Andres Saarniit, Adviser to the Economics Department of Eesti Pank

The first half of 2009 was characterised by rapid economic decline and low investment activity. Thus it was no surprise the international investment position remained practically unchanged. The movements of funds reflected mainly the relocation of finances within international corporations rather than new investment decisions concerning Estonia's economy.

Since the current account was in surplus in almost all the months of the first half-year, external debt contracted 5% compared to its peak at the end of 2008. Estonia's net external debt (assets less liabilities) decreased in nearly the same magnitude. However, different from the first quarter of 2009, the ratio of external debt to GDP, i.e., the external debt burden, did no longer decline. This was because of the faster drop in GDP compared to liabilities.

From the viewpoint of technical analyses, the large share of short-term debts is considered to be Estonia's biggest vulnerability. But analysts often fail to take into account that most of the short-term debts are liabilities to parent companies and they are not linked to specific deadlines.

Once the economy starts to recover, external debt, including short-term debts, can be expected to pick up again.