U.S. Department of State

U.S. STRATEGIC INTERESTS

Estonia occupies a strategic corner of the Nordic-Baltic region, sharing common borders with Russia and Latvia and located roughly 50 miles across the Gulf of Finland from Helsinki. Along with its Baltic neighbors Latvia and Lithuania, Estonia will formally join NATO and the EU in spring 2004. Estonia supports most United States foreign and strategic policy interests in a wide array of fora, including in the UN and the OSCE. In support of the U.S.-led war on terrorism, Estonian troops participate in military-security operations in Iraq and Afghanistan, and Estonia contributes to the NATO-led KFOR and ISAF operations in Kosovo and Afghanistan respectively. Estonia's commitment to a liberal, open-market economic policy environment has created a strong investment climate and helped to generate sustained economic growth. The U.S. has a strong interest in maintaining close relations with this ally in order to bolster solid partnerships with the EU and NATO and to further U.S. global policy objectives. The burdens of EU and NATO membership, together with expensive deployments in support of operations in Afghanistan, the Balkans, and the Middle East continue to stretch Government of Estonia (GOE) resources. Continued U.S. support for Estonia will allow the GOE to meet its obligations in these areas, while also consolidating gains in dealing with regional "soft security" challenges.

OVERVIEW OF U.S. GOVERNMENT ASSISTANCE

In FY 2003, the U.S. Government (USG) provided an estimated $12,994,386 in assistance to Estonia:

• $226,857 in SEED-funded democratic reform programs (not including ECA-funded Public Diplomacy exchange programs)

• $227,745 in SEED-funded economic and social-sector reform programs

• $11,809,784 in security, regional stability, and law enforcement programs, including the following:

SEED -- $180,784
Defense Environmental International Cooperation (DEIC) -- $50,000
International Military Education and Training (IMET) -- $1.1 million

• Foreign Military Financing (FMF) -- $9.25 million

Defense Threat Reduction Agency (DTRA) through FBI -- $502,000
State INL through FBI -- $127,000
DTRA and Nonproliferation and Demining and Related Activities (NADR) through Export and Border Security Program (EXBS) -- $600,000

• $365,000 in humanitarian programs: $235,000 for HA demining and $130,000 for other HA programs.

In FY 2003, a total of 114 Estonians traveled to the U.S. on USG-funded exchange programs, including 12 International Visitor grantees; one Voluntary Visitor grantee; 13 educational program participants (Fulbright teachers, scholars, Humphrey Fellows, and teacher exchange participants); one police officer, one chief justice and six businesswomen on special SEED-funded programs; 10 police officers to the FBI academy; and 70 individuals through the IMET program.

U.S. ASSISTANCE PRIORITIES

Democratic Reform Programs: Since Estonia has a vibrant and durable democracy, FY 2003 USG Democratic Reform programs focused on specialized areas. These included further integration of the Russian-speaking community into the mainstream of Estonian life; building Holocaust awareness; a municipal anti-corruption program; and promoting women's entrepreneurship.

Economic and Social Sector Reform Programs: Estonia enjoys a strong, free-market economy. USG assistance programs in this area were weighted heavily toward health and science projects, most notably those addressing the growing HIV/AIDS problem. These included one project focused on HIV/AIDS in prisons, where Estonia's HIV positive community is disproportionately represented. Other projects will help fund scientific research and exchange of scientists. One SEED project aimed to develop the economy of the region bordering Lake Peipsi (Europe's fourth largest lake), an economically depressed area with considerable tourism potential.

