Floating the zoty gaining momentum
Putting the zloty more on automatic pilot is expected to have another impact: fewer occasions for friction between NBP President Hanna Gronkiewicz-Waltz and Finance Minister Grzegorz Kolodko.
"I think that this emerging meeting of minds is a good sign that there won't be so much tension in the future," said a money market observer here who requested anonymity.
Basic questions still must be addressed: the method of financing Poland's huge social-spending budget and the levels of interest and exchange rates.
"But this will facilitate the conduct of policies and provide more market signals. It is a more harmonious and less frictional way of acting," the observer said.
Currency turbulence has affected Polish companies and foreign investors in varying ways.
General Motors' production plant here draws parts mostly from Germany "so when the DM goes higher, we get brutally punished and if the zloty is going to float, it might go up and stay with the DM," says GM's Richard Thornton. He can see merit in both sides of the currency dispute:
"He (Kolodko) doesn't want to damage exports and I can't blame him. And she's not as concerned about exports as about inflation."
Polbita's Richard Engel, who as an importer pays in hard currency, predicts that "when the zloty is freed it is going to jump immediately against the mark. It can't increase much against the dollar because the dollar is so far down. But, with the currency reserve that Poland is sitting on right now, the zloty is going to take a nice bounce. It is going to be more valuable than three months ago. I'm looking forward to it."
Poland's current fixed exchange rate has put the central bank in the position of constantly having to adjust exchange rates to guard against what the bankers call "excessive liquidity." With rapid gains in productivity in the past several years in the trade sectors and with the cyclical recovery in the West, more money came into Poland than had been expected.
The country's significant current account surplus, which includes a sizable amount of unrecorded or black-market trade, meant the national bank was accumulating more foreign currency reserves than it could handle without risking fueling inflation.
The options had been to stay with the fixed exchange rate, under which the central bank would have kept its hands-on course-correction role and to accept the risk of higher liquidity and higher inflation - or to adopt a more flexible exchange rate policy.
Kolodko had opposed the zloty float, saying this could hurt exporters. He was demanding that Gronkiewicz-Waltz first lower interest rates.
Getting the two finance chiefs to the table has involved mediation from Prime Minister Jozef Oleksy, who has a doctorate in economics and is on good terms with both Gronkiewicz-Waltz and Kolodko, and strategic advice from the sidelines from Marcos Rodlauer, International Monetary Fund's country representative.
Kristof Zorde, head of the Danish Sankt Annae investment bank here, applauds Gronkiewicz-Waltz's initiative in taking the zloty-float gamble and sees political motivations and consequences as well as economic ones.
"I think she's being very, very brave," says Zorde. "She's forcing Kolodko to be prudent. It forces him to pursue a very, very severe fiscal policy - or else inflation will go up. She is forcing his hand. He can hop, he can jump, but he can't sneak in more liberal social spending through the back door."
"I think that this emerging meeting of minds is a good sign that there won't be so much tension in the future," said a money market observer here who requested anonymity.
Basic questions still must be addressed: the method of financing Poland's huge social-spending budget and the levels of interest and exchange rates.
"But this will facilitate the conduct of policies and provide more market signals. It is a more harmonious and less frictional way of acting," the observer said.
Currency turbulence has affected Polish companies and foreign investors in varying ways.
General Motors' production plant here draws parts mostly from Germany "so when the DM goes higher, we get brutally punished and if the zloty is going to float, it might go up and stay with the DM," says GM's Richard Thornton. He can see merit in both sides of the currency dispute:
"He (Kolodko) doesn't want to damage exports and I can't blame him. And she's not as concerned about exports as about inflation."
Polbita's Richard Engel, who as an importer pays in hard currency, predicts that "when the zloty is freed it is going to jump immediately against the mark. It can't increase much against the dollar because the dollar is so far down. But, with the currency reserve that Poland is sitting on right now, the zloty is going to take a nice bounce. It is going to be more valuable than three months ago. I'm looking forward to it."
Poland's current fixed exchange rate has put the central bank in the position of constantly having to adjust exchange rates to guard against what the bankers call "excessive liquidity." With rapid gains in productivity in the past several years in the trade sectors and with the cyclical recovery in the West, more money came into Poland than had been expected.
The country's significant current account surplus, which includes a sizable amount of unrecorded or black-market trade, meant the national bank was accumulating more foreign currency reserves than it could handle without risking fueling inflation.
The options had been to stay with the fixed exchange rate, under which the central bank would have kept its hands-on course-correction role and to accept the risk of higher liquidity and higher inflation - or to adopt a more flexible exchange rate policy.
Kolodko had opposed the zloty float, saying this could hurt exporters. He was demanding that Gronkiewicz-Waltz first lower interest rates.
Getting the two finance chiefs to the table has involved mediation from Prime Minister Jozef Oleksy, who has a doctorate in economics and is on good terms with both Gronkiewicz-Waltz and Kolodko, and strategic advice from the sidelines from Marcos Rodlauer, International Monetary Fund's country representative.
Kristof Zorde, head of the Danish Sankt Annae investment bank here, applauds Gronkiewicz-Waltz's initiative in taking the zloty-float gamble and sees political motivations and consequences as well as economic ones.
"I think she's being very, very brave," says Zorde. "She's forcing Kolodko to be prudent. It forces him to pursue a very, very severe fiscal policy - or else inflation will go up. She is forcing his hand. He can hop, he can jump, but he can't sneak in more liberal social spending through the back door."
