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Poland: Bold Reforms Drive The Most Successful Transition Economy

London, 19 November 1996 (RFE/RL) -- A new report published yesterday says the economy in Poland is expected to grow by a healthy 5.5 per cent this year, marginally down on last year but well ahead of the average growth rate of Western and Eastern countries.

The report, published by the Paris-based Organization for Economic Cooperation and Development, says that, in many ways, Poland "stands out as one of the most successful transition countries."

It says that average living standards rose very rapidly after 1989 and by last year stood at some 30 percent of the EU average or about half the level of its poorest members, Spain, Portugal and Greece. Polish wage levels have soared well above those of Slovakia and Hungary, standing on a par with (also much increased) levels in Czech Republic.

The report says the Polish economy will grow by about five percent a year in future, although full convergence of living standards with those of .Western Europe will still take "generations rather than years."

The strength of Poland's expansion is said to be a result of its rapid integration with Western Europe and into the world economy at large, a trend reflected in the upsurge of both its imports and exports.

By 1995, Poland's trade with EU countries represented 70 percent of its exports and 65 percent of imports. (Germany is by far its largest trade partner). Poland has also seen a revival of trade with countries of the former Soviet Union. Among the most "spectacular" increases were those of Polish exports of food and machinery to Ukraine and Russia.

But Poland's jobless rate has fallen only marginally and remained "uncomfortably high" at 12.5 percent in mid-1996 (Among European OECD countries, only Spain -- 23 percent -- and Finland -- 17 percent -- had higher unemployment.) Polish inflation also is a persistent problem, running at an annual rate of about 20 percent in mid-1996.

Poland's economic success is said to reflect the fact that it embarked on bold and comprehensive reforms early on, and that its financial policies were kept tight enough to ensure gradual disinflation.

Its recession was shorter and shallower than its neighbors, and its growth rate was faster. Its gross domestic product (GDP) overtook its pre-reform level in 1994-95, ahead of the other transition economies. As a result, Poland has been called the "soaring eagle of Europe."

But Poland's success should be kept in perspective. The report says per capita GDP last year was still only 15 percent of the EU average, or one-quarter of that of Spain (the EU country which by its geography, demography and importance of agriculture is closest to Poland).

The report attributes Poland's success to the dynamism of its private sector, including its "grey" economy. For tax-gathering reasons, this shadow economy now needs to be integrated into the official one.

The report also warns that the rate of new job creation will be barely sufficient to absorb the inflow of young people onto the labor market over the next few years. It calls government plans to bring down unemployment to single digit levels by the year 2000 "very ambitious."

The single most important reform is the overhaul of the pension system which now consumes 16 percent of Poland's GDP, a figure far exceeding that of neighboring countries. Given demographic trends, failure to embark on reform will store up serious problems.

The early 1990s saw a sharp increase in poverty. As growth resumed, unemployment peaked and household incomes picked up, polls show the population began to acknowledge improvements in their own and the country's situation. By last year, the number of "feel-good" answers given to pollsters exceeded the number of "feel-bad" ones.

The report concludes that the benefits of the Polish recovery are now spreading, and reaching the broad mass of the population.