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 formally joined NATO and the European Union (EU) in spring 2004. Estonia supports most U.S. foreign and strategic policy interests, including at the United Nations (UN) and the Organization for Security and Cooperation in Europe (OSCE). In support of the Global 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 Estonian Government (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 2004, the U.S. Government (USG) provided an estimated $10.57 million in assistance to Estonia:

• $1.02 million in democracy programs (including academic and professional exchanges); 
  
  
• $230,000 in humanitarian assistance; and 
  
  
• $9.32 million in security and law enforcement programs.

Although no new SEED funds were provided in FY 2004, implementers continued using SEED funding remaining from previous fiscal years, as described below.

In FY 2004, a total of 104 Estonians traveled to the U.S. on USG-funded exchange programs, including 13 International Visitor grantees (including three journalists, one police officer, and one prosecutor); three Voluntary Visitor grantees; 12 educational program participants (two Fulbright teachers, three students, four scholars, one Humphrey Fellow, two Ron Brown Fellows); nine businesswomen on a special SEED-funded program; two police officers to the FBI academy; and 65 individuals through the IMET program.

SECTORAL ASSESSMENTS

Democratic Reform

Estonia's March 2004 accession to NATO and May 2004 accession to the EU were in part a reflection of its successful consolidation of democratic reform. Prior to the most recent parliamentary elections, in March 2003, the OSCE deemed an election observation mission 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 television 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 31st (out of 145 countries) in Transparency International's 2004 ranking of perceived corruption, equal to Slovenia and higher than all other EU accession countries.

A three-party coalition led by Prime Minister Juhan Parts’ Res Publica party has governed Estonia since April 2003. The government came into office promising to maintain high standards of government ethics, bring down the flat-tax rate, and offer social support that would lead to increased family sizes. The government has had mixed success in implementing its domestic agenda, and political missteps have taken a toll on Res Publica’s popularity. But 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. Fewer than 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 has become the second least-spoken language in the EU.

The integration of Estonia's Russian-speakers is not complete. A shortage of qualified teachers continues to hamper efforts in the predominantly Russian-speaking northeastern part of Estonia. However, the GOE has taken steps to ease citizenship requirements and is improving opportunities for non-citizens – particularly Russian-speaking youth -- to learn Estonian. In many ways, the solution to Estonia's integration challenge will come simply with time. 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.

Integration projects enabled by SEED grants from previous fiscal years continued. The purpose of one such grant was 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 the Russian language. FY 2004 saw the issuance of a grant to the Ministry of Education to create classroom materials, mainly posters and maps, to educate young students in Russian middle schools about Estonia.

SEED grants funded ongoing efforts to help Estonians address their mid-twentieth century history. Picking up on previous years' efforts in Holocaust awareness, one grant enabled the translation of a book written by a Holocaust survivor from Russian into Estonian. Another funded the publication of a book about Estonian student resistance to the Soviet occupation in the 1944-45 period.

Earlier SEED transfers to the Department of State, Bureau of Educational and Cultural Affairs, funded Ron Brown fellowships, enabling three Estonians to work on master's degrees at U.S. universities during the 2003-04 academic year. The last two Estonian Ron Brown Fellowship winners joined them, starting with the 2004-05 academic year.

Embassy Tallinn put new emphasis on rights for the disabled -- still an emerging field in Estonia -- in its SEED program during FY 2004. SEED facilitated a seminar for persons with nervous system birth defects; better access to information for the visually impaired; training for teachers of disabled children; and films about life as a disabled person. Though this was a new focus for the SEED program in Estonia, and one in which follow-up grants will not be possible with the phase-out of the SEED program here, the Embassy hopes that it will at least get the ball rolling in terms of building Estonian social awareness about the needs of the disabled, now that many of Estonia’s macroeconomic and security concerns from its early years of independence have been addressed.

Other SEED activities in this sector included grants to the Estonian umbrella organization for NGOs; for a conference on whether or not there should be religious education in schools; and for a trip to educate young Estonian businesswomen about U.S. business mentoring and networking.