Security, Regional Stability, and Law Enforcement Programs: Programs in this sector have been aimed at developing a professional military, increasing NATO interoperability, promoting Estonian-Russian cross-border exchanges, and combating trafficking in persons and financial crimes. In FY 2003, International Military Education and Training (IMET) funding focused onthe creation of a professional military, the implementation of defense reform in such areas as strategic planning and resource management, and NATO/coalition interoperability. IMET provides the education and training to achieve both greater professionalism within the defense establishment and to bring about necessary reforms in planning and resource management. The primary use of Foreign Military Financing (FMF) funds is to establish a standardized, secure-mode capable, NATO-interoperable communications network from the strategic down to the tactical level. FMF funds support the purchase of tactical radios for several high-readiness Army units and a complete ship-to-shore communications package for the Estonian Navy. FMF funds have also been used to improve Estonia's air surveillance network, increase its Host Nation Support capability, and provide a U.S. military instructor at the Baltic Defense College. USG assistance efforts in the financial sector went to training programs related to corporate governance and responsibility, auditing, and combating money laundering and terrorist financing. A significant portion of SEED funds was directed to the trafficking in persons issue, both in terms of educating young people about the dangers of this trade, as well as to quantify the extent of the problem in Estonia. Regarding regional stability, 2003 saw the fruition of a number of long-planned exchanges between the Estonian city of Tartu and the neighboring Russian city of Pskov. Both SEED and FSA funding supported these exchanges. In addition, cross-border travel funds provided more Estonians with first-hand information about their eastern neighbor. Democracy Commission funds enabled the Estonian Atlantic Treaty Association to educate Russian-speakers in Estonia about the implications of Estonia's forthcoming accession to NATO.

SECTORAL ASSESSMENTS

Democratic Reform

Estonia's pending EU and NATO accession is in part a reflection of its successful consolidation of democratic reform. The OSCE deemed an observation mission to Estonia's March 2003 parliamentary elections unnecessary, citing the "high level of confidence in the professionalism and impartiality of (Estonia's) election administration" and the conduct of previous elections "in a transparent manner, enjoying the confidence of the political parties and the public."

Estonia's independent media are active and express a wide variety of views without government restriction. The OSCE has concluded that Estonian public TV generally seeks to give equal access to all electoral candidates and to cover campaigns impartially.

Estonia's constitution provides for an independent judiciary, and the GOE generally respects this provision in practice. While there are some incidences of corruption in government, the GOE continues to investigate charges of corruption aggressively. Estonia placed 33rd (out of 133 countries) in Transparency International's 2003 ranking of perceived corruption, or higher than all other EU accession candidates except for Slovenia (29).

With NATO and EU accession pending, Estonia is now firmly in "The West," where it always wanted -- and deserved -- to be. This achievement, together with the creation of a healthy democracy, years of sensible fiscal policies, and strong economic growth, put Estonia in a position to consider which challenges to take on next.

Estonia's populist Center Party had the strongest performance in the 2002 municipal elections, and did well in the March 2003 national elections. However, political newcomer Juhan Parts, leader of the "clean government" Res Publica party, received the nod to form the government. Parts, the former State Auditor, leads a three-party coalition that promises to maintain high standards of government ethics, bring down the flat-tax rate, and offer social support that will lead to increased family sizes. While intra-coalition tension has led to bickering over domestic policy, Parts? government is continuing Estonia?s history of strong support for the U.S. and NATO.

Estonia is slightly smaller than New Hampshire and Vermont combined, with a declining population of not quite 1.4 million. Just under one million inhabitants are ethnic Estonians, leaving them to carry on the Estonian language, culture, and traditions. It will be no easy task, as Estonian becomes the second least-spoken language in the EU.

The integration of Estonia's Russian-speakers is not complete. However, the GOE has taken steps to ease citizenship requirements and improve opportunities for non-citizens to learn Estonian. In many ways, the solution to Estonia's integration challenge will come simply with time. The generations of Russian-speakers who arrived in Estonia when it was occupied by the Soviet Union will die out, and younger generations born into Russian-speaking families will recognize the economic usefulness of mastering Estonian, not to mention having many opportunities to learn the language in ways earlier generations did not.

The Embassy used SEED funds to help further the integration process. One SEED grant funded a project to identify undocumented Estonian residents and educate them about their rights and obligations in terms of registering with the government. Another was for the production of a handbook for citizens in Russian. Yet another provided Estonian-language teaching materials for Russian-language kindergartens.

