POLAND Strengthening foundations for long-term stability
IN THE SHORT TERM BRINGING INFLATION DOWN IS A PRIORITY TO MEET EU REQUIREMENTS, BUT THE POLISH GOVERNMENT IS ALSO SET TO IMPLEMENT LONG-TERM STRATEGIES TO GUARANTEE ECONOMIC STABILITY

ONE POLICY being implemented by the Polish government is the lowering of interest rates to increase consumer growth.

As Poland looks towards European Union membership, the main actors in the country’s financial sector have urged the Polish government to avoid the temptation of implementing short-term growth policies, which could spark economic imbalances in the long-term, by sticking instead to fundamental and responsible economic adjustment strategies, especially where monetary policy is concerned.
The government has wisely followed their advice by implementing market-oriented reforms and programs that strengthen the state’s services– that are helping Poland catch up with and even surpass the economic outlook of its future fellow members of the European Union.

According to Leszak Balcerowicz, governor of the National Bank of Poland, the country’s independent central bank, the country has in many aspects been able to produce better economic and financial track records than several former candidate nations that are now full-fledged European Union members.
“Those fundamental reforms in Poland have produced a very high degree of economic integration with Western Europe. (EU) candidate nation Poland has achieved a higher level of European Union convergence than Portugal, Greece, or Spain and even Ireland at the time of their accession. This should not be overlooked,” Mr. Balcerowicz stresses.

The central bank chief adds that his hard-line monetary policies are winning the war against inflation. But at the same time he acknowledges that Poland is currently experiencing low economic growth as a result.
Mr. Balcerowicz, a veteran reformer credited with having launched Poland on its transition to capitalism while serving as finance minister in the early 1990s, says he is confident that his policies will eventually lead to stronger macroeconomic foundations in the country. He describes the current economic slowdown as “curative.”
“A little more than a year and a half ago, when the current account deficit exceeded 8% of GDP, it was very dangerous for future growth. At the same time inflation was picking up and had exceeded 10% in July 2000,” Mr. Balcerowicz recalls. “Then we moved to tighten microeconomic policy, especially monetary policy. As a result, the current account deficit was reduced to below 4% and the inflation rate was also below 4%. These are very important achievements from the point of view of creating stronger macroeconomic foundations.”

As the chief monetary policymaker, the central bank governor says he is dead set against using interest rates as an instrument for stimulating long-term growth. “We have a regime of inflation-targeting. Interest rates in this aspect is the only instrument that the central bank is using for the main purpose of bringing inflation down and keeping it at a low level. The most important issue is long-term, lasting growth. Monetary policy cannot be a substitute for structural reform.”

Poland's banking sector is open and competitive. There are more than 80 private banks and 26 foreign banks, which account for nearly 75% of the banking sector's equity. The majority of the Polish banking sector's assets, deposits, and equity are in the hands of the private sector and foreign firms are not restricted access to local finance for activities carried out in Poland. Recent reforms continue the process of modernizing Poland's banking sector and bringing it in line with that of the European Union.
The Polish Association of Bankers (PAB) was created 11 years ago and is working to create a viable inter-banking infrastructure and a strong work ethic among the sector’s commercial banks, two key characteristics that will help Poland’s private banks flourish in a competitive market.
The PAB’s most extolled achievement to date has been its participation in establishing three schools of banking in Poland, including the U.S.-funded Warsaw Institute of Banking.

“Training sessions are prepared by U.S. experts in the field,” explains PAB director general Krzysztof pietraszkiewicz. “Additionally, hundreds of Polish bankers participate in trips to several postgraduate banking schools in different U.S. states. These trips have had a very big influence on our banking community.”
Mr. Pietraszkiewicz says that while Poland needs a good dose of foreign investment in the banking community, the country’s economy demands banks with domestic roots. “We need foreign investors because of know-how, new procedures, new products, restrictive credit policies and new regulations. But we also need banks with Polish roots, because these banks very often better understand the needs of domestic clients.”