Economic and Social Sector Reform

Estonia’s economic reform policies had helped create a liberalized, nearly tariff-free, open market economy when the country acceded to the EU in May 2004. The privatization of state-owned firms has been completed. Estonia joined the World Trade Organization (WTO) in 1999. 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, Estonia’s economy continued its solid growth. GDP grew by 5.1 percent in 2003, and observers expect 5.5 percent growth in 2004. The inflation rate -- 4.2 percent in 2001 -- dropped to 1.3 percent in 2003. The estimate for 2004 is 2.8 percent. The overall unemployment rate in 2003 was 10 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 in the U.S.-based Heritage Foundation and Wall Street Journal 2004 Index of Economic Freedom. The index is a composite of scores in monetary policy, banking and finance, black market, and wages and prices.

Estonia has participated very successfully in the "Global Learning and Observation to Benefit the Environment" (GLOBE) program. With the phase-out of the SEED program, GLOBE was left with two robust SEED legacy grants to help bring the program to schools where it had not been yet, and to create a cadre of university-age GLOBE graduates to sustain the program after USG funding runs out. Other environmental projects included a follow-on to the scientifically significant project to study the ecological impact of alien invasive species on the vulnerable Baltic Sea; an ECA Voluntary Visitor program in the U.S. to teach Estonian emergency response officials about oil spills; and projects to monitor and protect the ecology of Lake Peipsi, Estonia's largest lake and the defining feature of the Estonian-Russian border. One project that combined the environment and policy interests in advancing biotech was a student seminar about environment and gene technology.

The biggest concern in Estonia's social sector remains the growing incidence of HIV/AIDS. Estonia has one of the fastest growing HIV infection rates in Europe. Currently, Estonia has about 4,300 cases of HIV. The Estonian Minister of Social Affairs reports that at current rate the number of HIV-infected people in Estonia will double by 2009.

In the final year of SEED grant issuance, the USG played a dominant role in identifying the areas in Estonia's fight against HIV/AIDS that required funding. In addition to a still-active previous grant to reduce and prevent HIV/AIDS in Estonian prisons, the USG used pre-FY 2004 SEED funds to issue five major new grants in FY 2004 to fight HIV/AIDS in Estonia: to reduce the stigma of AIDS in prevention, quality of services, and policy; to establish a sustainable link between tuberculosis and HIV/AIDS programs; to prevent mother-to-child transmission of HIV/AIDS in the Ida Virumaa region; to prevent HIV/AIDS in the Lääne Virumaa region through public awareness; and publication of a book with Estonian HIV-positive people telling their stories. This broad approach to fighting HIV/AIDS, in addition to other non-SEED Embassy activities, has definitely put the AIDS problem "on the map" for the GOE and, to a certain degree, for the public at large.

SEED grants funded a well received, nationally televised documentary film about prison life for delinquents to show the consequences of youth crime. In a similar vein, SEED grants also went to organizations that worked to address the problems of at-risk youth, especially in the economically depressed Ida Virumaa region.

A new SEED focus in the economic sector this year was business development in Ida Virumaa -- through linking up American businesses with potential partners in the region; business incubators; business-promotion days; and promoting entrepreneurship in Russian-medium secondary schools.

Finally, the U.S. Embassy’s efforts to protect Intellectual Property Rights (IPR) (both via SEED and otherwise) were reflected in grants to encourage respect for IPR among young Estonian computer users and to aid the activities of Estonia's leading IPR-protection NGO.

Security, Regional Stability, and Law Enforcement

Estonia deployed 184 personnel in FY 2004 to support UN, NATO, and coalition military operations. That number is above the European average in terms of percentage of the overall force and is 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. It reauthorized deployment of an infantry platoon and cargo-handling unit under U.S. command in support of Operation Iraqi Freedom. The former sustained two combat deaths during the first 10 months of 2004.

