EU Decisions and Agenda 2000
On 16 July 1997 the European Commission published Agenda 2000, its most substantial part being the evaluation of the preparedness of Central and Eastern European countries to start accession negotiations with the EU. Based on the answers to the Commission in the summer of 1996 and on information from other sources, the Commission recommended to start negotiations with five Central and Eastern European countries, including Estonia, and Cyprus. The EU Heads of State and Government decided on the European Council meeting in Luxembourg on 12 and 13 December 1997 to start accession negotiations with the above countries in spring 1998. By the end of 1997, all EU member states ratified the Association Treaty between the European Union and the Republic of Estonia, enforced on 1 February 1998.
The Commission opinion in Agenda 2000 on Estonia's economic and monetary policy as well as the banking system is rather positive. The economic policy pursued since the restoration of Estonia's independence has been considerably consistent. The Commission considers that the monetary system based on the currency board arrangement has enhanced exchange rate stability and decreased inflation as well as ensured a relatively conservative fiscal policy. The Commission concludes in monetary policy that Estonia's participation in the third stage of the European Economic and Monetary Union (EMU) outside the euro area should not create problems in medium term as the central bank is independent and it is prohibited to finance budget deficit. There are no major obstacles to the EU accession in the field of free movement of capital.
The Commission opinion emphasises that the EU membership involves acceptance of the EMU objectives. The completion of the structural reform in the economic system will enable Estonia to meet the EMU convergence criteria on time in future. The latter is not a prerequisite in accession to the European Union.
The Commission's opinion is that Estonia's banking sector is developing in compliance with market rules, is stable and well supervised. In spite of that, the respective legislation in Estonia requires essential amendment to be fully harmonized with the EU legislation. According to the Commission, the approximation of legislation has not been fast enough as to the implementation of legal acts and their actual enforcement.
Pre-accession Strategy and Preparations for the Accession Negotiations
The European Commission proposed in Agenda 2000 to launch the pre-accession strategy in all the applicant countries of Central and Eastern Europe. The Commission has prepared an Accession Partnership Agreement. Considering the problems listed in Agenda 2000, it specifies the areas to be solved in 1998 and before accession to the European Union. The applicant countries will compile their own national programme for adopting the acquis of EU.
Estonia's pre-accession strategy and the above national programme are based on the Government's Activity Plan for 1998 and 1999--2003 for joining the EU. The elaboration of the plan was co-ordinated by the Council of Senior Civil Servants (CSCS) at the State Chancellery responsible also for harmonizing the implementation of the integrated pre-accession strategy. Eesti Pank takes part in the CSCS, too, preparing the Activity Plan in the fields of free movement of financial services and capital, payment and settlement systems, economic policy, approximation with EMU legislation and banking supervision.
Estonia started institutional preparations for the accession negotiations in 1997. The central bank is directly involved in the fields of financial services, Economic and Monetary Union, free movement of capital, statistics, competition policy and budgetary issues.
Co-operation Between the EU Estonia in the Economic Policy
Representatives of Eesti Pank participate in the Working Group on Economic and Financial Issues set up for regular economic dialogue between the European Commission and Estonia. The 1997 meeting focused on problematic areas and potential solutions singled out in Agenda 2000 in the context of reinforced pre-accession strategy. A significant step on strengthening Estonia's macroeconomic policy in medium term was the agreement to prepare a joint document by the Government of the Republic of Estonia and the European Commission on Estonia's medium-term economic priorities reflecting common understanding of macroeconomic trends in 1998--2002.
INTERNATIONAL MONETARY FUND
Estonia has been a member of the International Monetary Fund (IMF) since 1992. Our quota reflecting our share in IMF is SDR 46.5 million (about EEK 900 million). As an IMF member Estonia has had several Standby Arrangements and has borrowed resources from the Systemic Transformation Facility for conducting economic reforms. For the IMF to release the resources, the objectives set in the Memorandum of Economic Policies (MEP), drawn up by the Government of the Republic and Eesti Pank prior to the loan agreement, have to be met.
In spring 1997, the Government of the Republic and Eesti Pank formulated a supplementary Letter of Intent to the MEP compiled in 1996, where they fixed the necessary additional measures of economic policy. In autumn the Government and Eesti Pank compiled another Memorandum of Economic Policies reflecting main economic objectives for the end of 1997 and 1998. They focus on maintaining stable macroeconomic environment, strengthening confidence in the currency board and economic policy in general and accelerating preparations for the EU accession. The main objectives are to continue sustainable productivity-oriented economic growth, contain current account deficit and to ensure further decline in inflation. The IMF granted Estonia SDR 16.1 million in the form of a Precautionary Standby Agreement although Estonia does not plan to use the money.
In 1997, the IMF handled several issues related to the development of world economy: supporting economic reforms of poor economies, ensuring accuracy and restoring confidence of statistic information and improving liquidity of the IMF. Economic and financial problems in Eastern Asia made the IMF focus on the movement of international capital flows and on strengthening the banking and financial sectors.
