Accession Negotiations with the European Union
On 30 March 1998, the European Union launched official accession negotiations with six applicant countries - the Czech Republic, Poland, Hungary, Slovenia, Estonia and Cyprus. Estonia had started to prepare for the negotiations already earlier. In end-January the Government of the Republic approved of the Negotiations Delegation. The Delegation has 50 members - the Head and Deputy Head of the Delegation, a 15member core group, and heads  of the working groups. Eesti Pank is not represented in the Delegation, but a total of nine bank employees participate in working groups for free movement of services (banking), free movement of capital, Economic and Monetary Union (EMU), statistics, competition policy and finance and budget.
Accession negotiations are a multi-step process. In the first stage Estonian legislation and EU acquis are compared on the working group level. The initial opinion on the harmonisation of the Estonian legislation with the acquis is developed during the pre-screening of documents between the Ministry of Foreign Affairs of Estonia and the working groups. Next the screening exercises are held with the European Commission negotiation team. In December 1998, experts from Eesti Pank participated in the screening exercises held on two chapters - free movement of capital and EMU. In these chapters Estonian legislation is in principle in compliance with the EU acquis. Legislation on free movement of capital has to be harmonised in selling real estate to non-residents. The EMU-related legislation needs some technical amendments prior to accession to the European Union (eg independence of the central bank, organisational details, co-operation in economic policy between Estonia and the EU). Based on screening exercises the European Union invites applicant countries to negotiations. Negotiations on seven chapters were opened on 10 November 1998. There were no chapters within the competency of Eesti Pank among them.
Since 1998 the European Commission has compiled regular reviews or the so-called Progress Reports on the progress of each Central and Eastern European country in transposing the acquis and meeting EU membership requirements. Based on this review, the Council of the European Union will make its decisions on conducting the accession negotiations. The Commission gets information for the review mainly from the reports on EU integration-related progress submitted by applicant countries.
In September 1998, Estonia submitted to the European Commission its Progress Report , reflecting activities in the integration into the EU over the past year (from July 1997 to July 1998). Eesti Pank was responsible for writing reports on economic policy, free movement of capital, free movement of services, Economic and Monetary Union and banking supervision.
On 4 November, the European Commission published the Progress Reports on 12 applicants. This document was one of the key documents for the European Union to decide to open negotiations with the first six candidate countries.
The European Commission reflected adequately the problems outlined by Estonia and recognised progress made in the areas within Eesti Pank competency. The Commission recommended to continue with cautious economic policy, curbing external sector imbalances. It is important to maintain foreign direct investment inflow and further cut the inflation. The activities of Eesti Pank in implementing a Real Time Gross Settlement System (RTGS) were considered important. Harmonisation of legislation on financial services has been successful but the pace has to be maintained and legal acts efficiently enforced. In the field of statistics, co-operation and harmonisation between Statistical Office, various registers, Ministry of Finance and the central bank should be enhanced. All applicant countries were recommended to accelerate adoption and implementation of the EU legislation.
Domestic Co-operation in EU Integration Issues in Estonia
Eesti Pank is represented in the Council of Senior Officials established to implement the pre-accession strategy and co-ordinate EU integration between different state agencies in Estonia. The pre-accession strategy is based on Annual Action Plan of the Government for Estonia’s integration into the European Union. In winter 1998, the action plan was put together not only for the current year but for the whole pre-accession period, for years 1999-2003. Eesti Pank prepared materials on economic policy, approximation of banking and EMU legislation, on banking and balance of payment statistics, payment and settlement systems and strengthening of banking supervision. The Government action plan, so-called National Programme for the Adoption of the Acquis (NPAA) was submitted to the European Commission. With this document Estonia committed itself to align legislation.
In co-operation with the Ministry of Finance, Eesti Pank helped to prepare the Development Plan for Estonia’s Economy in years 1999--2003. The document reflects the main trends in economic policy in mid-term period. This will be submitted to the European Commission for compiling a Joint Assessment of Economic Policy Priorities.
Europe Agreement: Entry into Force
As the Europe Agreement entered into force on 1 February 1998, its supervisory body, Association Council, was established on the level of foreign ministers. The Association Committee is its working body, comprising the representatives of the European Union Council, Members of the European Commission and representatives of the Republic of Estonia. The first session of the Committee, covering a very wide area of topics, took place on 11 June 1998. Describing Estonia’s economy, the European Commission underlined our fast economic growth which hopefully would help diminish the living standard difference between EU Member States and Estonia. Estonia’s macroeconomic policy was highly valued. The Commission expressed hope that Estonia would take steps to reduce the current account deficit, growth of the foreign debt and investment fluctuation. Estonia assured the EU representatives that the bankruptcy of Eesti Maapank (Land Bank of Estonia) would have a beneficial impact on the entire financial sector.
