Entrepreneur and investor Rain Lõhmus, pictured, was a co-founder of Hansapank, now Swedbank, and one of the founders of the Estonian bank LHV Pank. He has successfully weathered several crises since LHV's foundation and is currently the chairman of the bank's supervisory board.

Lõhmus gave an interview to ERR which follows.

Assuming you have been following how the government is trying to balance the state budget and improve the overall economic situation, how do you think that has been handled?

It has been handled poorly. First of all, the economy in Estonia has been in recession for nine quarters in-a-row now, but at the same time, this spending spree has gone on – as the artist formerly known as Prince once sang, it's almost like it's 1999; a carefree year.

It seems to me, unfortunately, that it hasn't dawned on people that when the economy contracts, meaning everyone has fewer real assets and resources, nothing can grow. We have been in a recession for nine quarters, and we've doubled our national debt over a few years. We can't continue like this.

If the Estonian state were instead a company, approaching LHV for a loan, would you grant it, in this situation?

I would paint an even gloomier picture than that. If a government with the attitude this one has were sitting on the LHV board, I think we would be bankrupt by now. Fortunately, we are not!

My view is that in reality, it all starts with acknowledging and recognizing what has been done wrongly, and by whom. I don't trust those types of people who point the finger at this, that, and the other and in actuality want to continue as things have been. It is time to look in the mirror.

What is the 'magic bullet,' to quickly fix things?

Alas, nothing can be fixed quickly. It seems to me that problems are being resolved in a way that resembles figuring out where we get our beer money just for tonight. What happens tomorrow or the day after, we will deal with at that time.

Let me reiterate, our economy is in a decline. I fear that a quick recovery of the kind we once experienced will not recur. Things are different now, so we simply will have to adapt and make significant changes.

Superficial, cosmetic measures won't help. We need to take a deep dive, but that would require making it our top priority, and putting aside foreign trips, "spreading democracy" to others, and other activities.

There has been much talk about re-evaluating our priorities. What should be maintained, what should and shouldn't be cut, and what should be set aside due to lacking the funds, but which we aren't dealing with right now?

I think we've already gone too far in living beyond our means in better times. We will really need to turn every stone. Nothing should be ruled, and nothing should be deemed untouchable.

I'm not here to preach, plus, fortunately, Estonia is a democratic state. Unlike the LHV board, we do have a legislature elected by the people, and a government chosen by that legislature. It is not my place to lecture.

If you were presented with the state budget now and asked to do something with it, what would be your first move?

Let's just say that if my LHV board or management board were in the place of the government, we would state that things are bad, a crisis is ongoing and we can't continue like this.

We would then sit down and remain in place until we had come up with a long-term plan to extricate ourselves from this.

And not just sitting around until we feel like going on a foreign trip or vacation, or who knows where.

At least it doesn't appear right now that the problem is being taken seriously.

And yet it has been stated countless times that tough decisions need to be made and that very painful cuts are coming.

But in my opinion, resolving any problem starts with stating who did what wrong. I haven't heard anyone take responsibility; that we've made mistakes.

What are those mistakes?

At the start of last year I was in Switzerland and was reading Estonian news about the pre-election congresses being held by political parties, and what stood out was a tendency towards "spend, spend, spend," [on] "shiny new things"... At that point I thought, dear people, we've been in economic downturn for quite some time.

Honestly, I got quite upset, because these people somehow don't realize what's going on. It was already crystal clear at that point that something different, something serious needed to be done.

But even today, almost a year and a half later, nothing substantive has been done.

The government currently seems to have diametrically opposite views: On the one hand, they talk about across-the-board cuts and, on the other hand, tax hikes. Which would be more reasonable?

I think both options are viable, but again, it's not my job, and I haven't looked into it all that deeply. I'm not a raiser of taxes, and I don't like those things, but I'm afraid there's no way out. Might I remind you that government spending has grown by some 36 or 37 percent over three years, which is a rate of increase which is just wild.

Let's put it this way: If your family had a problem where more money was going out than coming in, you would begin by somehow making efforts to stem the flow of money going out.

Of course, you would also look at possible ways to bring more money in, but it is always easier to start off by limiting spending.

If a company is in a situation where costs are running high and revenues aren't coming in, but it has taken loans, isn't the priority action to start cutting back on people and activities?

The priority thing is actually that you have to be decisive and have unity.

When I look at the current government, it reminds me very much of LHV before it became a bank (LHV started off life as an investment firm – ed.).

At that time, it was said with no small irony that LHV stands for "swan, pike, and crayfish" (Estonian: Luik, Haug and Vähid, in fact the bank is named after its founders, Lõhmus, Haavel and Viisemann – ed.), with all of them pulling in different directions.

We did have quite a few disputes, and it got resolved after a split.

Sometimes it's the case that one particular group just can't make decisions together. However, once we made those tough decisions, things went quite well going forward.

Perhaps the government is in the same boat, I wouldn't know; I don't know their inner workings, but what is clear is you can't go on like this. A swan, a pike, and a crayfish cannot function at the government level, just as they couldn't at LHV.

Can we conclude from all this that there is a leadership problem going on?

Yes, unfortunately, I don't see a clear leader acting. I conceded I haven't always agreed with everything Andrus Ansip (prime minister 2005 to 2014 – ed.) has said, but it seems to me that if Ansip were in government, things would have been different. Maybe this is just rose-tinted nostalgia, but at least there seemed to have been decisiveness somewhere, back then.

Has anything been done effectively, in this difficult situation?

One good thing is that Estonia is still a democracy, the people ultimately, if indirectly, steer the government, and, as they say, every nation gets the leaders it deserves.

We can always say things could be worse, we're not in such a bad spot, to the extent that it would be very difficult us to get back up.

I think that getting back on the right track today will not yet prove highly very difficult. But the longer we delay, the harder things will become.

Are there any other examples from other countries?

My place of residence, Switzerland, stands out for its fiscal conservatism, which has its pros and cons, but frankly, financial conservatism of that kind is impressive.

In many European countries, VAT has increased significantly; in ours quite a lot, but in Switzerland only a little, and I think the rise has been less than one percent over the 15 years I've been aware of things. That is a small thing, but it does say something.

There's one more interesting fact. During Mart Laar's time (prime minister 1992-1994 and 1999-2002 – ed.), we had a principle in Estonia that the state budget should not run at a deficit and that no debts should be taken on.

Strangely enough, they managed with that. And thank God that previous governments did not take on any debt, which today means it's a bit easier for us than it might have been.

But, if we go on like this, it won't stay that way forever.

Debt is a complicated thing. For sure, the world's largest military power is the U.S., but for example, this year the U.S. is spending more money on servicing its debt than it is on its defense budget.

I wouldn't want Estonia to end up the same way.

--

Follow ERR News on Facebook and Twitter and never miss an update!