Deutsche Bank warns of Poland's insolvency in 2002 due to current account

Poland could experience mid-term solvency problems, particularly from the end of 2001, if the government does not manage to keep the current account deficit in check, warns Deutsche Bank (DB) in its July report on Poland. DB bases this statement on the forecast that Poland's foreign debt will increase from $70.7 billion this year to $82 billion in 2001, meaning an increase from 44.2% to 48.4% of gross domestic product (GDP). At the same time, foreign direct investments are predicted to drop from $7 billion to $6 billion. "An insolvency warning can apply to any developing country with a current account deficit. It would be serious if short-term debt was high, currency reserves were low, and authorities responsible for fiscal and monetary policy did nothing, but this is not the case," said Monetary Policy Council (RPP) member Grzegorz Wojtowicz. The scale of insolvency risk is measured by the relation of short-term debt, portfolio investments and long-term debt servicing costs to foreign currency reserves. At the moment this ratio is equal to some 40%. "If it was higher than a 100% it would, together with a deep current account deficit, be a recipe for a crisis," said Finance Ministry adviser Stanislaw Gomulka. (Parkiet, page 7) T.J.