FORCIBLY ANNEXED TO THE SOVIET UNION fifty-one years earlier, the Baltic states--Estonia, Latvia, and Lithuania--regained independence in 1991 after an abortive coup in Moscow that accelerated the collapse of the Soviet regime. Having been, in the words of former British foreign secretary Douglas Hurd, "stolen or kidnapped from the European family," these nations embarked on a course of political and economic restructuring and reintegration with the West. Their experience with independent statehood and, to a lesser extent, with democracy in the 1920s and 1930s (an advantage not enjoyed by the other former Soviet republics), as well as their ability to maintain a strong sense of national identity under foreign hegemony, has helped them in their efforts to deal with the legacies of Soviet rule. The challenges, nonetheless, remain formidable.

A major demographic shift occurred during the Soviet era in the Baltic region, particularly in Estonia and Latvia, where, according to the 1989 census, the titular nationalities accounted for only 61.5 and 52 percent, respectively, of each country's population. The Russians, by far the largest ethnic minority, made up 30.3 percent of Estonia's population and 34 percent of Latvia's. There were high concentrations of Russians in Tallinn, Riga, and Vilnius--the capital cities of the Baltic republics. Encouraged by the Soviet authorities, a massive influx of immigrants reduced Latvians and Estonians to minority status in a number of their largest cities. After independence, Estonia and Latvia faced the challenge of integrating into their political life these large, mostly insular Russophone communities, whose loyalty to the new states had yet to be demonstrated, without jeopardizing their hard-won independence. Unlike Lithuania, whose higher birth rate and larger indigenous work force permitted the republic to maintain an approximately 80 percent share of ethnic Lithuanians, Latvia and Estonia refused to grant automatic citizenship to the Soviet-era settlers. Lithuania's relatively small ethnic minorities, of which the Russians and the Poles are the most significant, have been easier to accommodate.

The issue of ethnic minority rights in Latvia and Estonia gained prominence primarily in the international arena, especially in 1992 and 1993 when Moscow tried to link it to the departure of Russian (former Soviet) troops from the two countries. Under Western diplomatic pressure, Russian military forces finally were withdrawn in August 1994, yet Moscow continued to view the region as "the near abroad," an area contiguous to Russia and within its sphere of influence. To punish its former colonies--Latvia and Estonia, for allegedly mistreating their Russian minorities, and Lithuania, for refusing to legitimate Russia's right of military transit to and from the exclave of Kaliningrad--Moscow resorted to economic measures. The Russian government levied prohibitive tariffs on imports of Baltic goods and raised prices on Russian fuel and other essential commodities. These actions spurred on efforts by the three countries to mitigate their geopolitical and economic vulnerability through the development of stronger relationships with the West.

In 1994 Estonia, Latvia, and Lithuania signed and ratified free-trade agreements with the European Union (EU--see Glossary), and in 1995 each country signed an Association Agreement with the EU. Estonia and Lithuania became members of the Council of Europe (see Glossary) in 1993; Latvia was admitted in 1995, after its parliament backed down from a controversial quota system that would have restricted the naturalization of permanent residents. All have joined the North Atlantic Cooperation Council, the Organization for Security and Cooperation in Europe, and the Partnership for Peace program of the North Atlantic Treaty Organization (NATO), and all have participated in NATO exercises. They have reaffirmed their desire to join NATO, in spite of Russia's hostile reaction. That reaction included a warning in September 1995 from Russian deputy foreign minister Sergey Krylov that his country reserves the right to employ military, economic, and political measures to prevent the Baltic states from becoming members of the NATO alliance. Shortly afterward, the Moscow newspaper Komsomol'skaya pravda quoted high-level Russian military sources discussing a draft military doctrine that would authorize the invasion of Estonia, Latvia, and Lithuania if they were to join NATO.

On the domestic front, although the political exclusion of many Soviet-era immigrants in Estonia and Latvia could impede the process of building stable democratic systems, there has been no political violence against the Russophone population and less ethnic tension than in many other newly independent states. In Latvia 62 percent of the Russian speakers interviewed in a public opinion survey in the fall of 1993 described relations between their group and the ethnic Latvian population as good; only 22 percent said relations were not good. In Estonia 87 percent of the local Russians polled in late 1994 indicated that they had experienced few or no problems with the indigenous population, and 92 percent wanted to stay in the country. According to Aleksandr Kinsburskiy, a Moscow sociologist who studies Russian minorities in the former Soviet republics, "The overwhelming majority of ethnic Russians in Estonia have accepted the Estonian government's tough policy toward them and decided to adapt to it." They do not wish to relocate to Russia, if for no other reason than that they enjoy a higher standard of living in Estonia.

