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The Warsaw Voice » Business » January 21, 2009
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Keeping the Crisis at Bay
January 21, 2009 By Andrzej Ratajczyk   
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Poland has a chance of maintaining relatively fast economic growth in 2009-but only if the government delivers on its promise to introduce an anti-crisis package, experts say.

Most Polish and international financial institutions predict that the Polish economy will grow by 1.5-3.5 percent this year. The pace of growth will be slower than in previous years, when it reached 5-7 percent, but will still be impressive compared with Western European economies, which are contracting.

Despite the moderately optimistic forecasts for Poland, experts are warning of potential threats to the economy. These may appear on a much larger scale this year, experts warn, and may include a decline in investment and exports, in addition to more difficult access to credit for businesses.

Anti-crisis package
In a bid to counteract these problems, the Polish government plans to set aside over zl.91 billion for anti-crisis measures under its Stability and Development Plan. Prime Minister Donald Tusk says the government's priority is "to ensure financial stability and work towards economic development."

The anti-crisis package, adopted in late November, includes measures such as an increase in guarantees for banks, additional lending for small and medium-sized businesses to the tune of zl.20 billion, and faster work on investment projects partially financed from European Union funds. The government estimates the value of these projects at zl.16.8 billion.

The government wants to encourage banks to lend more money to clients. It is also ready to make life easier for those who "invest in development." Plans include a higher limit for tax-deductible investment expenditure-100,000 euros, double the current figure.

Law and Justice (PiS), the largest opposition party, unveiled its own package of anti-crisis measures in January. Keeping economic growth at 3.5 percent is one of the key targets of the package. PiS experts insist the economy needs more support from the government, which means the 2009 budget deficit should be increased to zl.25 billion, from the originally planned zl.18 billion. According to PiS, the most important thing is to support investment and consumption from both public and EU sources, with special support for the housing sector. PiS says the government should offer state guarantees for mortgage takers to cover part of their downpayments in a bid to stimulate the construction of new housing.

Despite PiS's calls, the government is determined not to increase the budget deficit. Instead it is likely to support a proposal from the heads of the country's two largest banks, PKO BP and Pekao SA, concerning ways to increase banking sector liquidity.

Jerzy Pruski, president of PKO BP, and Jan Krzysztof Bielecki, president of Pekao SA, say the Polish central bank should reduce the obligatory reserve rate for commercial banks from 3.5 to 2 percent, in line with the limit used by the European Central Bank. The move would help increase the liquidity of Poland's banking sector, Pruski and Bielecki say.

Moreover, the two executives want the central bank to buy back some of its bonds that mature in 2012. As a result, the amount of money available for lending would increase by zl.8 billion, according to Pruski and Bielecki.

Employers urge action
These measures should be "supplemented with long-term liquidity support facilities secured by healthy assets," Pruski and Bielecki said in a joint statement. "Introducing these measures would help eliminate the risk of a major slowdown in lending activity and the resulting negative consequences for the economy."

According to the Lewiatan Polish Confederation of Private Employers, Poland will be unable to keep its economic growth at the 3.7 percent level planned in the 2009 budget law unless action is taken to stimulate the development of enterprise. If the government's anti-crisis measures are put into practice, Lewiatan says, Poland's GDP will grow around 3 percent this year. Economic growth will be driven by personal consumption, which is expected to rise by no less than 3.5 percent due to a reduction in personal income tax (PIT) rates, coupled with an adjustment of old-age and disability pensions, and increased use of EU funds.

Worries over GPW
But if the government fails to introduce the Stability and Development Plan or carries it out ineffectively-by choosing the wrong instruments and institutions or setting aside too little money for the program-Poland will be unable to muster 3 percent GDP growth in 2009, Lewiatan says. The same will happen if the government fails to change laws and regulations governing business in Poland, including tax law, labor law, and laws regulating investment processes. But even assuming that the government is successful in its efforts, Lewiatan says, GDP growth may still fall short of the 3-percent target if new unpredictable developments take place on global financial markets and if the recession in EU countries is deeper than predicted.

Martin Oxley, CEO of the British-Polish Chamber of Commerce, says the Polish economy will perform relatively well in the coming years. This is largely due to 68 billion euros in EU funds that Poland will be able to spend until 2015-2016. Most of this money will be spent on the development of infrastructure, human capital, and technological innovation, 28 billion, 13 billion and 9 billion euros respectively, Oxley says. The rest will be set aside for environmental protection, regional development and the modernization of agriculture. EU funds will help Poland make the necessary structural changes and catch up with Western Europe, Oxley said.
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