians vote overwhelmingly to join the European Union in a referendum.


Parliamentary Approval to Merge Estonian Customs, Tax Departments


The law on political parties has been amended to prevent businesses from donating to political parties, with the possibility of heavy fines for violating the ban.


Parliament made provision to ease citizenship restrictions for more than 10% of the population who are stateless.b1


Estonia admitted to NATO.


Estonia is one of 10 new states to join the EU. b6


Rebel MPs Set Up Social Liberal Group in parliament.


Regulations on Foreign Investors


Restrictions: No restrictions are imposed on foreign investors in acquiring a company or equity except forestry, water, energy, gas supply, transportation, telecommunications and medicine where a Ministry of Finance License is needed in case where the investment exceeds 10% of the company's equity capital.

Taxation: 26% income tax. Non-residents in Estonia are liable for tax on capital gains, interest paid by Estonia residents and government, and dividends from business activities registered in Estonia. Tax on dividends and interest income is deducted at source and for individuals the tax rate for interest income is 10%. Estonia has double taxation agreements with several European countries.a7


Restrictions: A few sectors, -- the country's main port, the power plants, the postal system, the national lottery, etc. -- remain state-owned. b7


No change.


Restriction: no change

Taxation: Withholding tax (0-26%) is imposed on dividends paid to: non-resident companies owning less than 25% of the payer's capital; non-resident individuals; and non-residents from low-tax jurisdictions. Income tax decreases by 2% each year to 20% in 2006. b1