Estonia has passed up on the chance to invigorate its economy, TUT expert says (2)

(Reuters/Scanpix)
2/26/2015 9:36 AM
Category: Economy

Senior research fellow from the Tallinn University of Technology (TUT), Tõnn Talpsepp, said that Estonia should also start issuing bonds.

According to Talpsepp, by not issuing bonds, Estonia would give away the chance to invigorate its economy.

“A bond in itself is a loan. Normally the state loans from the bank, the bank writes up a contract, the parties sign it. That is also like a bond. A treasury bond is when the conditions are drawn up not by the bank, but the state itself gets a say in what conditions are written up. And it is then not drawing up one big contract, but dividing one contract into several pieces. And then tries to conclude these several contracts not with one bank, but with a larger number of banks and various financial institutions explained,” Talpsepp said to ETV.

Estonia has not issued bonds because it is an indication of our conservative nature, Talpsepp said. He said that so far Estonia's level of indebtedness has been kept under control and that it has been decided we should be careful.

“We could have a car we can drive around, but it could actually be economically more viable to use a taxi for our short trips. A car may get into an accident, we may break down and have to incur running costs. Whereas, owning a car would increase flexibility,” Talpsepp added.

Talpsepp said it is a rather high probability that issuing bonds would fulfil its purpose. Comparing bonds’ markets of the US and Europe, Talpsepp said they are more active in the US. “Companies’ bonds are also traded a little bit more frequently there. It is a bit more fragmented in Europe. In addition, the proportion of use of bank loans is larger. Therefore, buying bonds may not enliven the economy in Europe all that much as a whole.”

Talpsepp said Estonia’s situation is not very good in that regard, because the country doesn’t have any bonds. If it did, it would be able to buy them back. Or instead of the government paying interest to the banks, it would essentially be paying it to its own central bank.

“Estonia is late with this process. Even if we were to issue bonds now, we wouldn’t be able to buy them all back. On a larger scheme we have given away the opportunity to directly invigorate our economy,” he said.

According to Talpsepp, it essentially means that Estonia will be invigorating the other countries' economies instead.

He added that Estonia could still start issuing bonds and it's not too late. “We wouldn’t be able to make full use of it, but we would still have a certain chance,” he said.

S. Tambur

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