Poland’s New Finance Minister Eases Markets’ Worries

Poland’s New Finance Minister Eases Markets’
Worries

Grzegorz Kolodko, Poland’s new finance minister,
made his first public statement about his economic policy on 16
July, finally breaking the silence that he had maintained since his
appointment on 5 July.

The days of silence had been marked by
nervousness on the capital markets and uncertainty among political
commentators. This is the second time that Kolodko has served as
finance minister, and many were uncertain about his return.
Although Poland’s economy grew rapidly during his first stint in
office, from 1994 to 1997, the mainstay of his support is on the
left and he presided over some heavy government spending. Many
economists have therefore been concerned about his willingness to
cap public spending, which has been rising rapidly.

These fears had been compounded in May, when he
published in article in the left-wing daily Trybuna in which he
proposed devaluing the zloty by about 30 percent and pegging it to
the euro. Some economists responded by warning that his plans could
force Poland into an Argentine-style crisis.

In his first statement to the press, Kolodko
said he would continue the economic policies of his predecessors,
maintain fiscal discipline, and accelerate work on structural
reforms. His predecessor, Marek Belka, who resigned on 2 July
saying he was “burnt out,” had been trying hard but to little avail
to keep spending under control.

The zloty immediately strengthened against the
dollar and the euro, even though Kolodko later said on Polish TV
that he would like to see it weaker in order to boost exports.
Kolodko said nothing about his previous propositions, but stressed
he would continue to maintain fiscal discipline and strive to cut
the budget deficit, which Belka projected would total $10.4 billion
this year.

“I’m working under the assumption that the
deficit will not only be smaller than last year, but also smaller
than projected for this year,” Kolodko said. He added, however,
that he would not introduce an import tax in order to increase
budget income. He also came out against the possibility of limiting
the independence of the Monetary Policy Board, which is responsible
for setting interest rates. Members of the ruling coalition have in
recent months blamed the board and the central bank, which is
headed by Leszek Balcerowicz, a former finance minister, for
Poland’s current economic troubles, and have been calling for some
seats to be given to political appointees. Kolodko had been seen as
a fierce opponent of Balcerowicz.

Apart from assuring the markets that he would
not embark on any economic experiments, Kolodko did propose
solutions to boost the slackening Polish economy. His priority
would be battling unemployment, restructuring the debts of
state-owned companies, and extending tax incentives to small
companies.

“Looking at the distant future, Poland has a
chance of rejoining the path of fast economic growth,” he said,
adding that he hoped Poland could achieve the 5 percent growth
rates achieved during his previous stint in office. The most recent
GDP figures, for the first quarter of the year, showed that the
economy had expanded by just 0.5 percent.

On the whole, the reactions to Kolodko’s plans
were positive, though not without doubts. “The financial markets
have calmed down and that is very important. It is still uncertain,
though, whether Minister Kolodko has abandoned the ideas of
Professor Kolodko,” said Dariusz Rosati of the Monetary Policy
Board, alluding to Kolodko’s article for Trybuna. Rosati also
expressed doubts about the feasibility of maintaining fiscal
discipline while offering tax breaks to some companies.

Business representatives welcomed Kolodko’s
intention to adhere to previous policies. “Minister Kolodko was
supposed to be the person who would come up with an alt ernative to
Marek Belka’s policy, but fortunately he did not,” commented Jeremi
Mordasewicz of the Polish Confederation of Private Employers in
Gazeta Wyborcza on 16 July.

The current governing coalition, led by Leszek
Miller’s Democratic Left Alliance (SLD), came to power with a
strong mandate after last September’s elections. However, since
then its fortunes have flagged, with opinion polls showing a sharp
fall in support for the government and with the economy performing
very sluggishly. Kolodko is a figure strongly associated in the
public’s mind with the spurt of growth in the mid-1990s, when
Poland was one of the fastest-growing economies in Europe. The
success of his previous term as finance minister was seen by some
as an attempt to give an immediate boost to the public’s confidence
in the government’s ability to deliver long-term economic
growth.

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