Representatives of Eesti Pank did not belong to the Association Committee in 1998 but they participate in the sub-committees on economic and financial issues and on financial services, right of establishment and movement of capital. On 7 December 1998, the Sub-committee on Economic and Financial Issues met in Tallinn. Eesti Pank prepared necessary materials and provided an overview on the economic growth, inflation, changes in the balance of payments, financial sector and preparations to join the EMU.
Co-operation and Relations with EU Institutions
In 1998, the European Central Bank (ECB) asked the EU applicant countries to describe their national payment and settlement system and submit it for publication in the so-called Blue Book published by the ECB. In August a working group was set up in Eesti Pank to draft the survey.
In 1998, Eesti Pank continued its co-operation with Eurostat, submitting data on banking and balance of payments statistics as well as on Estonia’s international investment position. The Bank has direct contacts with DG II and DG XV responsible for economic and financial issues and internal market and financial services, respectively.
A significant event for Eesti Pank was also the one-day seminar for heads of security services of EU central banks held in Tallinn in June.
INTERNATIONAL MONETARY FUND
Estonia has been a member of the International Monetary Fund (IMF) since 1992 and Estonia’s quota is 46.5 million SDR (about 900 million kroons). Due to the quota increases that will be enforced in 1999, Estonia’s quota will be 65.2 million SDR (about 1,250 million kroons). As a member, Estonia has had several standby arrangements with the IMF to conduct 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 of Estonia and Eesti Pank prior to the loan agreement, have to be met.
In 1998, the Government of the Republic of Estonia and Eesti Pank continued co-operation with the IMF according to the Memorandum drawn in autumn 1997. In summer 1998, the Government of the Republic of Estonia and Eesti Pank signed a supplementary Letter of Intent, fixing additional economic policy measures. In September 1998, the economic situation in Estonia and the Letter were discussed by Executive Board of the IMF.
Estonia’s economic policy priorities in 1998 were: to maintain stable macroeconomic environment, further strengthen the confidence in the currency board arrangement and the entire economic policy and accelerate preparations for the accession into the European Union. Main MEP targets were: maintain sustainable economic growth coming from increasing productivity, contain current account deficit and ensure further decline in inflation. The IMF granted Estonia SDR 16.1 million in the form of a Precautionary Standby Agreement, but the resources have not been used.
In 1998, the IMF handled several issues related to global economic developments: strengthening of the international monetary and financial system, ensuring accuracy and credibility of statistics, support to the economic reforms in poor countries and increasing IMF liquidity (an agreement between the IMF and its affluent members entered into force entitling the Fund to borrow from them upon necessity). Due to unstable financial markets and economic crises in several countries, special attention was paid to the capital flows, strengthening of banking and financial sectors and the private sector role in crisis prevention and resolution.
Estonia is represented in the IMF discussions by the Nordic-Baltic Constituency established in 1992. Since January 1998 Kai Aaen Hansen represents this body in the Executive Board of the IMF. Danmarks Nationalbank co-ordinates the formulation of joint positions.
Last autumn the Annual Meetings of the IMF and the World Bank, with representatives of Eesti Pank participating, discussed global economic developments, giving the IMF the jurisdiction over the capital account transactions, strengthening IMF surveillance and monitoring of the international monetary system, supporting poor member states and more efficient co-operation between the IMF and the World Bank. At the meeting with the IMF Statistics Department during the Annual Meetings Estonian representatives submitted an official application to join the Special Data Dissemination Standard (SDDS), disseminating timely and credible information on real, fiscal, financial and external sectors.
In 1998, Dimitrios G. Demekas continued as the IMF resident representative in Estonia, being since 1996 the IMF representative in Latvia as well, residing in Riga.
OTHER INTERNATIONAL ORGANISATIONS
Eesti Pank represents Estonia in the Bank for International Settlements (BIS). Estonia has been a member since 1932. Our membership was suspended upon the incorporation of Estonia into the Soviet Union. In 1992, Estonia reopened its membership. Estonia has 200 BIS shares. In 1998, President of Eesti Pank Vahur Kraft participated in BIS Governors’ monthly meetings, which discussed monetary policy issues (including the role of the central banks), situation in the economic and financial markets on different continents, and financial sector management and supervision.
The International Bank for Reconstruction and Development (IBRD) continued in 1998 compiling Country Economic Memorandum and making economic policy recommendations to Estonia as regards the accession to the EU. The Organisation for Economic Co-operation and Development (OECD) started in 1998 its Baltic Regional Programme, preparing a comparative study on Estonian, Latvian and Lithuanian economies, and held a conference "Economic Development in the Baltic Region: the Path Ahead". Representatives of Eesti Pank participated in meetings with the OECD missions preparing both the Baltic Regional Programme and the economic study, and attended the conference as well. Eesti Pank was also represented at the Annual Meeting of the European Bank for Reconstruction and Development (EBRD).
