TALLINN - Responding to a December letter from the Central Bank warning that the Estonian credit market was overheating, Minister of Economic Affairs Meelis Atonen said he supported the bank's stricter lending requirements, though he said that the bank had focused on the wrong segment of the market in its letter to local financial institutions.
Atonen, speaking to journalists at the Estonian Institute of Market Research, said that the consumer loan market, and not the home mortgage market, risked overheating.
In its letter, the bank suggested that the government stop allowing borrowers to deduct interest paid on housing loans from taxable income in order to cool Estonians' rampant borrowing.
In Atonen's opinion, the current consumer credit binge was the real culprit, since such loans carry a higher interest rate and therefore pose a significantly larger financial burden on borrowers.
Atonen added that housing loans were essentially a lesser evil than consumer loan since people need shelter. Besides, consumers will always choose a monthly loan payment over paying rent, the minister said.
"Moreover, this will help strengthen the roots of people with Estonia," Atonen said.
"On New Year's Eve I was in southern Estonia and was amazed at how many people were simply blowing up money in fireworks. I hope that not all of the fireworks were purchased with EGO credit cards," he said.
Furthermore, argued the minister, increasing consumption is also boosting imports and worsening the country's current-account deficit.