OREANDA-NEWS. September 21, 2009. As Estonia's current account had a surplus in almost all months in the first half of 2009, the country's foreign debt decreased in the second quarter by 5 percent in comparison with the peak at the end of 2008, data of the Bank of Estonia show.

Net foreign debt or the difference between liabilities and claims declined at more or less the same rate, the central bank said.

Unlike in the first quarter of this year, it is no longer possible to talk about contraction of the foreign debt to gross domestic product ratio. According to the central bank, this is due to GDP declining at a faster rate than the liabilities.

Technical analysis of foreign debt usually points at the large share of short-term debt as Estonia's greatest vulnerability. But the central bank says analysts frequently disregard the fact that practically all short-term loans represent liabilities to parent companies and are not tied to concrete maturity dates.

The first half of this year was characterized by fast contraction of the economy and low investment activity, as a result of which it was to be expected that the international investment position stayed practically unchanged, the Bank of Estonia said.

The movements of money that occurred reflected transfers within international businesses rather than new investment decisions related to the Estonian economy, the bank said.

The central bank predicts that along with the revival of the economy the external debt including short-term debt will start growing again.