Estonia turns off loans to meet local debts

TALLINN - Estonia's local governments that are in debt will no longer
receive loan money from the state, according to a bill endorsed June
13.

The bill, proposed last summer, will cut subsidies from the state by
the sum of the money owed. At the same time, the government will drop
its claim to a local government unit to the extent of the debt amount.

"The point is that there have been troubles in the past, the most
famous example being the town of Kallaste. . .the Tartu government
can be quite dangerous," said Daniel Vaarik, adviser to the Finance
Ministry.

Still, he said specific local governments were not being singled out
in drafting the bill. It is not so much an issue of saving the state
money, Vaarik explained, as the government acts as a "middleman" in
allocating the loans, which come from the European Bank for
Reconstruction and Development and the World Bank, for example.
Rather, the move was made to hold local governments more accountable
and prevent a potentially serious problem from forming.

Currently, state leaders are negotiating with local governments on
the matter, and Vaarik stressed that the legislation will not mean
denials of money across the board. There will be some leeway. In
addition, a fund will be created for the governments that do get into
trouble with making payments.