Estonia signs loan deal with Swedbank

Estonia has signed a multi-million euro loan deal with Swedish bank Swedbank, the Tallinn government confirmed on Wednesday.

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Swedish-based Swedbank, a key player in the Baltic state's financial market, signed up to the 50 million euro ($69 million) loan deal to help shore up public finances hit by the global downturn.

"Estonia will borrow 782 million kroons (50 million euros, 69 million dollars) from Swedbank," finance ministry spokesperson Piret Seeman told AFP.

Finance Minister Ivari Padar said in a statement that one of the aims of the deal was to increase the liquid assets of the state, which is trying to tackle a deep economic slump.

Estonia regained independence from the crumbling Soviet bloc in 1991 and later earned a reputation as a "tiger" in the European Union, which it joined in 2004.

But after years of stellar growth it plunged into recession last year as rampant inflation dented consumption and the global economic crisis battered exports of goods and services.

The economy in the country of 1.3 million people contracted by 3.6 percent last year and Estonian authorities forecast it could shrink by 15.3 percent this year.

Estonia earned a reputation for prudence, putting funds aside when the economy was growing, and has been reluctant to use up its nest-egg to bridge a budget gap.

"The reserves Estonia collected in the boom years have been partly the guarantee of the current credibility of Estonia, so using a loan we get on good terms in order to keep some money in the reserve fund is a very reasonable choice," Padar said.

According to the agreement, Swedbank will transfer the funds to the Estonian treasury at the beginning of June.

"The government gave the finance ministry the right to borrow 2.3 billion kroons during 2009. In light of the ongoing budget planning decisions and budget talks, it is reasonable to borrow a smaller sum," Padar said.

The Estonian government has already slashed spending in the face of the crisis and is currently wrangling over further cuts, with the arguments raising the spectre of a collapse of the country's three-party coalition.