Born in Kaagjärve Parish,[1] Estonia, Vähi graduated from the Tallinn Technical University with a degree in engineering.

As agreed when he assumed the post of prime minister in the transition government, Vähi did not participate in the parliamentary elections on 20 September 1992.

As leader of the Estonian Coalition Party, Vähi was asked by President Lennart Meri to form a government.

Appointed Prime Minister for the second time in his career, he formed a coalition government of the KMÜ and the Estonian Centre Party, which was sworn in on 17 April 1995.

On 11 October 1995 several ministers resigned from the cabinet, causing the Estonian Centre Party to withdraw from the government coalition.

On 1 December 1996, Vähi once again reformed the government; however, this time, he only used members of his own party, thus greatly reducing its ability to retain power.