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, have accelerated Estonia's integration into NATO structures and programs.

The International Military Education and Training (IMET) program’s primary goal in Estonia in FY 2004 was to promote military professionalism and NATO interoperability in the Ministry of Defense (MOD), Defense Force, and Border Guards. The $1.4 million in IMET that Estonia received in FY 2004 funded the training of 65 Estonian military and defense-associated personnel in the U.S. IMET helped Estonia work toward its goals of increased self-defense capability and NATO interoperability 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 Resources 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. Also in FY 2004, mobile training teams trained 60 officers, NCOs, and civilian defense employees in the MOD and General Staff on staff procedures and operations and in acquisition planning and management.

Foreign Military Financing (FMF) funds went to purchase equipment, training, or services that increased Estonia's self-defense capabilities and ensured interoperability with NATO forces and structures. In FY 2004, Estonia received $6 million in FMF 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 2004 funds supported the completion of the communications package for the Scout Battalion and the infantry battalions of the Infantry Brigade. Among other secondary purposes, FMF grant money supported and sustained a U.S. instructor at the Baltic Defense College and an advisor to the Air Force. The FY 2003 Iraqi Supplemental Funds, waived from American Servicemembers' Protection Act (ASPA) restrictions, were used this year to equip troops serving in Iraq and Afghanistan and follow-on Estonian forces for deployment to these theaters with night vision devices (NVDs) and other tactical equipment.

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 there. Estonia's terrorism threat is closely linked with its border security, which became of particular interest to the U.S. and the EU in 2004, when Estonia achieved full membership in 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 Department of Defense/Defense Threat Reduction Agency (DTRA)/FBI WMD Counter-proliferation program, wherein the FBI and 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 Estonia’s liberal banking environment. Banks in the entire Baltic region, including Estonia, routinely engage in foreign transfer transactions with little-known or fictitious customers. Many such transactions have been identified with transnational and organized criminal activity. However, Estonia cooperates fully in all international efforts to combat terrorist financing.

The Estonian Prosecutor General's Office has named cyber-related offences among the country’s top three crime problems. 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. 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 DTRA provided one training course and delivered technical equipment valued at over $202,000 to Estonia during FY 2004. The advanced radiation and detection course trained the Estonian Radiation Safety Center and Rescue Board in the proper utilization of the sophisticated radiation detection equipment. The FBI Legal Attaché Office used this initiative as the catalyst for building counterterrorism and counter-proliferation liaison equities. The Legal Attaché also maintained close relations with services addressing terrorism finance matters in Estonia, including the Security Police, Tax Board, and Central Bank.

During FY 2004, 11 Estonian police officers, border guards, and prosecutors attended a two-week Transnational Terrorism course at the International Law Enforcement Academy in Budapest, Hungary. Representatives from the Estonian Security Police and the Financial Supervisory Authority (financial intelligence unit) participated in International Visitors Programs in the U.S., with an emphasis upon terrorism finance and financial intelligence.

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, beginning in 2002. During FY 2004, OPDAT concluded the program with a joint OPDAT/FBI course addressing cyber-related crimes.

The Embassy executed a Law Enforcement Agreement with the GOE, which provided for assistance in the development of a computer analysis and forensics technician-training program, and the procurement and donation of equipment. The implementation of the Agreement progressed during FY 2004 with the assessment of Estonia’s computer forensic capabilities and needs and the identification of appropriate technical equipment for purchase.

Other law enforcement related training for Estonia during FY 2004 included a regional money laundering course, which 12 Estonian police officers and prosecutors attended, and an Advanced Bomb Post Blast school attended by 10 police and rescue board bomb technicians. The FBI also sent two Estonian police officers to the FBI National Academy, in Quantico, Virginia, during 2004 for the 12-week session.

