IMF: Estonia Can Accede to Euro at Present Exchange Rate in 2011
OREANDA-NEWS. January 13, 2010. The International Monetary Fund (IMF) said that Estonia's 2011 euro adoption plans appeared in reach at the existing exchange rate, Reuters reported.
"Following recent budget measures and assuming continued fiscal consolidation efforts, Estonia could meet all Maastricht criteria, while the policy record to date provides assurances for continued stability-oriented policies," the IMF said in a statement.
"Seeking euro adoption at the current fixed exchange rate parity remains the best exchange rate policy for Estonia," the IMF said.
A repegging of the kroon at a more depreciated level would be unnecessarily disruptive, both for Estonia and tghe region," Reuters reported IMF as saying.
Although the IMF Executive Board noted the earlier assessment that the effective exchange rate of the Estonian kroon was somewhat overvalued, they underscored the need for continued structural reforms to restore competitiveness.
Estonia still has some room for further expenditure cuts, but the Directors stressed the importance of protecting social safety nets. This calls for adjustment on the revenue side, particularly broadening the tax base and eliminating poorly targeted exemptions.
IMF said that attention had to be turned to the opportunity of ensuring restructuring of loans and cooperation between finacial sector supervisory bodies at the regional level.
IMF also warned that the fall in prices and wages and rise of the interest level in the euro zone would make for more strenuous servicing of loans.
The Directors also recommended amending the corporate tax code to discourage excessive debt accumulation at the firm level.
"The report supports our budget policy choices and we share the view that structural changes for improving the position must be continue. For example raising of the pension age and abolition of special pensions which the government has already decided, and we are also handling abolition of the return of the housing loan interests," Finance Minister Jurgen Ligi said in comment on the IMF statement on Friday.
Bank of Estonia Govenor Andres Lipstok said that it deserved to point out the IMF opinion that a certain growth in bad loans would not bring any significant risks for the financial stability of the state.
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