Last autumn representatives of Eesti Pank participated in the Estonian delegation at the joint annual meetings of the IMF and the World Bank where the member states came to a basic treaty on the eleventh increase of quotas and on providing additional liquidity through an allocation of SDRs. The increase of quotas has to be ratified by the member states representing at least 85 per cent of the voting rights and the articles of treaty of the IMF have to be amended for the allocation of SDRs. The annual meeting also dealt with the state of the world economy, granting the IMF a right to regulate restrictions on the movement of capital and more efficient support to poor member states.
The Government-established inter-agency working group including representatives of Eesti Pank, continued preparations for the introduction of the Special Data Dissemination Standard created by the IMF in Estonia (see Eesti Pank's Statistical Activity, Special Data Dissemination Standard). The standard involves real, fiscal, financial and external sectors and is aimed at providing timely and reliable economic and financial information.
Eesti Pank participates in discussions and decision-making process of the IMF via the Nordic-Baltic joint constituency set up in 1992 and including five Scandinavian and three Baltic states. Since 1996 the constituency has been represented in the IMF Board of Directors by executive director Eva Srejber. Her term in office expired at the end of 1997. Kai Aaen Hansen replaced her. Up to the end of 1997 the central bank of Sweden co-ordinated the views of the constituency. Beginning from 1998 the central bank of Denmark is responsible for co-ordination.
Dimitrios G. Demekas has been the IMF resident representative in Estonia since 1997. He has been the resident representative in the Republic of Latvia since 1996.
OTHER INTERNATIONAL FINANCIAL ORGANIZATIONS
Eesti Pank represents Estonia in the Bank for International Settlements (BIS). Estonia joined the BIS already in 1932. The restoration of membership took place in 1992. Estonia has 200 shares in the Bank for International Settlements. In 1997, President of Eesti Pank Vahur Kraft participated in the BIS monthly meetings of the Governors, where the discussions covered monetary policy, financial markets and other issues.
In 1997, the International Bank for Reconstruction and Development (IBRD) together with the Government of the Republic of Estonia and Eesti Pank started preparing the Country Economic Memorandum and making recommendations related to Estonia's accession to the European Union. Representatives of Eesti Pank participated in the annual meeting of the European Bank for Reconstruction and Development (EBRD) as well as in the regular round-table meeting of the Estonian agencies, the Organization for Economic Co-operation and Development (OECD), Centre for Co-operation with the Economies in Transition (CCET) that took place in Tallinn. The discussion at the meeting covered Estonia's economic development, mutual co-operation and exchange of information.
CO-OPERATION WITH CENTRAL BANKS OF OTHER COUNTRIES
In 1997, Eesti Pank paid special attention to developing relations with central banks of other countries. In spring a traditional joint seminar of the Baltic central banks focusing on the monetary policy, financial intermediation, banks' organization and management was held in Pärnu. Apart from Baltic representatives guests from the IMF, BIS, European Monetary Institute (EMI) and central banks of Nordic and Central European Countries attended as well.
The fifth joint seminar of Eesti Pank and the central bank of Finland (Suomen Pankki) took place. Relations with the central banks of Central and Eastern European countries were maintained by mutual visits.
CO-OPERATION IN TECHNICAL ASSISTANCE
Throughout the post-monetary reform period technical assistance programmes in Eesti Pank have mostly been based on the co-operation with the IMF and the European Union. The IMF has facilitated technical assistance via missions or bilateral contacts with Nordic central banks. Co-operation with the consulting companies of the EU member countries, visits and seminars on the institutions and policies of the EU have taken place within the framework of EU Phare and TAIEX. Bilateral contacts with other central banks have become significant.
International Monetary Fund
In 1997, the technical assistance facilitated by the IMF was mainly channelled to the Banking Supervision Department to strengthen on-site supervision, solve problems related to the use of derivatives and develop supervisory institutions. The IMF experts also advised Eesti Pank on essential issues in the draft of Credit Institutions Act and proposed some amendments to the Law of the Central Bank of the Republic of Estonia.
The IMF technical assistance mission visiting Eesti Pank in November focused mainly on consolidated supervision of credit institutions and implementation of efficient banking supervision. Further assistance regarding the improvement of statistical analysis and financial system, the quality of monetary and macroeconomic analysis and situation evaluation were mapped.
Within the European Union Phare programme an assistance programme to develop an inter-bank payment and settlement system was launched aimed at helping Eesti Pank to implement a Real Time Gross Settlement System (RTGS) and a Designated Time Net Settlement System (DNS) by the turn of the century.
Phare and TAIEX also examined the compliance of Estonian legislation (including the drafts of Credit Institutions Act and Deposit Insurance Fund Act) with EU acquis communautaire.
Bilateral Direct Contacts with Central Banks
Eesti Pank is more and more oriented on strengthening direct contacts with central banks in planning technical assistance. This is partly due to the necessity to learn from the practical experience of EU member states and partly due to the nature of assistance needs to solve specific problems. Our main partner has been the central bank of Finland, potential co-operation has been discussed with other central banks as well.
 In order to get the most updated answers, the European Commission gave applicant countries an opportunity to update materials until spring 1997.