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Estonia—When the Problem is the Private Sector

In: Financial Systems In Transition A Flow of Analysis Study of Financial Evolution in Eastern Europe and Central Asia

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  • Stephen J. Peachy

Abstract

This chapter looks at recent Estonian experience in the wake of the volatility in financial markets of 1997 and tries to identify the key financing issues likely to be faced by the authorities if the economy is to secure the rapid investment-led growth envisaged for the run-up to European Union (EU) accession. It is concluded that annual investment-led real growth of 6 percent can only be financed through a combination of strong foreign capital inflows directly to the nonbank/nongovernment sector (NBNGS)—broadly equivalent to the private sector—and continued heavy foreign finance of what would otherwise be unsustainable growth in bank lending. Even for a country in the first wave of accession to the EU, it is not clear that the current world environment will be so accommodating. The chapter therefore goes on to test how much investment and growth would have to be curtailed to achieve a more sustainable financing pattern.

Suggested Citation

  • Stephen J. Peachy, 2000. "Estonia—When the Problem is the Private Sector," World Scientific Book Chapters, in: Alexander E Fleming & Marcelo M Giugale (ed.), Financial Systems In Transition A Flow of Analysis Study of Financial Evolution in Eastern Europe and Central Asia, chapter 7, pages 129-142, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812792266_0007
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