Controversy rages over new 2002 budget deficit target of zl. 40 billion

The government agreed yesterday to cap the 2002 budget deficit at zl.40 billion, above Finance Minister Bauc's target of zl.35 billion. Ministers, fearful of a public backlash in the September elections, argued that his plan was overly pessimistic and that deep spending cuts were impossible. However, they failed to propose alternate sources of financing to close the budget deficit. Wieclaw Kaczmarek of the Democratic Left Alliance (SLD) proposed freezing the transfer of state-collected subscriptions to private pension funds. "With today's budgetary problems, the transfers are a serious threat to finances and should be suspended until we see a substantial recovery in domestic economic growth," he said. On the other hand, Marek Wagner, who represents SLD on parliament's public finance committee, distanced himself from the idea, and claimed it was unlikely to find support with the Democratic Left Alliance. The ongoing controversy over the 2002 budget is likely to have a significant impact on the Monetary Policy Council's (MPC) debate over interest rates, due to end today. The 10-member MPC will have to balance the effect of its prohibitively high rates on sharply slowing growth, with the need to combat anticipated price pressures from the public sector. Analysts indicate that signs of slow growth should outweigh the raging debate in government over the 2002 budget, as concerns are rising that the country is now on the brink of a public finance crisis. (Reuters; Rzeczpospolita, p.B1; Gazeta Wyborcza, p.1) A.K.