The Baltic countries generally have made greater progress in rebuilding their economies than Russia and the other former Soviet republics. Estonia, at the forefront of economic reform, was the first to introduce its own currency, which is fully convertible today. The country also has had considerable success in attracting foreign aid and investment and reorienting foreign trade to the West. Like Latvia and Lithuania, it has experienced painful economic downturns since reestablishing independence but in the mid-1990s was showing signs of a sustained economic recovery. The Economist Intelligence Unit estimated that Estonia's gross domestic product (GDP--see Glossary) grew by 4.7 percent in 1994 and predicted a growth rate of 5 percent in 1995, citing a continuing fall in unemployment and increases in capital equipment purchases, port and other transit volumes, and foreign trade. Detracting from an otherwise strong economic performance is a large trade deficit, which was estimated to be US$389 million in 1994 and was expected to reach US$600 million in 1995, although the government is taking steps to assist Estonian exporters.

More troublesome is the situation in neighboring Latvia following the collapse in May 1995 of Baltija Bank, the country's largest commercial bank. Baltija's collapse exposed serious weaknesses in what had been considered to be a healthy banking sector, shaking the confidence of foreign investors and dampening economic growth. Latvia's rate of GDP growth, which was earlier expected to increase from an estimated 2 percent in 1994 to 3 percent in 1995 and 4.5 percent in 1996, was scaled down to 1 percent in 1995 and 3 percent in 1996. Latvia also has had to cope with a high unemployment rate (6.7 percent in June 1995) and a worsening budget deficit.

Controlling unemployment and balancing the budget are concerns shared by Lithuania as well, although declining foreign investment is a greater problem there. In part because, unlike Estonia and Latvia, it does not allow foreigners to own land and buildings, Lithuania has had greater difficulty in attracting foreign capital. Direct foreign investment in Lithuania totaled US$170 million at the end of 1994, compared with US$474 million in Estonia and US$327 million in Latvia. Russian companies account for the largest number of joint ventures in Lithuania. Fluctuating industrial output and sales in 1995 made it difficult to determine to what extent the country's economy was recovering. Lithuania's GDP grew by an estimated 0.6 percent in 1994; a growth rate of 3 percent in 1995 was predicted.

Controversy in the Lithuanian Democratic Labor Party (LDLP) government over the pace of Lithuania's economic reform, which is the slowest overall in the Baltic region, resulted in the resignation of the economics minister, Aleksandras Vasiliauskas, in July 1995. Several other members of the cabinet disagreed with Prime Minister Adolfas Slezevicius, who advocated accelerating the pace of reform. Lithuania's banking sector, although more stable than that of Latvia, is arousing public concern and could divide the government further. In July some 1,000 people assembled for a rally in Vilnius to call for improved legislation to protect bank deposits and to demand the resignation of Prime Minister Slezevicius and President Algirdas Brazauskas for their failure to remedy the weakness of the banking and financial system. Another call for the resignation of the government came in September from the Fatherland Union, the main opposition grouping and successor to the Sajudis movement. The Fatherland Union accused the ruling LDLP, successor to the Communist Party of Lithuania, of condoning corruption, intentionally driving businesses to bankruptcy, and impoverishing the population. The opposition has also accused the government of taking a weak negotiating stance toward Russia, particularly over the issue of Russian military transit through Lithuanian territory.

Popular disenchantment with the ruling leftist government and with politics in general was evident in Lithuania's March 1995 local elections, which generated a low voter turnout and gave right-of-center parties more than half the total number of seats. In April, however, the LDLP succeeded in winning a parliamentary by-election in the Kaisiadorys district. The March elections also showed an increase in political fragmentation: seventeen parties were registered in the elections; sixteen of the seventeen secured seats on local councils.

Even greater was the degree of fragmentation on Latvia's political scene in early 1995: more than forty parties prepared to contest the general elections in the fall. Many of these parties merged subsequently in an attempt to pass the threshold for parliamentary representation. After its defeat by the right-wing Latvian National Independence Movement in local elections one year earlier, the Latvia's Way government had just regained some ground in public opinion polls. The collapse of Baltija Bank and the ensuing financial crisis, however, seriously undermined its credibility. Moreover, many Latvians' patience with low wages and meager pension benefits had begun to wear thin. Foreign investment had increased and economic ties to the West had grown stronger, but corruption was widespread, and, according to official estimates, 20 percent of the population lived in poverty. (Unofficial estimates were much higher.)

With 14.6 percent of the vote, Latvia's Way finished third in the September 30-October 1, 1995, parliamentary elections. The center-left Democratic Party Saimnieks was in first place with 15.3 percent of the vote, followed closely by the far-right For Latvia with 15 percent. The latter party is headed by Joachim Siegerist, a failed German politician facing a prison sentence in Germany for inciting racial hatred. His political success in Latvia has stunned many people both in Latvia and abroad. Much of Siegerist's support has come from the country's most vulnerable citizens--young people and the elderly--who have been impressed by his efforts to distribute food, medicine, and clothing to the needy and his promises to crack down on corruption, stabilize the currency, and bring Latvia out of its "deep misery."

