(FORTUNE Magazine) – Skeptics from the World Bank and the IMF scoffed back in June 1992 when newly independent Estonia replaced the Russian ruble with the kroon, a hard currency tied to the powerful deutsche mark. But the tiny Baltic state (pop. 1.5 million) instituted tight monetary policies, rode unharmed through various European currency crises, and today has the strongest and most stable money of any of the 15 former Soviet republics. Sound currency has meant good economics. Estonia is blazing the path to recovery. Inflation, which last year ran at Russian levels of more than 100% a month, now is down to about 2%. Tallinn, the picturesque, medieval capital, is bringing in tourists, while a well-educated labor force has attracted more than 7,000 foreign investors -- including such heavyweights as Nokia, from neighboring Finland, which has set up a joint venture to make electric power cables. Thus inspired, Lithuania and Latvia, the other two Baltic countries, recently introduced their own currencies -- lats and litas, respectively -- as a way to start lifting themselves out of their post-Soviet blahs. All three nations have problems that go beyond the need for economic reform, including a tense relationship with Russia. Even Russia's political moderates vow to protect the region's large Russian minorities. Predictably, ultranationalist Vladimir Zhirinovsky, who won a surprise 24% of the vote in December's national elections, goes much further: He promises to reoccupy the Baltics.