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Poland: Incoming Government Faces Urgent Economic Tasks

By Breffni O'Rourke and Chris Klimiuk

Warsaw, 23 September 1997 (RFE/RL) -- Finance experts say the new Polish government -- whatever the eventual composition of the ruling coalition -- will have some major problems to tackle quickly if it is to maintain the country's prosperity.

Solidarity, which emerged with the strongest hand from Sunday's election, is expected to open contacts almost immediately with its most likely partners, the Freedom Union (UW) and the Movement for Renovation of Poland (ROP).

The negotiation are likely to be difficult, as these centrist and right of centre parties have differing programs. In addition, some Solidarity leaders favor an even broader coalition which would take-in parties of a very different complexion.

Financial specialists say there are two major priorities facing the batch of incoming politicians. The first and overriding task is to get the rapidly-increasing current account deficit under control before it threatens the value of the zloty. The second is to make progress in the socially-explosive task of privitising the inefficient public-owned heavy industries.

The Poland specialist at Deutsche Bank Research, Bernd Klett, told RFE/RL today that the current account last year showed a deficit of only about 1 percent of GDP, some $1.4 billion. By this year, it is set to reach almost 5.5 percent of GDP, a potentially threatening $7 billion. For next year, if present trends continue, it may reach a full 7 percent of GDP. If this problem is not tackled quickly, says Klett, the dangers for the Polish economy are very high.

Pavel Demczuk, senior analyst with Wood & Co investment advisers in Warsaw, agrees with that, saying that the government has until about the end of this year to act. Both say that the stong demand in the Polish economy must be dampened.

The Central Bank has already been active in this direction, raising its interst rates several times in recent weeks, and offering the public the opportunity to deposit money in accounts at an interest rate higher than that offered by the commercial banks. That has the effect of removing liquid money which might otherwise fuel demand.

But that's not enough. The experts say the incoming government must also run a tight fiscal policy aimed at cutting demand for imported consumer goods which worsen the trade balance.

The second priority of the new government must be to continue the process of privatisation, which has stalled in recent years as the authorities have shied away from the difficult task of tackling problem industries like mining.

The Freedom Union (UW), which looks like being the indispensible partner in any coalition, has a radical plan aimed at fully privatising the economy by the year 2000. The head of the UW is Leszek Balcerowicz, author of the post-communist "shock therapy" which started the country along the road to free enterprise in no uncertain terms.

Senior UW economic adviser Jerzy Osiatynski told RFE/RL today that his party wants to see an end to public ownership of coalmining, shipbuilding and steelworks. Given the illustrious tradition of political activism by workers in these industries in Poland, a rigorous policy of privatisation could result in a flashpoint for social unrest -- a result not in the interests of the new goverment.

But Klett of the Deutsche Bank notes that Solidarity, the bigger partner, has a more moderate policy on the privatisation issue, and that the UW will probably have to tone down its ambitious plans.

Klett says that any move to restructure the heavy industries will have to be carefully handled, with social security measures in place to catch those who will be losing their jobs.

He noted that there are two roads to the market economy: firstly through creating the right conditions for individuals to start their own business ventures, and secondly through privatisation of existing state-owned enterprises. He says that all post-communist Polish governments have done an excellent job in the first category, creating a good climate for investment. In the second category, privatisation, there has been progress, but it is not complete.

He says that in any case, even after restructuring, some sectors of heavy industry appear to have a future. He recalls that visiting European Union experts expressed the opinion earlier this year that the Polish coal industry would be a viable business proposition after modernisation.