Three Embassy Democracy Commission grants addressed Holocaust awareness: to produce one of the first Estonian-language books published in the re-independence period about Jews and the Holocaust; to fund an Estonian-language print-run of a Swedish-produced book designed to educate young people about the Holocaust; and to fund an online presentation by a museum about the Holocaust.

One SEED program introduced anti-corruption strategies to municipal officials from a number of locations around Estonia. Other SEED funds were used to send a delegation of important Estonian women business leaders to the Washington follow-up to the Helsinki Women's Business Leaders' Summit.

Some SEED funds were transferred to the Department of State, Bureau of Educational and Cultural Affairs, so that three Estonians could earn Master's Degrees at U.S. universities. One of the successful candidates is the head of the stock market supervision office at the Estonian Financial Supervision Authority.

Economic and Social Sector Reform

Estonia?s economic reform policies have led to a liberalized, nearly tariff-free, open market economy. The privatization of state-owned firms has been completed. Estonia joined the World Trade Organization (WTO) in 1999. Currently, most of Estonia?s economic policies are geared toward accession to the EU, in 2004.

Economic reforms have reduced the weight of government activity in the economy. In addition, the constitutionally required balanced budget and the use of a currency board system restrict the range of monetary and fiscal instruments available for influencing the economy. With the Estonian kroon pegged to the Euro at a ratio of 15.6 to one, the size of Estonia?s money supply is directly determined by the amount of foreign exchange it can attract through exports, loans, or investments.

Last year the Estonian economy continued its growth at a solid pace. GDP grew by 6.0 per cent in 2002, and observers expect 5-6 percent growth in 2003. The inflation rate -- 4.2 percent in 2001 -- dropped to 2.7 percent in 2002. The estimate for 2003 is only 0.3 percent. The overall unemployment rate in 2002 was 11.3 percent, with rural areas most affected.

Estonia?s economic policies have received high marks from international institutions and organizations. It was ranked sixth in the world -- tied with the U.S. and Denmark -- in the U.S.-based Heritage Foundation and Wall Street Journal 2003 Index of Economic Freedom. The index is a composite of scores in monetary policy, banking and finance, black market, and wages and prices.

Due to Estonia's success in managing macroeconomic policy, USG financial sector assistance in 2003 focused on training programs related to corporate governance, auditing, and combating money laundering and terrorist financing. In 2003, the Estonian Financial Supervision Authority took the initiative to co-sponsor, with the U.S. Securities and Exchange Commission and USAID, a seminar on issuer disclosure and corporate governance.

USG Environment and Science grants offered a big bang for the buck in 2003. USG assistance to the Globe program sent Estonian teachers to a regional Globe workshop and bought equipment to be used by school children to take environmental measurements. In 2003, NASA sent a letter of appreciation to Globe Estonia for the scientific quality of the environmental measurements taken by the school children through the program.

The biggest concern in Estonia's social sector is the growing incidence of HIV/AIDS. In the recently published UNAIDS report, Estonia was ranked third, behind Russia and Ukraine, among European countries with the fastest growing HIV infection rates. Currently, Estonia has about 3,600 cases of HIV, and about 800 new cases were diagnosed in 2003. The USG has been one of the largest donors of aid to combat HIV/AIDS in Estonia. In 2003, USG HIV/AIDS assistance was about $120,000. One grant was aimed at addressing the spiraling rates of HIV incidence in Estonian prisons by raising prison inmate and employee awareness of HIV/AIDS. USG assistance was critical in leveraging more substantial resources in the fight against HIV/AIDS. A USG-sponsored expert helped Estonia prepare its successful application for a $10 million grant from the UN Global Fund to Fight HIV/AIDS, Malaria and TB.