Dissatisfaction among elderly and rural voters, who had yet to experience the benefits of Estonia's economic revival, was an important factor in that country's general election in March 1995. Political infighting and bitter disputes among members of former Prime Minister Mart Laar's government, as well as charges of corruption, were other reasons that many voters rejected the center-right grouping of the Fatherland Party (Isamaa) and the Estonian National Independence Party, which received less than 8 percent of the vote. With nearly one-third (32.2 percent) of the vote, the victorious center-left Coalition Party-Rural Union alliance, led by former Prime Minister Tiit Vähi, took forty-one of the parliament's 101 seats. Next came the staunchly pro-market Estonian Reform Party with 16.2 percent of the vote and the moderate Estonian Center Party with 14.2 percent. Six percent of the vote was garnered by Our Home is Estonia!, an alliance of two ethnic Russian parties. Thus, Estonia's Russophone community secured parliamentary representation.

After negotiating a coalition agreement with Edgar Savisaar, leader of the Estonian Center Party, Vähi was confirmed as prime minister in April and Savisaar became minister of interior. Although somewhat more mindful of the agrarian sector's concerns, the new government pursued policies essentially similar to those of its predecessor. In October, however, Savisaar was implicated in the bugging of conversations of several Estonian political leaders. Consequently, President Lennart Meri relieved Savisaar of his ministerial duties, and the government resigned. President Meri characterized the scandal as a crisis for democracy. Overcoming such crises posed yet another challenge for the nascent democratic institutions of the Baltic states.

October 14, 1995

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Following preparation of this manuscript, several significant events occurred in the Baltic states. In Estonia, shortly after the resignation of the government in October 1995, President Meri decided against holding early elections and asked outgoing Prime Minister Vähi to form a new government. Upon negotiating a coalition agreement with Siim Kallas, chairman of the Estonian Reform Party, Vähi was confirmed as prime minister, and Kallas became the foreign minister. Vähi pledged to continue the previous policies of economic reform and integration into European structures. He also stressed the need to reach an agreement with Moscow regarding the Estonian-Russian border, which had been shifted by Soviet leader Joseph V. Stalin at the end of World War II, in violation of the 1920 Tartu Peace Treaty (see fig. 2). The issue of the validity of the 1920 treaty remained unresolved, however, despite several rounds of border talks in late 1995 and early 1996.

Estonian-Russian relations were complicated further in February 1996, when the Estonian Orthodox Church left the jurisdiction of the Moscow Patriarchate and renewed canonical ties with the Ecumenical Patriarchate of Constantinople, the historical center of Orthodox Christianity. In protest against Ecumenical Patriarch Bartholomew's decision to resume his patriarchate's canonical jurisdiction over the Estonian Orthodox Church, Patriarch Aleksiy of Moscow suspended relations between the Russian Orthodox Church and Constantinople. Moreover, Aleksiy accused the Estonian government, which had recognized the newly independent church as the legal successor to the pre-World War II Estonian Orthodox Church, of "stripping the Russian Orthodox Church of its property rights." At Aleksiy's behest, Russian president Boris N. Yeltsin and Russia's Ministry of Foreign Affairs protested to the Estonian government as well.

Also in Estonia, the commander of the armed forces, General Aleksander Einseln, resigned in December 1995. Einseln, a retired United States Army colonel, resigned at President Meri's demand, following a political row with Defense Minister Andrus Oovel. In January 1996, the Estonian parliament approved Meri's nomination of Colonel Johannes Kert, previously commander of the country's paramilitary Defense League (Kaitseliit), as the new commander of the armed forces. In a February address to the Estonian community in Stockholm, Einseln attacked Oovel as a communist who had regained power.

In Lithuania the refusal of Prime Minister Slezevicius to resign after he was implicated in a banking scandal impelled President Brazauskas to ask the Lithuanian parliament, the Seimas, to vote in February 1996 on the dismissal of Slezevicius from office. The banking scandal had erupted in December 1995, when Lithuania's two largest commercial banks, LAIB and Litimpex, were declared insolvent and their accounts frozen. Slezevicius prematurely terminated a fixed-term, high-interest account with LAIB two days before the bank's operations were suspended, prompting media reports that he had used inside information to withdraw his savings and angering thousands of depositors. In January 1996, President Brazauskas asked Slezevicius to resign as prime minister, but, with the backing of the leadership of the ruling LDLP, Slezevicius refused. In February the Seimas voted by a wide margin to approve a presidential decree dismissing Slezevicius. One month later, under pressure from many LDLP members, Slezevicius was also ousted as party chairman.

