In an appearance on Vikerraadio's "Välistund" a couple of weeks ago, Ministry of Defense Permanent Secretary Kusti Salm said that it is critical to invest another €1.5 billion in Estonia's national defense, chiefly for the purchase of ammunition. According to Eamets, it would be possible to borrow this money from the people of Estonia.

"People are currently holding nearly €12 billion," he said, adding that 35 percent of this money is in term deposits. "It's around €8 billion of that that could be utilized, or at least part of which could be utilized."

Instead of letting this money sit idle, the state could offer bonds to small investors, Eamets explained, noting that if this were done at 3.5 percent interest, the interest income would compensate for the monetary erosion caused by inflation – killing two birds with one stone.

"When you borrow from your own people, that interest income is paid to your own people," he continued. "That interest income stays home, so to speak. Otherwise that income is paid abroad. There's not that much more to it than that."

This would help revive the economy to some extent, said Janno Luurmees, director of the State Treasury Department at the Ministry of Finance.

The ministry does plan on offering bonds to retail investors this year, but not just to help buy ammunition for the Estonian Defense Forces (EDF), as Eamets suggested.

"We're definitely trying to do some sort of bond issue over the course of this year that would make it easier for the people of Estonia to buy Estonian bonds, but it's still too soon to tell more precisely," Luurmees said.

It's also unclear how much money can actually be borrowed this way.

"Slovenia issued €250 million here in February which was also aimed only at retail investors," the ministry official noted. "Slovenia is a slightly bigger country than we are, but that size is a relatively good comparison."

Meanwhile, however, MP Aivar Sõerd (Reform), a member of the Finance Committee of the Riigikogu, doubts whether even this much money could be raised.

"There are just over 100,000 securities account holders in Estonia," Sõerd said. "In order to buy bonds, you also need a securities account. Compared with Finland, in relative to population size, we could have a couple times more securities accounts. I wouldn't be as optimistic as Raul Eamets about raising €1.5 billion. I believe we're still talking about tens of millions when it comes to private individuals."

Government bonds are very low risk and therefore do not generate significant returns for the investor – a factor which may also discourage investor interest.

On the other hand, if bonds are sold specifically for boosting national defense, that could spark patriotic interest, the MP noted. But if it isn't someone else's debt, it will nonetheless still constitute a cost to the state.

"The fact that we're dressing up part of the debt in patriotic garb – in public finance terms, it's still the same kind of obligation and budget deficit as we have here in general," he acknowledged.

Regardless, Sõerd and Eamets are on the same page about national defense bonds not being a magic bullet that would solve all of Estonia's public finance issues. The state must continue with cuts and its tax reform as well, Eamets underscored.

--

Follow ERR News on Facebook and Twitter and never miss an update!