U.S. Customs, through the Department of State’s Export Control and Related Border Security (EXBS) office in Latvia, provided Estonia with the following training courses: international WMD investigations, WMD C-PAC, Sensor equipment refresher, Basic Inspector, and Dual Use. EXBS sent seven Estonian Law Enforcement Representatives (Customs, Police, and Border Guards) to an Interagency Information Sharing Conference in Riga, and five Estonian Border Guard Officers to Poland for Railway Inspection Training. The total estimated value of the equipment provided through FY 2004 NADR / DTRA funded initiatives was about $221,590.

Trafficking in persons (TIP) within, from and through Estonia continued during 2004, but reliable quantification of the problem still proves elusive. The GOE made 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, awareness, prevention, and assistance initiatives. The Embassy has been active on TIP by engaging various GOE ministries, as well as other interested embassies, to forge common strategies on the victim assistance/protection, prevention, and prosecution fronts. In the law enforcement area, the first trafficking case reached the Estonian court system during the period, and 15 new cases involving multiple suspects were under investigation. The Estonian police continued their raids on illegal brothels. The GOE made progress in drafting its National Action Plan and held high-level coordination meetings, which brought together Undersecretaries from four key ministries. Police and Social Affairs officials have worked out an MOU for victim assistance, MFA consular officers have assisted victims, and a TIP victim from another country is now being sheltered under witness protection and sheltering agreements with neighboring states.

The FY 2003 SEED grant to the International Organization for Migration (IOM) to quantify the extent of the TIP problem in Estonia had produced initial results as of this writing, which suggested the number of Estonians trafficked each year was 50 rather than the previously estimated 500. The Embassy issued anti-TIP grants to the Tartu Child Support Center to expand its very successful TIP awareness-building program in schools to different grades and new Estonian counties; and to the NGO "Living for Tomorrow" to establish a TIP hotline and to cooperate with Finns in addressing the cross-border nature of trafficking in persons. Just as with the HIV/AIDS problem, Embassy SEED-funded and other activities left no doubt with Estonian policy makers of the importance that the U.S. attaches to fighting trafficking in Estonia and globally.

The Estonian Atlantic Treaty Association educated high school students throughout the country about NATO, thanks to a SEED grant.

The U.S. Embassy awarded an increased number of crossborder travel grants for Estonians to visit Russia and rebuild links between the two countries that had languished following the collapse of the Soviet Union. Travelers included medical professionals, women's groups, journalists (who published in major Estonian newspapers as a result of these trips), tourism officials, and academics.

Humanitarian Assistance

In FY 2004, the U.S. provided $230,000 in Humanitarian Assistance (HA) funding for the renovation of Tallinn Psychiatric Hospital’s first floor, as well as the donation of much-needed equipment. From this assistance, $160,000 was committed to the hospital’s remodeling, $35,000 was used to purchase furniture, $26,000 was spent to procure two used vans, and a 10-kilowatt electric generator was purchased for $9,000.

COUNTRY PERFORMANCE MEASURES

ECONOMIC & DEMOCRATIC REFORMS, 1991-2004

Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1 to 5 scale with 5 representing the most advanced. Latest year observation refers to 2004 economic reform data and 2003 democratic reform data; i.e., 2004 data for democratic reforms are not yet available.

ECONOMIC STRUCTURE AND HUMAN DEVELOPMENT, 1990-2004

World Bank, World Development Indicators 2004 (2004); UNICEF, Social Monitor 2004 (2004); EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004).

TOTAL USG FUNDS BUDGETED: (INCLUDING ACCOUNTS OTHER THAN SEED) $10.57 m

non-SEED Total:$10.57 m Dept. of Defense    Humanitarian Assistance $0.23    International Counterproliferation Programs $0.88 Total DoD: $1.11 Dept. of Energy    Nonproliferation & International Security Programs $0.05 Total DoEnergy: $0.05 Dept. of State    Export Control & Related Border Security Asst. (EXBS) $1.00    Foreign Military Financing (FMF) $5.98    International Information Programs (IIP) $0.02    International Military Educ. & Training (IMET) $1.41    Public Diplomacy Exchanges $1.00 Total State: $9.40