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Estonia has started talks to look into borrowing possibilities

15.01.2009

TALLINN, Jan 15, BNS - The Estonian Finance Ministry has begun negotiations with international financial institutions to investigate possibilities for taking a loan.

Finance Minister Ivari Padar told journalists after a government press conference on Thursday that negotiations with one institution are going on also now and that talks with more parties are to follow. He wouldn't give any names.

Padar said the institution that the Finance Ministry was in talks with was not the International Monetary Fund (IMF). The Finance Ministry started inquiries as regards the terms of a possible loan already at the end of the fourth quarter of 2008, he said.

Shortly after the end of the press conference Padar specifified his remarks through spokespeople.

"The Finance Ministry has not started formal negotiations as regards taking a loan. We have as part of our normal work had meetings with different banks and international financial institutions, at which the possibilities and terms of getting a loan have been discussed among other topics. These have not been specifically negotiations on borrowing, which is why there is nothing more to be added on this topic," the minister said.

Padar said it was important to remember that possible borrowing would not mean that additional money was added to the state budget, but it would offer additional possibilities to manage cash flows. The loan will not replace the forthcoming vital cuts in the state budget, he said.

The minister underscored that it would be rational to finance with a loan activities that are aimed toward economic development or principal, structural political reforms.

Padar said in his remarks to reporters that the contraction in tax receipts at the end of 2008 increased the danger that the deficit in this year's budget could exceed the limit of 3 percent of GDP, which must not happen if Estonia wishes to qualify for eurozone membership.

Judging by what the ministry knows at this point the size of the gap this year might be from 5 to 6 billion kroons (EUR 0.32-0.38 mln), despite the cuts made in the course of the budget drafting process in late 2008, Padar said.

Information about December tax receipts raised the estimate of the size of this year's deficit by one billion kroons, he added.

Prime Minister Andrus Ansip told the government press conference that it would be reasonable to borrow money for specific investments, especially infrastructure projects.

Such projects are financed at favorable terms by the Nordic Investment Bank, for instance.

Answering a question from BNS as regards the interest rate of the possible loan, Ansip ruled out a rate to the tune of 10 percent and also said Estonia could raise money cheaper than the 5-6 percent suggested in the question. Interest rates in Europe apparently will keep declining, yet the situation may change fast, the prime minister said.

(EUR 1 = EEK 15.65)

Tallinn newsroom, +372 610 8822, majandus@bns.ee

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