Belka hints at zloty devaluation ahead of exchange rate mechanism entry

Finance Minister Marek Belka yesterday advocated an "up-front" devaluation of the zloty as Poland, the largest candidate for European Union (EU) entry, prepares to adopt the common euro currency. In remarks clashing with investor expectations that approaching EU membership should underpin gains by candidates' currencies, Belka also said the zloty could suffer speculative attack after Poland wraps up accession talks. Poland hopes to complete EU negotiations this year, join the bloc in 2004 and sign up for the euro as early as 2006. Belka said it would make sense for Poland to devalue the currency before joining the Exchange Rate Mechanism (ERM-2), which is designed to ensure currency stability prior to entering the euro zone. "We think this period between the close of accession negotiations and actual entry into ERM-2 will be the most difficult for Poland and for exchange rate stability," Belka told reporters. "We could be vulnerable to speculative attacks...this is a problem for us," he said, and went on, "There may be an up-front devaluation of the zloty. This would not be senseless." Belka stressed that his remarks were a personal opinion and did not reflect the policy of the government. (Reuters)