Bank of Estonia signs up to €380 million loan facility to IMF

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The Bank of Estonia building in Tallinn Source: Siim Lõvi /ERR

The Bank of Estonia (Eesti Pank) and the International Monetary Fund (IMF) have signed a loan agreement where Estonia's' central bank will loan up to €380 million to the IMF as needed. The loan is standard practice in bilateral agreements between the IMF and member states.

The Bank of Estonia said the final sum will be clear early in 2021 and is likely to be around half the maximum figure.

The IMF would be able to use this credit line for three years starting from next year, once the current credit line agreements have ended. The loan terms can also be extended by a year.

Ülo Kaasik, Bank of Estonia central governor, said: "It is in the interests of Estonia as a small country with an open economy that the IMF has sufficient financial capacity to hold off any possible crises and to support countries facing economic difficulties, if it needs to, and so stabilize the global economy. As a country that is dependent on exports, we could be directly affected by concerns in the global economy."

The IMF can make use of such loans – it has similar agreements in place with many other member states – to head off economic crises or to give temporary support to countries in economic difficulties.

Strict conditions apply to countries that receive loans of this type, including a requirement to improve their economic policies. Thus far the IMF has not used this facility, BNS reports.

Member states pay in €595 billion to the IMF as per a quota, which is the first line of defense, BNS reports. The second line of defense is multilateral lending agreements which currently total €456 billion.

Bilateral credit lines between the IMF and its member states, like the one just signed with the Bank of Estonia, constitute the third line of defense and are estimated to be worth €400 billion.

The bilateral loan agreement signed between Estonia and the IMF comprises the Bank of Estonia's liquid foreign reserve, which can be recalled at short notice if needed.

Interest rates would be calculated based on the difference between the interest rates on a basket of currencies which make up the IMF's special drawing rights (SDR) of, and the rates on monetary policy loans from the European Central Bank.

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Editor: Andrew Whyte

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