Government to discuss new economic aid package

The new support measures will be handled, among other institutions, by the Unemployment Insurance Fund and Enterprise Estonia (EAS).
The new support measures will be handled, among other institutions, by the Unemployment Insurance Fund and Enterprise Estonia (EAS). Source: Siim Lõvi /ERR

Proposals drafted by private and public sector experts to liven up the crisis-ridden economy are set to land on the government's desk on Thursday. The new support measures will move away from blanket support and concentrate instead on structural reforms and supporting companies with potential.

Deputy Secretary General of the Ministry of Economic Affairs and Communications (MKM) Viljar Lubi, who chaired the committee of experts convened by Minister of Foreign Trade and IT Raul Siem, told ERR that this fall's aid package will no longer attempt to support the economy across all fields but will instead concentrate on vital restructuration.

"The panel of experts working with the prime minister has proposed a way forward in the crisis. Recent GDP figures suggest the slump has not been as bad as we feared, while it needs to be understood that we're still in a crisis. The question is whether we have already hit bottom. The government and state can mitigate the situation and speed up recovery. That is our position," Lubi explained. "The panel's message to policymakers is that we need to exit this crisis stronger than we were going in and that the Estonian economy needs structural change. We need to transform from a labor-intensive economy into a knowledge-intensive economy."

According to Lubi, what this means is that while there has been a lot of talk of the need to retain tourism sector jobs, he does not necessarily see it as a bad thing if some of those jobs were to disappear.

"The tourism sector has the lowest salaries. It is often an entry-level sector for young people, so I don't think we need to hold on to those jobs no matter what," Lubi finds.

Economic change should happen through four pillars or principles on which the proposed measures rest.

Countercyclical investments

The first macroeconomic principle concerns contracyclical investments. For example, while the construction sector still performed well in the second quarter, forecasts are less optimistic, which is why the state could move up major investments to compensate, while not exceeding the sector's potential.

For instance, if road builders can construct a maximum of 200 kilometers of new roads every year, it makes no sense to move up projects for 300 kilometers of roads as prices would soar and some projects would not be finished," Lubi said, giving an example of the maximum capacity criterion. "When it comes to the construction sector, we expect a few hundred million euros worth of turnover to disappear."

Decision-makers will be told the maximum construction volumes in various fields so the government and Riigikogu could make political decisions.

"We will point the way, while politicians will decide how to get there," Lubi said.

That is also why the financial volume of this measure cannot be determined now.

Labor market measures

This spring, the state's primary goal was to protect employment contracts, in other words, keep people working. However, as the crisis progresses, companies will become more rational and start laying people off in certain fields. That is why this fall's aid package will concentrate on job creation and retraining to help people find new jobs quickly as it is impossible to retain jobs through benefits forever in a situation where an altered economic environment no longer favors it.

"We cannot support private sector jobs forever. If a market remains closed for a prolonged period of time, structural change is inevitable," Lubi said, describing as inevitable some sectors shrinking in the changing economic structure. "We no longer need to protect the job but rather the person who stands to lose it. As the market adjusts, we will help people find new work, possibly in a different sector."

Unemployment currently stands at 7 percent that experts consider a sensible level.

"However, economic logic suggests it will go up before it starts coming down again. The question is how to bring people back to the labor market as quickly as possible in the conditions of a temporary spike in unemployment. Retraining is a key part of this, as is making sure people retain a sensible level of income. We will be reviewing Unemployment Insurance Fund schemes and channeling additional resources there," Lubi explained.

He added that while low-paid jobs in the tourism sector should not be retained at all cost, this does not mean the sector will be cut off completely.

"Tourism will still need attention and support. We cannot save the entire sector, but as it has contributed 8-10 percent of the Estonian GDP so far, we need to make sure it doesn't come crashing down either – we need to retain the basic structure," Lubi said.

Solutions that include state support measures have been developed in cooperation with tourism sector enterprises.

Investments into innovation

The third and fourth pillars look more to the future and reshaping the foundations of the Estonian economy. One is betting on innovation.

Lubi explained that the crisis in spring already forced companies to make long-postponed investments, such as developing e-commerce platforms as the situation necessitated it.

"The state will be supporting investments into innovation and not just in the field of e-commerce as there are many other projects. Innovation is very capital-intensive and requires certain volume to be effectively supported," Lubi said, adding that innovation will be bolstered in all kinds of fields.

He explained that the pressure on salaries was great before the crisis, but the price of labor became an obstacle in several sectors. That is a sign of the need to innovate.

"Once it becomes impossible to keep costs down, the price needs to be pushed out of the way. The only way to really do that is through innovation in order to be able to pay people a higher salary."

The state will also be promoting the green turn through innovation support measures.

"The crisis could be a brilliant opportunity to start supporting Estonian cleantech and green turn technologies. There are a lot of cool ideas in Estonia we can support, we don't have to import everything. Therefore, let us help innovation happen, it is inevitable and crucial," Lubi emphasized.

Export support for the strong

There will also be measures to help companies expand to foreign markets. Lubi stressed that the state wants to support strong companies that have growth potential on foreign markets.

"When it comes to export, we will be betting on those strong enough to grab new market share in difficult times. This will likely result in consolidation – several companies will be joining forces. It is not something that should be feared on the state level," Lubi said.

Every euro contributed must effect change

Lubi said that while spring support was aimed broadly as emergency relief for the entire economy, the fall package will be more targeted and conscious and that every unit of resources contributed is expected to manifest in desired change.

"Every single unit of currency we want to introduce to the market should effect change. We want to see export, the innovation element or feelings of security in certain sectors grow. We will not be pouring money into the economy and simply hoping for the best. Rather, we have specific expectations of what it needs to achieve," Lubi said. "What we anticipated in spring was a rapid and short-term shock to the system and it was decided to offer something to everyone. We had no time to weigh who needed support more than others. We have more time and a better overview of which sectors and companies are suffering the most now."

The proposals have been drafted with help from all ministries that received suggestions from business organizations. The measures will be put into practice by the state's administrative agencies.

The new economic measures package should land on the government's desk on Thursday and become a part of state budget talks if approved.


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Editor: Marcus Turovski

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