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The Warsaw Voice » Business » April 8, 2009
Economy in 2009
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Starting to Bite
April 8, 2009 By W.¯.    
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The global economic crisis has hit in Poland: the government expects GDP to grow by no more than 2 percent this year, down from 5-7 percent in recent years.

Even though the pace of growth will be slower this year, experts say it will still be impressive compared with Western European economies which are contracting. Poland is expected to maintain relatively fast economic growth in 2009-but only if the government delivers on its promise to introduce an anti-crisis package.

Deputy Prime Minister Waldemar Pawlak March 9 said the government was working to mitigate the impact of the crisis. "We are taking measures that may not be spectacular, but focus on some vital areas that we can deal with today," Pawlak said. He called on the media to refrain from running reports that add to a sense of panic among the public now that the crisis is beginning to bite.

Contrary to some media reports, "there are no grounds to believe that investors are withdrawing from Poland in large numbers," Pawlak said. While it is difficult to be optimistic at a time of crisis, he said, it is necessary to do everything to save jobs and take advantage of the latest depreciation of the Polish currency by exporting more goods and services and by selling more products on the domestic market now that foreign goods have become more expensive for Polish consumers.

According to Micha³ Boni, head of a team of strategic advisers to the prime minister, the crisis may spill into 2010 and last longer than previously expected. In a statement March 6, Boni said there is a time lag of around six months in business cycles between Poland and some other countries, which means the crisis has yet to peak here.

Boni told reporters about the main planks of the government's anti-crisis program, which aims to make sure that the economy gets back on track faster than during the previous crisis in 1999-2001.

Boni said that a strong zloty is an important condition for the government's anti-crisis package to work, since it impacts on trade, foreign investment, the value of government securities, and public debt and budget deficit financing. The government's determination to introduce the euro in Poland should eventually help strengthen the zloty, Boni said.

To produce the desired results, the government's anti-crisis package needs a strong institutional base, particularly an efficient banking system with reasonable lending policies, interbank liquidity and client confidence, Boni said. He added that the government would strive to "guarantee the security of individuals and families" and "counteract threats on the labor market." It will also work to build a cost-effective public administration sector and ensure effective public investment in areas such as infrastructure, telecommunications, innovation, construction, environmental protection, and energy. To carry out the program, the government will use funds from both the state and EU coffers, in addition to new instruments such as infrastructure bonds offered to pension funds.

Asked if the government was prepared to increase the budget deficit as part of its anti-crisis measures, Boni said such a move must depend on the ability to finance public debt. "At this point, it is still too early to say what things will look like. We are going to review the budget in May or June and will see then what the situation is like," Boni said. "The deficit has to be kept in check, but it is also necessary to know what room for maneuver we have with regard to public debt and what kind of securities we are able to sell." The fact that Poland is keeping its budget deficit under control is a good sign showing that the economy is stable and credible, Boni added.

According to Leszek Balcerowicz, a former finance minister and central bank chief, budgetary discipline and efforts to reduce public debt are the most effective ways of counteracting the economic crisis. A major increase in the deficit could see Poland facing the kind of problems that have hit Hungary, where the financial system is on the verge of bankruptcy, Balcerowicz said.

Balcerowicz, who was the architect of Poland's transition from central planning to a market economy in the early 1990s, criticized ideas to boost the economy by increasing public debt. This method could prove to be extremely costly in the long term, he said. The crisis should encourage the government to carry out further reforms to the economy, Balcerowicz said, adding that the government should focus on measures such as privatization, deregulation, reforming public spending and ensuring budget discipline. This year will probably be the most trying period for the Polish economy, according to Balcerowicz, yet, unlike other Central European economies, Poland has a chance of coming out of the crisis relatively unscathed.

Meanwhile, foreign analysts are beginning to acknowledge that Poland has an advantage over other economies in Central and Eastern Europe as the crisis spreads. Investors planning to build factories or buy bonds in this part of the world are looking closely at bankruptcy risk indicators, and Poland's performance in this area is improving. According to Credit Suisse Asset Management, the Polish economy is in good shape, especially when compared with Hungary, Ukraine or the Baltic states. The Polish banking system is strong and free from toxic assets, Credit Suisse Asset Management says, and the only problem may be mortgage loans denominated in Swiss francs. Overall, India and Poland are the most attractive investment destinations among emerging markets, according to Credit Suisse Asset Management.
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