andres lipstok : estonia ’ s economic environment and central bank activities speech by mr andres lipstok, governor of the bank of estonia ( eesti pank ), at the the presentation of bank of estonia ’ s 2008 annual report to the riigikogu, tallinn, 11 june 2009. * * * dear riigikogu, thank you for the possibility to present you eesti pank's 2008 annual report. i am going to start with a brief retrospect of the estonian economic environment and then address issues concerning the activities of eesti pank. the estonian economic environment in 2008 and 2009 2008 was an exceptional year in the world economy. developed economies have not faced the risk that banking and financial markets could collapse and the global financial system stop functioning since the beginning 1930s. but the financial crisis, which was caused by previous years'incorrect decisions, made this a very likely scenario. in the final months of the past year major banks were too afraid to lend money to each other and trading with privatesector bonds nearly ceased. loss of confidence in financial markets, loan losses amounting to 3 - 4 billion dollars and a sharp decline in crediting the private sector had an immediate impact on global trade, investment and economic growth. global trade contracted 17 % in the fourth quarter of 2008 and at the beginning of this year. major central banks and governments have taken unprecedented steps to alleviate the economic situation. the federal government and the central bank of the usa have channelled funds worth over 787 billion dollars into banking and the private sector. in the european union, the fiscal stimulus amounts to 1. 8 % of gdp and to 225 billion euro. banks have received direct support and state guarantees in the amount of 393 billion euro. such massive intervention has put brakes on the rate of recession. the past couple of months'stabilisation in the global economy has come at a high price. major economies face rapidly expanded fiscal deficits and central banks'balance sheets and total volume of base money have promptly increased. therefore it cannot be said for sure whether the current " green shoots " refer to a new growth cycle. only structural reforms and maintaining confidence in fiscal and monetary policy can help the economy out of the crisis on a more permanent basis. when speaking about this year's forecasts, the eu economy as a whole is expected to undergo a 4 % recession. small economies which are more dependent on exports and international capital flows suffer from the crisis disproportionally more

energy. i am happy that the excellent list of speakers allows us to touch upon all these key challenges today. ladies and gentlemen, before giving the floor to mr. david kotok from the global interdependence center, the co - organizer of today's event, i would like to speak briefly about our cooperation with the global interdependence center. the gic is a philadelphia - based nonprofit think tank with the mission to " encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards. " this is indeed a noble goal in today's changing world full of new challenges and, unfortunately too often also conflict. eesti pank is honored to have been included in the gic list of cooperating institutions for a number of years already. our people have participated in gic events both as speakers and members of the gic delegation. we have first - hand experience in how dedicated the gic is in fostering the cause of free markets, cooperation and liberty. ladies and gentlemen, thank you once again for coming here today. i am now most pleased to invite david to say a few words of welcome on the behalf of the gic.