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Taking counsel: Tendencies of financial infoclosure

  • 2008-03-26
  • By Paul Keres [Glikman & Partnerid]
On March 13 Parliament passed amendments to the Bank of Estonia Act that entail two changes of some concern.

While it is generally accepted that the impact of Estonia's recent economic boom has yet to bare its teeth and that the sooner we implement measures the better we will be able to avoid an economic slowdown, the government and legislature seem to be hesitant to let the free market resolve these issues.
At first it seemed that the draft legislation was instituted for the purpose of making the bank president's academic requirements more lax. I personally don't like this idea, but since it is up to Parliament to appoint the bank chief, and if they are comfortable with the lessening of candidates' requirements, then so be it. This may not be the main concern.

If one browses through the minutes of readings pertaining to this draft act, one notices that all the attention is paid to candidates' legal requirements issue. Somehow, however, the Finance Committee managed to sneak in a provision according to which the Bank of Estonia has the right to put access restrictions on economic information that might hamper financial and price stability in the free market.
According to the Financial Committee's letter of explanation, the Public Information Act currently in force doesn't grant to the Bank of Estonia sufficient means to restrict the movement of potentially dangerous information for the purposes of maintaining price stability. This notion per se is unsettling, as the central bank ought to regulate the markets openly and transparently by employing financial levers. Furthermore, the wording of this provision is imperative 's i.e., if any information is deemed destabilizing to the economy, the Bank of Estonia has no right of discretion and is legally obligated to enforce access restrictions.

This raises a few concerns. First, it is unclear why the Finance Committee deemed the Public Information Act inadequate for the purposes of the Bank of Estonia. The Constitution of the Republic of Estonia provides that access to public information is ensured and that infringements of this liberty should remain minimal. It is the general assumption that liberal and transparent market regulation is the foundation of our economic aspirations.

Second, the memorandum of explanation remains silent as to what information is deemed potentially destabilizing and why potentially destabilizing information shouldn't be disclosed. It is common sense that if prices for a certain article are fundamentally without basis then these prices should fall (as opposed to remaining at an unfounded high plateau). The concept of a liberal free market, one of the building blocks of the Estonian economic system, demands that the public has access to market data 's be it destabilizing or not.
Should it be disclosed that during our booming days we've "accidentally" overshot feasible price levels, that our trade balance is in dire deficit or that the currency is fundamentally overvalued, then it is up to the free market to make necessary adjustments. The recent amendments suggest that the legislature is not entirely confident in the market's capabilities to handle such issues.

Thirdly, the way this provision was incorporated into the amendment act also raises questions. Although very vague and ambiguous, this provision didn't seem to merit any discussion by Parliament. The amendment was accepted without any serious deliberation given the purposes or effects of this amendment. The concurrence of the abovementioned issues, indicating a further shift toward informational disclosure, should give substance to broad-based public debate.

Paul Keres is a lawyer at Glikman & Partnerid, a member firm of the Baltic Legal Solutions, a pan-Baltic integrated network of law firms including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.