Security, Regional Stability, and Law Enforcement

Estonia deployed nearly 200 personnel in FY 2003 to support UN, NATO, and coalition military operations. That number is above the European average in terms of percentage of the overall force, and a good indication of Estonia's willingness and ability to contribute to global security. In addition to maintaining an explosive detection dog team detachment in Afghanistan that began serving in FY 2002, Estonia sent explosive ordnance detection personnel to support the International Security Assistance Force and deployed an infantry platoon and cargo handling unit under U.S. command in support of Operation Enduring Freedom.

The deployments have become more complex both logistically and operationally, and demonstrate the increasing readiness and growing interoperability of the defense forces. Continuing participation in NATO and Partnership for Peace (PfP) exercises, as well as active involvement in Marshall Center courses and seminars (Estonia was able to utilize all of its course quotas at the Marshall Center in FY 2003), have accelerated Estonia's integration into NATO structures and programs.

The primary goal of the International Military Education Training (IMET) program in Estonia in FY 2003 was to promote stability, democratization, and military professionalism within the Ministry of Defense (MOD), Defense Force, and Border Guards. In FY 2003, Estonia received $1.1 million in IMET funds. The program funded the training of 70 Estonian military and defense-associated personnel in the U.S. IMET helped Estonia work toward its goals of increased self-defense capability and NATO membership by providing training on three levels. On the national/strategic level, priority was on attendance at war colleges, the Naval Post-Graduate School, and the Defense Resource Management Institute. On the operational level, IMET focused on staff colleges, executive courses, and mobile training teams. At the tactical level, courses consisted of specialized training for junior officers and NCOs. Expanded IMET courses continued to provide critical training for defense policy and resource planners at MOD. The U.S. Coast Guard International Maritime Officer Course will remain indispensable for the training of selected Estonian Border Guards personnel. In FY 2003, two six-month TDY English language instructors conducted language training for 120 Estonian officers and soldiers. Also in FY 2003, two mobile training teams trained 40 officers in Brigade operations and planning.

Foreign Military Financing (FMF) funds went to purchase equipment, training, or services that increased Estonia's self-defense capabilities and ensured interoperability with NATO structures and forces. In FY 2003, Estonia received $9.25 million in FMF funds, of which $2.75 million was Iraqi Supplemental Funds. The priority use of these funds was to establish a standardized, secure-mode capable, NATO-interoperable communications network from the national/strategic down to the tactical level. FY 2003 funds supported the completion of the communications package for the eight major Estonian naval vessels. Among other secondary purposes, this grant money supported continued upgrades to the Airspace Sovereignty Operations Center and sustained a U.S. instructor at the Baltic Defense College and an advisor to the Air Force. The Iraqi Supplemental Funds, recently waived from American Servicemembers Protection Act (ASPA) restrictions, will be used to equip troops serving in Iraq and Afghanistan and follow-on Estonian forces for deployment to these theaters.

The Defense Environmental International Cooperation (DEIC) program used $50,000 from the U.S. Army Corps of Engineers to conduct an Environmental Compliance Project. This military environmental project was used to assist the MOD and Estonian Defense Force (EDF) in establishing environmental compliance procedures and processes for the development of military training areas. The project included a three-day seminar in Tallinn that outlined environmental compliance procedures consistent with EU and Estonian law, as well as a handbook that can be used on for reference and as standard operating procedures. The handbook also serves as a useful reference document for program managers.

Estonia does not have an indigenous terrorist threat, nor are any organizations named on the Department of State's list of recognized terrorist organizations present. Estonia's terrorism threat is closely linked with its border security, which will be of particular interest to the U.S. and the EU in 2004, when Estonia becomes a full member of NATO and the EU. Due to its border with Russia, Estonia is a potential transit risk for Weapons of Mass Destruction (WMD) materials. This potential risk is offset by the robust DOD/DTRA /FBI WMD Counter-proliferation program, wherein the FBI and Defense Threat Reduction Agency (DTRA) have provided considerable training and assistance since 2001. This program is funded through FY 2007 and will continue to bring annual training and technical equipment enhancements.

Another potential terrorism threat arises from the liberal banking environment. Banks in the entire Baltic region, including Estonia, routinely engage in foreign transfer transactions with little known or fictitious customers. Many of these transactions have been identified with transnational and organized criminal activity.

