Central bank's reserves cannot be used for budget - deputy governor

TALLINN (BNS) - Bank of Estonia deputy governor Peter Lohmus said on Feb. 11 the central bank had no legal possibility to make a 130 million kroon ($8.23 million) contribution to the state budget from its reserves, as is expected by the Finance Ministry.

"If we look at the current forecast concerning the central bank's eventual outcome for 1999, the law offers no possibility to make such an allocation," Lohmus said.

The Bank of Estonia has tried to be as transparent and concrete as possible in its profit distribution strategy, which also rules out the possibility of such contribution to the state budget being made.

Using any other means, such as biting into the central bank's reserves, is also ruled out as this would contradict any internationally accepted practices and customs concerning the relationship between the central bank and the state budget, Lohmus explained.

"I'm a bit perplexed to see the finance minister not knowing what exactly the memorandum with the International Monetary Fund contains and what kind of requirements have been discussed," Lohmus said.

The Bank of Estonia president and the Prime Minister will sign the next IMF memorandum next week, promising to significantly cut budget deficit.

The state budget's incomes under the law on the state budget for 2000 include, among others, a payment of 130 million kroons at the expense of the Bank of Estonia profit, but instead of profit, the central bank made a loss of up to 100 million kroons last year.

Lohmus was referring to a remark by Finance Minister Siim Kallas, who said that it is apparently necessary to add 130 million kroons of Bank of Estonia money to the state budget. At the same time, he said it is not absolutely certain whether the requirement will eventually remain in the IMF memorandum's text.

As the Bank of Estonia ended 1999 in the red, the only possibility is to assign the money at the expense of Bank of Estonia reserves.

In accordance with the strategy of distribution of Bank of Estonia profits, the central bank may transfer up to 25 percent of its profit to the state budget annually until 2003. In practice, weighty arguments exist for maintaining the central bank's strength of balance as regards both owner's equity and foreign reserves, without arbitrary interference by the government, the strategy paper edorsed last fall says.

The main emphasis of the IMF memorandum to be signed next week is on a strict and balanced fiscal policy. Kallas said that any kind of reduction in the inflow of revenue will make it more complicated to meet the promise to sharply reduce budget deficit.