Dear David,

Following up our brief conversation yesterday evening on the IMF-issue, I’d like to share my impressions after discussing the issue with you, the PM, the IMF-ResRep.

Please see this as personal reflections – I would be glad to discuss them with you and others concerned.

1.       The IMF mission comes to listen, not to negotiate. After returning they have to report and start a discussion, leading to a board-decision. Such a procedure could well take till May 2017.

Correct me if I’m wrong: you don’t want to wait and cannot wait till then!?

2.       Context:

a.       The program is suspended, which generates a question:

                                                               i.      Why is it important to have it restarted? Might you take your losses (budget support by EU for instance) and do it ‘on your own’?

b.      A discussion on the Program is foreseen for February. So that is a crucial moment.

c.       The constitutional majority allows painful decisions if necessary.

d.      I understand that media are more critical on the suspension of the subject (Painchaud has given a number of interviews)

3.       The PM has presented the speedy improvement of the infrastructure as crucial on the expenditure side and the ‘Estonian tax-model’ on the revenue side (part of the 4-point programme). Their negative fiscal effects are cumulative, however.

4.       He has presented a number of temporary additional measures on both sides:

a.       A temporary raising of the VAT percentage on the revenue side

b.      A temporary cut in civil sector wages and a cap on health spending on the expenditure side

5.       That generates the question what the effects will be on:

a.       GDP and budget

b.      Social cohesion (as you said yesterday evening, the positive effects are on the business side, but what are the effects socially?)

6.       Which alternatives are available?

a.       At the expenditure side:

                                                               i.      Infrastructure (IMF seems not responsible, it is your choice and part of the PMs programme)

                                                             ii.      Civil service (what might be the effect on GDP, f.i. because of staff switching to private sector, what will be the negative effect on this element of the 4-point programme?)

                                                            iii.      Health (poor might potentially have less access to health services, richer still have choices, or will the cap only mean preventing more private hospitals? What will be the effects on the obligations under AA/DCFTA?)

                                                           iv.      ??   any thoughts  ??

b.      At the revenue side:

                                                               i.      VAT concerns everyone, but might have negative effect on GDP

                                                             ii.      Excise on alcohol, fuel?

                                                            iii.      Given our discussion of yesterday evening on car inspection, I’m afraid that taxation of cars might be a long shot?!

                                                           iv.      Preventing tax avoidance, special focus on taxation of assets abroad?

Kind regards,

Jos