The Estonian Prosecutor General's Office has named cyber-related crimes among the top three crime problems facing the country. Several significant FBI computer intrusion cases have originated in the Baltics, including Estonia. This trend continues, as evidenced by pending investigations of persons in Estonia who have intruded into U.S. financial infrastructure, resulting in millions of dollars in losses. The perpetrators of cyber-related crimes also take advantage of the regional banking environment by receiving and laundering their proceeds.

Recent developments in the region warrant a reassessment of the structure and prevalence of organized crime. Previous crime assessments from 1996 to 2002 determined that there were several well-established organized crime groups with transnational connections in Estonia. These were believed to have close ties to organized crime groups in Saint Petersburg, Russia, with connections to Florida, New York, California, and the northeastern U.S. Estonian services believe that the links and influence of Russian organized crime groups have weakened in recent years, although some level of coordination among the leaders of those groups continues. Estonia currently has several relatively small organized crime groups, whose main focus is economic crimes such as bank and tax fraud, transit shipments of drugs, trafficking, and organized car theft.

In the counterterrorism field, the FBI and the Defense Threat Reduction Agency (DTRA) provided three training courses and delivered technical equipment valued at over $500,000 to Estonia in 2003. A recertification course provided retraining in the use of the WMD response equipment that had been previously provided. Fifty-eight Estonians from the Police, Security Police, Rescue Board, Customs, and other agencies participated in a WMD integrated exercise. At its conclusion, the remaining unused equipment (valued at about $300,000) was divided among the participating agencies. The FBI and DTRA also held an advanced radiation and detection class that gave the Estonian Radiation Safety Center and Rescue Board sophisticated radiation detection equipment (worth $202,000) and instruction in its proper use. The FBI Legal Attach? Office used this initiative as the catalyst for building counterterrorism and counter-proliferation liaison equities. The Legal Attach? also maintained close relations with services addressing terrorism finance matters in Estonia, including the Security Police, Tax Board, and Central Bank.

U.S. Customs, through the Department of State?s Export Control and Related Border Security (EXBS) office in Latvia, provided Estonia with a WMD Undercover Investigation course, WMD Controlled Delivery training, a WMD Cyber crimes course, and a WMD Illegal Experts training course. The total estimated value of the equipment provided through FY 2003 NADR- and DTRA-funded initiatives is about $600,000.

To help support and expedite Estonia's adaptation and compliance with EU standards in the criminal procedures code area, the Department of Justice Office of Overseas Prosecutorial Development, Assistance, and Training (DOJ/OPDAT) conducted an assessment that resulted in a multi-year training program for judges, prosecutors, and investigators. Since Estonia had changed to a confrontational justice system, similar to that in the U.S., two of the OPDAT courses given in 2003 focused on training prosecutors and judges to adapt to their new system. OPDAT also provided one class on cyber crimes.

The Embassy executed a Law Enforcement Agreement with the GOE, which provided assistance from SEED and Department of State, Bureau of International Narcotics and Law Enforcement Affairs (INL) funds toward the development of a computer analysis and forensics technician training program, and procurement and donation of equipment. Implementation of these programs is under way.

Ten police and Security Police officers attended an Advanced Management Course in Roswell, New Mexico. This training was for mid-level officers who had graduated from one of the regional International Law Enforcement Academies. The FBI also sent an Estonian police officer to the FBI National Academy, in Quantico, Virginia. Four FBINA graduates received FBI-sponsored counter-terrorism training in Slovenia. The Embassy also sponsored three law enforcement officials for International Visitor Programs, funded by the Department of State?s Bureau of Educational and Cultural Affairs (ECA).

The Legal Attach? Office has experienced an increase in contacts by Estonian law enforcement and bank officials in identifying suspicious and fraudulent transactions and getting regulatory agencies to freeze the proceeds pending forfeiture. The Legal Attach? Office facilitated the apprehension and extradition/deportation of eight Estonian fugitives from the U.S. to Estonia in 2003.