After Prime Minister Slezevicius's dismissal, Brazauskas nominated Mindaugas Stankevicius for the post. Stankevicius, hitherto the minister for government reform and local rule, was confirmed promptly. He retained twelve of the nineteen ministers who had served in the previous government, and he pledged to continue the policies of economic reform and integration into the EU and other European bodies. His government's objectives included admission to NATO, the gradual demilitarization of the neighboring Russian exclave of Kaliningrad, the reduction of Lithuania's dependence on fuel imports from Russia, and the bringing of Lithuania's economic legislation into line with EU standards. Stankevicius also stated that he would give priority to stabilizing and strengthening Lithuania's banking system, stabilizing the national currency, reducing inflation, and improving the social security system.

The strengthening of relations with Poland has become a highlight of Lithuania's foreign policy. In March 1996, President Brazauskas and his Polish counterpart, Aleksander Kwasniewski, met in Vilnius to discuss a broad range of political and security issues. They agreed to coordinate their countries' efforts to gain membership in the EU and NATO, to establish joint airspace control, to allow mutual military overflights under an "open sky policy," to form a joint battalion, and to hold joint military exercises. The two sides also agreed to cooperate in building the Via Baltica highway and a new railroad between Lithuania and Poland, and they reaffirmed their opposition to a Russian-Belarusian proposal to build a highway across either Lithuanian or Polish territory to the heavily militarized Russian exclave of Kaliningrad.

Lithuania and the neighboring Baltic country of Latvia, however, had yet to agree on the demarcation of their common maritime border. The subject of their dispute is a continental shelf area considered rich in oil deposits, where Latvia has unilaterally awarded drilling rights to a United States-Swedish joint venture. Latvian-Lithuanian border talks had been expected to begin in late 1995 but were canceled because of protracted government crises in the two countries. Talks on demarcating the Latvian-Estonian border in the Gulf of Riga were held in February 1996 in Stockholm but did not produce an agreement.

The failure of rival political blocs in Latvia's parliament, the Saeima, to reach an agreement repeatedly obstructed the formation of a new government after the country's September-October 1995 general election. The impasse finally ended in December when President Guntis Ulmanis nominated Andris Skele as prime minister. Skele, a professional agronomist and successful entrepreneur, had widespread appeal as a respected nonpolitical figure and was confirmed shortly afterward.

In December 1995, Latvian government representatives joined their counterparts from Estonia and Lithuania in Madrid to lobby EU leaders assembled there for equal consideration for admission to the EU. Some EU officials and member governments had favored giving priority to the Czech Republic, Poland, and Hungary, but the efforts of the Baltic governments resulted in a decision to treat the Central European and Baltic countries equally. Discussions with individual countries are to begin after mid-1997.

Also in December 1995, the governments of the Baltic countries made final plans for the participation of their armed forces in the Bosnia peacekeeping operation under the command of NATO. Each country will assign one platoon, which will become integrated with NATO forces. Before being airlifted to Bosnia, the Baltic platoons will train with Danish forces in Denmark, a NATO country with which the Baltic countries have established close military cooperation. The Baltic contingent's close integration with the troops of NATO countries is seen by the Baltic countries as an important step toward meeting NATO military standards and toward eventually joining the alliance.

The first joint military force of the three Baltic countries, the Baltic Battalion, held its first combat exercise in Latvia in January and February 1996. It was the largest military exercise held in the Baltic states since they regained their independence in 1991 and the first joint exercise of troops from the three countries. Britain, Norway, Denmark, and Sweden provide military assistance to the integrated battalion. Other forms of military cooperation among the Baltic states are to include linking the three countries' airspace surveillance systems, engaging in joint mine-laying and mine-sweeping operations in the Baltic Sea, and harmonizing equipment and logistics. Moreover, in March 1996 senior naval officials of Estonia, Latvia, and Lithuania met in Tallinn to discuss plans for the formation of a joint naval squadron and joint naval training groups.

Safeguarding their security continues to be the foremost concern of the Baltic states. At a briefing after the first exercise of the Baltic Battalion, the defense ministers of Estonia, Latvia, and Lithuania reaffirmed their countries' common goal of joining NATO. Recent developments in Russia, most notably the Russian Duma's nonbinding resolution of March 15, 1996, declaring the dissolution of the Soviet Union illegal, have reinforced the fear of Russian revanchism. Estonian foreign minister Kallas characterized the action by the communist-dominated lower house of the Russian parliament as "an intention to recreate the Soviet Union, which would pose a threat to the entire world. The world should be concerned, not just us."

March 20, 1996
Walter R. Iwaskiw

Data as of January 1995