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CORRECTED-IMF would eye Estonia if cuts not passed-finmin

Wed, 27th May 2009 15:48

TALLINN, May 27 (Reuters) - The IMF would have to take an interest in Esto
nia if parliament failed to pass new budget cuts and the country would also have to forget about a quick move into the euro, the acting finance minister was quoted on Wednesday as saying.

Helir-Valdor Seeder, asked in an interview by business daily Aripaev what would happen if parliament failed to approve budget cuts of 3.4 billion kroons ($303.6 million) and then find a further 3 billion kroons in measures, said:

'This means a 4 percent budget deficit, we do not go over to the euro in the short term. International financial organisations, the IMF and others, will become interested in us,' he said.

Estonia's economy shrank 15.6 percent year-on-year in the first quarter of 2009, making it one of the worst European casualties of a financial crisis that has already driven neighbouring Latvia to seek IMF support.

The government has just approved a further round of budget cuts worth 3.4 billion kroons, but needs to find more in order to keep the deficit below 3 percent of GDP this year and bolster its already fragile hopes of adopting the euro in 2011.

Just after it sent the budget cut bill to parliament, the government split, with three Social Democrat ministers being fired by the prime minister in an argument about how to find the further spending reductions.

This left the government of Prime Minister Andrus Ansip in a minority, though he is wooing another small opposition party, the People's Union, to join the coalition and form a majority.

Seeder added that failure by parliament to pass the latest budget amendment would mean a 'loss of confidence in our state finances and an increase in instability'.

Next year it would mean Estonia would have to find 11 billion kroons in cuts, he added.

Analysts polled by Reuters late last month forecast Estonia would not join the euro until 2013.

(Reporting by David Mardiste; editing by Patrick Graham) ($1=11.197 Estonian Kroon) Keywords: ESTONIA BUDGET/

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