Trafficking in persons (TIP) within, from, and through Estonia continued during 2003. While some NGOs and international nongovernmental organizations (INGOs) have estimated the number of trafficking victims at 500, the true extent of the problem is unknown. The GOE continued to make progress in engaging on TIP in all relevant ministries, as well as in international and regional meetings. GOE ministries, the Nordic-Baltic Council, and various NGOs pursued TIP educational initiatives. The Embassy has been active in raising the information and awareness level in Estonia regarding the magnitude of the TIP problem globally and in encouraging progress in combating TIP nationally. On the law enforcement front, the first trafficking case reached the Estonian court system during the period, and five new cases involving 15 suspects are under investigation. Estonian police authorities assigned a police officer with sole responsibility for TIP; an Estonian police liaison has been posted to Russia to forge cooperation on cross-border crime, including TIP. An additional liaison officer is being considered for deployment to Finland or Sweden. GOE authorities cooperated with U.S. counterparts to break up an illegal alien smuggling and trafficking ring in Boston.

The largest Embassy-issued grant in this sector was to the International Organization for Migration (IOM) to quantify the extent of the TIP problem in Estonia. There were other anti-TIP grants to Estonian NGO's, including one to raise awareness of the problem among police and border guards, and another to educate high school students about the dangers of this trade. The Embassy also used SEED funds to send a large, diverse delegation to the Trafficking in Minors Conference organized by the U.S. Embassy in Helsinki. SEED funds transferred to ECA paid for a TIP-related International Visitor grant.

In the regional stability realm, a number of SEED- and FSA-funded encounters took place between residents of Tartu, Estonia, and Pskov, Russia, less than 50 miles apart on opposite sides of Lake Peipsi. City and regional officials, businesspeople, academics, and artists participated in these conferences. In the same vein, using cross-border travel funds, Estonians from various professions had opportunities to meet their counterparts at conferences in Russia, and Estonian journalists were able to write about Russia for their readers.

The Estonian Atlantic Treaty Association undertook a project to educate Russian-speakers in Estonia about NATO, and Association members used cross-border travel funds to attend a NATO enlargement conference in Russia. Also, in the framework of NATO education, the Embassy issued a Democracy Commission grant to an NGO to stage a play about Estonia's NATO accession and Estonian attitudes toward the military. Using an earlier grant, this NGO also organized a well-attended, successful play on HIV/AIDS awareness.

Humanitarian Assistance

In FY 2003, the U.S. provided $130,000 in Humanitarian Assistance (HA) funding for the renovation of Kohtla-Nomme orphanage, which houses about 45 children. In addition, the U.S. provided $235,000 in HA Demining assistance. FY 2003 funds were used to purchase bomb suits, mine detectors, and data recorders that continue to locate large quantities unexploded ordnance and landmines from World War II or the Soviet era. The funds also provided contractor-supported training to the Explosive Ordnance Detection (EOD) unit and supply and maintenance support to the organization. The new purchases enabled the EOD team to locate mines and unexploded ordnance in areas previously cleared by less sensitive equipment.

COUNTRY PERFORMANCE MEASURES

Economic Policy Reforms and Democratic Freedoms in Estonia, 1991-2002

Ratings based on a 1 to 5 scale with 5, representing the most advanced.
Sources: EBRD, Transition Report 2003 (November 2003); Freedom House, Freedom in the World 2003 (2003); and (various years).

Economic Structure and Human Development in Estonia, 1991-2002

The Human Development Index (HDI) is based on three indicators: longevity, as measured by life expectancy; educational attainment, as measured by a combination of adult literacy and combined primary, secondary, and tertiary enrollment ratios; and standard of living, as measured by real per capita GDP ($PPP). The HDI ranges from 0 to 1, with higher values representing greater human development. UNDP, Human Development Report 2003 (July 2003), and previous editions; EBRD, Transition Report 2003 (November 2003), and previous editions.