All eyes on are finance minister as markets slide

Finance Minister Grzegorz Kołodko should outline his economic blueprint for Poland by the end of this week, potentially putting to rest the market-moving uncertainty that has plagued the country since his predecessor's resignation, a Democratic Left Alliance (SLD) official told the WBJ last week. Following Kołodko's July 5 appointment, the controversial economist has kept quiet about his plans for the country's financial future. Polish currency, bond and import markets reacted negatively to the ambiguity. The złoty fell 3% against the dollar and 6% against the euro, foreign investors sold off zł. 3 billion ($714.3 million) in Polish bonds, and fuel companies hiked prices as much as 15% from the time Marek Belka resigned as finance minister, July 2 until the end of last week. "I think that Kołodko will not reveal details of his plans until July 20," said Stanisław Stec, an SLD deputy and a vice chairman of the Sejm's Public Finance Committee. He did not divulge why this date was chosen. Speculation on political and economic motives behind Kołodko's reticence has run rampant. But Stec said that the finance minister is taking time getting acclimated to the political environment and that he does not want to repeat his predecessor's political blunders.

"He is not talking to the press because he has to learn the new conditions," he said. "The reason is simple: He doesn't want to repeat the mistake of Belka three days before the parliamentary elections." Just prior to last year's parliamentary elections, Belka, then a leading candidate for finance minister in an SLD government, announced an economic policy plan that was blamed for alienating voters and costing the SLD an expected majority in Parliament. With local elections in October, economists said that the government knows that Kołodko's plans would have an immediate impact on the voting. "Whenever there are upcoming elections we always look at the implications," said Krzysztof Rybiński, the chief economist at BPH-PBK. "The falling trend of the SLD and the rising trend the of Self-Defense" party is an area of concern, he said. Kołodko - and the SLD - have publicly favored a weaker złoty. And since taking the finance minister's post, his silence has helped weaken the currency, economists said. "We wanted the złoty to lose value and we succeeded even without the government's or (the National Bank of Poland's) intervention," Stec said. "We are happy because of that." But the jury is still out whether the devaluation of the Polish currency is what the government and Kołodko had in mind when shutting off the public. "To be fair, his promotion was not only sudden, but it also happened just after the draft of the 2003 budget was accepted by the government," said Ryszard Wojtkowski, a partner at Enterprise Investors, Poland's biggest venture capital firm. "So he needs time." Netherless Kołodko appears already to be laying some groundwork for future policy. "And, yes - I think that he is also trying to make our currency weaker," Wojtkowski said. "It will show everybody who was demanding a weaker złoty from National Bank of Poland president Leszek Balcerowicz what that exactly means. So in the future, it will be easier to deal with such demands." Whatever Kołodko's objectives, foreign investors expressed their displeasure by selling off Polish assets.

In particular, they are discouraged by Kołodko's past run-ins with the Monetary Policy Council (RPP), especially during his stint as finance minister from 1994-1997. "If the RPP sticks to its guns there will be tensions," said Marcin Mróz, a senior economist at SG Bank. He noted that Kołodko would probably want to decrease the independence of the interest rate-setting body. Foreign investors see an autonomous central bank as the key to successful market economies. "It's obvious the central bank is important to a market economy," he said. "Even a vocal battle between the government and (RPP) is very badly perceived by foreign markets." Most economists said that the new minister would have limited room to maneuver, though, because the economy, conditions of European Union entry and the bulging budget deficit would keep him from applying radical policies. "In reality, there's not much he can do with the zł. 43 million ($10.2 million) budget deficit - it's already too big," BPH-PBK's Rybiński said.