Estonia marks capital success

Never one to worry much about the risk of patronising smaller nations, the US called it a "graduation ceremony". It had just administered another spanking to the bad boy of the planet, Saddam Hussein. Now, hundreds of miles to the north, it was time to honour its unlikely star pupil - Estonia.

Thus it was that a cluster of senior US and Estonian officials gathered within the 15th-century town hall in Tallinn, the capital, to mark the country's passage to capitalist, Western, adulthood.

Two years after the last Russian soldier left its soil, Estonia was the first post-Soviet nation to begin to be weaned from Washington's foreign aid, US diplomats said. The days of dependency were drawing to a close. Estonia did not need it; it was an "economic miracle", a shining example of the free market at work.

America's enthusiasm for her protege is predictable enough. Over the centuries, Danes, Germans and Russians have sought to manipulate (and often occupy) this small nation, perched usefully at the mouth of the Gulf of Finland.

Yet few would dispute America's point: Estonia's turn-around has been remarkable. Decades of Soviet occupation left its 1.6 million population with a crumbling infrastructure and clapped-out industries. But while Russia's economy is still in the doldrums, its northern neighbour - seized by Stalin in 1944 - is thriving only five years after it regained independence.

Estonia is also turning its back on its former masters. Trade with Russia has plummeted from 90 to 20 per cent. These days, there are more flights from Tallinn to Amsterdam than there are to Moscow.

The uneasy relationship between Tallinn and Moscow has been marred by suspicions that the Kremlin is undermining Estonia's efforts to enter the European Community and Nato. Western diplomats believe Russia has embarked on a campaign of misinformation, which includes exaggerated claims that Estonia is abusing its 350,000 ethnic Russians.

Such tactics may have dented Estonia's diplomacy, but they have not hurt business."The numbers tell the story," said Thomas Dine, of the US Agency for International Development, which organised the "graduation" to mark the conclusion of its $30m (pounds 20m) aid programme.

For three years, Estonia has had average growth of 5 per cent; 65 per cent of its gross national product comes from the private sector; monthly inflation is down to less than 2 per cent. It has a stable and fully convertible currency - the kroon, pegged to the German mark.

There is, of course, a downside. The scent of money has attracted the Russian mafia. So while US aid is winding down, a new relationship is being born. The FBI is planning to open an office in Tallinn soon.