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The Warsaw Voice » Business » April 30, 2010
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Economy Unperturbed
April 30, 2010   
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The tragic crash of the presidential airplane April 10 has had no negative effect on the Polish economy. The volcanic eruption in Iceland and the subsequent closure of Poland’s airspace could turn out to have a bigger impact, experts say.

The disaster, which took place near Smolensk, western Russia, claimed the lives of the presidential couple and many high-ranking officials, including the central bank chief. Many observers wondered how badly the tragedy would hit Polish economic and political life. How would the sole European country to emerge from the global economic crisis unscathed deal with such an unprecedented situation? The uncertainty hinged on the reactions of the stock and capital markets. Nervous moves on the part of foreign institutions were feared, a possible effect of which would have been the withdrawal of investment capital from the Polish market. Some even voiced fears that international speculators would try to exploit the tragedy for financial gain by attempting to influence exchange rates and stock prices.

Business as usual
None of this happened. The government continued to function. Bronisław Komorowski, the Speaker of the lower house of parliament, took over the duties of President Lech Kaczyński, while Piotr Wiesiołek, deputy governor of the central bank, took over those of the governor, Sławomir Skrzypek. The nine-day period of national mourning did not disrupt Polish institutions active on the financial and capital markets, including the Warsaw Stock Exchange (WSE), which did not suspend trading.

The markets’ quiet reaction to the disaster is above all due to continuing faith in the Polish economy, which is still among the fastest growing in Europe. The balanced opinions of international financial institutions and analysts were highly influential in this respect. Added to this, the overall mood on international markets in the days following the disaster was positive. In recent years this has had a greater effect on the Polish market than day-to-day political events.

In the week following the tragedy, the WIG20 index of the 20 largest companies listed on the WSE actually gained 1.6 percent, while the exchange rates of the zloty against the euro and dollar hardly moved. Furthermore, nothing indicates that the markets’ position toward the Polish currency will change any time soon. Analysts at Goldman and Sachs believe that the current situation will not result in a depreciation of the zloty. They say that Poland will continue to attract foreign capital, thanks to the promise of faster economic growth and the government’s privatization plans. This is expected to support the zloty.

Analysts at JP Morgan Chase believe the zloty will continue to strengthen, as it is the most undervalued currency in the region.

According to well-known rating agencies, the plane crash will not influence the state of the Polish economy or the ratings of Polish debt. According to Kai Stukenbrock, an analyst at Standard&Poor’s, the tragedy will have no impact on the government’s ability to work effectively.

Standard&Poor’s also believes that Polish political and financial institutions are strong enough to deal with the loss of key figures in public life, Stukenbrock told the Polish Press Agency (PAP). Consequently, Stukenbrock said, the disaster will not influence Poland’s ratings.

Fitch Ratings has offered a similar analysis. According to Ed Parker, an analyst at Fitch Ratings, the tragedy has had no influence on the country’s ratings. The constitution guarantees the country’s continued political stability, Parker said, and the government’s cooperation with the NBP will go on as previously.

PO strengthened
Moody’s also does not expect the tragic event to have an influence on the Polish economy. The agency’s analysts do not expect any abrupt changes in the Polish government’s economic policy, as the team led by Prime Minister Donald Tusk and finance minister Jacek Rostowski has not changed, they say.

According to some analysts, the expected political gains of the ruling Civic Platform (PO) party, which now has almost full control, could in fact have a positive effect on the economy. The probable victory of the PO in the early presidential election would mean that the coalition government would be able to act more effectively than before—for instance, by being able to push through legal reforms without fearing a presidential veto. Analysts at Bloomberg predict an acceleration in privatization as well as fiscal reform.

Hard facts
Piotr Kuczyński, chief analyst at Xelion Doradcy Finansowi, a firm of financial advisers, said, “The structure of the Polish state and its government remains unchanged. Without going into details, it can be said that the ruling coalition—which the markets consider as favorable towards them—has strengthened its hand. It should be remembered that the choice of a new head for the NBP will mean a uniform opinion across the Monetary Policy Council-NBP-government axis. Quarrels will cease. Which is why, brutally speaking, foreign investors could soon judge the situation in Poland even more favorably, and the zloty could even appreciate.”

While the Smolensk tragedy has had no negative impact on the Polish economy, the closure of the airspace above most European countries—in response to the appearance of a huge ash cloud in the wake of a volcanic eruption in Iceland—was a much bigger problem for the Polish economy, experts say.

The closed Polish airspace affected many companies. LOT, the Polish national carrier, which is struggling with financial difficulties, was forced to suspend all flights. This meant millions in lost revenue and costs. Airports were also hard hit, by being denied the revenue generated by flights. The volcanic eruption also caused disruption for thousands of companies in many sectors vital to the economy. Some of them had problems carrying out orders on time, while others were unable to dispatch their products. The good news is that air freight in Poland is less important than in most other European countries. Besides, the country mainly trades with its direct neighbors.
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