IMF gives economy clean bill of health

TALLINN - The slowdown in GDP growth is not a problem for the Estonian economy, though the Maapank crisis that contributed to it could have been handled in a better manner.

Such was the conclusion of the head of a visiting delegation from the International Monetary Fund (IMF).

Ishan Kapur of the IMF concluded his organization's review of the Estonian economy and Eesti Pank policy July 29 by giving good marks for the growth in GDP and passing marks for the way the government handled the Maapank crisis.

"It's not the perfect solution. I won't pretend it is," said Kapur. "Sometimes, you have to accept a solution that is second best."

The IMF would have preferred a solution that had closely adhered to the deposit insurance law that won't go into effect until Oct. 1 of this year.

Kapur also criticized reports he had seen in the press that the Estonian GDP was not as strong as it should be. Estonian GDP has fallen from approximately 12 percent at this time last year to approximately 8 percent for the first quarter of this year.

"Frankly, I was more worried about the 12 percent of last year than I am about the 8 percent of this year," said Kapur. "The Estonian economy is a lot stronger than it was this time last year."

Kapur added that the IMF would be happy with a growth in GDP in the range of 6 to 8 percent, which Estonia should be able to achieve if it sticks to its current policies.

The central bank governor, Vahur Kraft, concurred with Kapur.

"That Estonia's economic growth last year was 12 percent was a bigger issue of concern for the IMF than the slowing of growth this year," Kraft said.

Kapur said the economic problems Estonia faces are not that much different than they were at this time last year, namely a large account deficit and higher inflation than most of its trading partners. The upcoming elections may have an effect on the level of GDP.

"I think we're entering a difficult period," said Kapur. "It's going to demand a lot of commitment, it's going to demand a lot of political courage."

Estonia cannot afford to increase wages or government spending if it wants GDP to continue growing as it has been. "If you want growth, you can't afford it."

The IMF had already completed it's mid-term review of Estonian economic policies last May and last week's meeting was specially convened to review Estonian fiscal policies in the wake of the Maapank crisis.

Now, Kapur will submit a report to the IMF executive board in Washington D.C., which he said, should be approved.