CO-OPERATION WITH OTHER NATIONAL CENTRAL BANKS
In 1998, Eesti Pank continued its traditional direct contacts with other national central banks. Apart from regular joint seminars with other Baltic central banks and Suomen Pankki, relations strengthened with several Central and Eastern European countries as well. The Bank also participated in developing the positions of the IMF Nordic-Baltic Constituency.
The traditional joint seminar of Baltic central banks was held in Riga. As is the tradition, three working groups were organised to discuss topical economic and monetary policy issues, collection of statistics on economy, focusing on banking and balance of payments statistics and accounting in central banks. Besides central banks from Baltic countries, guests representing central banks of Germany, Poland and Hungary attended as well. Strengthening contacts between Baltic central banks has had other outlets as well. Eg regular high level meetings were launched in end-1998. Eesti Pank co-operated with Latvijas Banka in developing payment systems.
The sixth Annual Seminar for Eesti Pank and Suomen Pankki was held in Hiiumaa in August. The seminar focused on the establishment of the European Central Bank and related changes in EU Member States central banks. Traditionally the monetary political situation in Estonia and in Finland as well as in the EU was discussed, and ideas were exchanged on the wage system remuneration and training principles at central banks. In September, the Board of Eesti Pank hosted the Board of Suomen Pankki. During the visit, key problems of economic and monetary policy of both countries and issues of co-operation were discussed.
Eesti Pank strengthened its relations with several central banks from Central and Eastern European countries in 1998. In April, the Bank’s delegation participated in a seminar organised by Bulgarska Narodna Banka for CEE Countries applying the monetary system based on the currency board arrangement,. The seminar was in the centre of attention not only in the central bank but of the wide public as well. Bilateral visits between Eesti Pank and the Banca Nationala(Romania)took place as well; during the visits, we focused on issues related to the stabilisation of economy and EU integration. In March 1998, a delegation from Eesti Pank visited Magyar Nemzeti Bank where views on the implementation of monetary and financial policy were exchanged. In autumn a Eesti Pank delegation visited Oesterreichische Nationalbank.
CO-OPERATION IN TECHNICAL ASSISTANCE
As regards Eesti Pank, in 1998 technical assistance programmes were mainly based on co-operation with the IMF, the European Union and in the framework of direct contacts with Suomen Pankki and Deutsche Bundesbank. The IMF provided technical assistance through missions or bilateral contacts with Nordic central banks. Within the EU Phare and TAIEX programmes co-operation with EU Member States’ consulting companies was conducted and study visits and seminars were held to promote EU institutions and common policy. Technical assistance programmes were mainly related to banking supervision, improvement of legislation and payment systems and enhancement of quality of research and forecasts made in Eesti Pank.
International Monetary Fund
Technical assistance provided with IMF intermediation, targeted mainly the Banking Supervision Department. The IMF mission visiting Eesti Pank in March advised the Banking Supervision on unified supervision and co-operation between various supervisory bodies as well as evaluated the compliance of the legislation with the supervision principles outlined by the Basle Banking Supervisory Committee. The IMF appointed Jorma Aranko, the former head of the financial supervision agency of Finland, as a resident expert for the Banking Supervision Department of Eesti Pank. The expert’s responsibilities involve advising the Banking Supervision Department on the improvement and monitoring of the implementation of prudential ratios, making the co-operation between different supervisory bodies more efficient, establishing unified supervision and elaborating an activity plan to achieve full implementation of the supervision principles outlined by the Basle Committee.
Besides banking supervision, the IMF technical assistance mission evaluated the framework of economic and financial analysis in Eesti Pank and made recommendations for the organisation of the work. Discussing how to improve the availability and compilation of the structured information on the short-term monitoring of the financial system and macroeconomic situation, the monitoring scheme for the so-called early warning system and related issues was focused upon. The IMF experts advised Eesti Pank on the drafts of the Credit Institutions Act and Deposit Insurance Fund Act as well.
Direct Bilateral Contacts with Central Banks in Other Countries
In planning technical assistance Eesti Pank is more and more orientated to strengthening direct contacts between central banks. It is partly due to the need, on one hand, to gain experience about EU Member States’ practice and on the other hand, assistance is needed on specific issues. Our main partner has been Suomen Pankki who helped to prepare in 1998 the legal opinion on Estonia’s new draft Credit Institutions Act on its compliance with EU acquis communautaire. In addition, within the framework of bilateral contacts, two specialists from the Eesti Pank Statistics Department visited Deutsche Bundesbank to study the collection and presentation of statistical data.
 There are 33 negotiation working groups altogether
 Negotiations were opened on the following chapters: research, education, small and medium enterprises (SME), telecommunication, industrial policy, culture and audio-visual policy and common foreign and security policy (CFSP). Estonia has applied to open negotiations on statistics, business law, free movement of goods, consumer protection and fisheries.
 Estonia's Progress Report for the Commission's Review.
 Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic of Estonia, of the other part.