Loosening the purse strings
Prime Minister Jerzy Buzek must be relieved that the end of his government is less than four months away. It has been a difficult year for him, during which the coalition backing his government fell apart, the party he led disintegrated into at least four separate and squabbling political entities, and the main opposition Democratic Left Alliance (SLD) looks set to annihilate what remains of Solidarity Election Action (AWS) in the next elections. But if that were not enough, Buzek is now facing what he has managed to avoid during the past three and a half years: an impending economic crisis.
Last week saw the Finance Ministry finally accepting the parlous state of public finances when it announced publicly that almost all expenditures earmarked for 2001 had been spent by the end of June, and that an amendment to the 2001 budget would have to be rushed through Parliament to keep the economy afloat. What that will mean is unclear, but a combination of spending cuts and more borrowing may well be required to plug the gap that some economists expect to rise to almost $3 billion by the end of the year. Leaving aside the reasons for the miscalculation in the original budget, the debate about how to resolve the problem reveals as much about the government today as it does about the contradictions that will face the next government when it takes over in October.
Traditionally, the government certainly as long as former Freedom Union (UW) leader Leszek Balcerowicz was finance minister has been split about how to tackle macroeconomic disequilibrium. Within the government, the experience of high unemployment and slowing growth led to the crystallization of a strong faction around Jerzy Kropiwnicki, head of the Government Center for Strategic (RCSS), who argued for classical Keynesian reflation involving cuts in interest rates, currency devaluation, and higher spending financed by higher taxation. Traditionally the Finance Ministry has resisted this approach, knowing that defecit financing can only lead to higher inflation and does little to solve the deep cause of Poland's malaise, namely the entrenched uncompetitiveness of its domestic industries.
As long as Balcerowicz was finance minister and head of the then-coalition UW, he had substantial leverage to keep the Kropiwnicki faction in check. Balcerowicz's successor as finance minister, Jaroslaw Bauc, is as competent as Balcerowicz, but lacks Balcerowicz's political muscle, being neither deputy prime minister or head of a partner party. That has meant that in the past year, the pendulum of political influence in the government has swung not only to Kropiwnicki, but more significantly to Janusz Steinhoff, deputy prime minister in Balcerowicz's place, economy minister and close personal friend of Prime Minister Jerzy Buzek. Steinhoff's instincts are close to Kropiwnicki's, with a commitment to state interventionism on top, and together the two men have been working to pressure the independent Monetary Policy Council (RPP) of which Balcerowicz is chair as head of the National Bank of Poland (NBP) to reduce interest rates as a way of "easing" economic pressures.
Yet the paradox of Polish politics over economic policy is that the main division is not so much between the SLD and the AWS, but between both parties together and economists who remain outside the mainstream of both parties on both sides of the political spectrum. SLD leader Leszek Miller and his main economic adviser, former Finance Minister Marek Borowski, have in the past made it clear that they felt the problem of the economy was not its inherent weaknesses, but the policies pursued by Balcerowicz. That puts Miller in an unenviable position as future prime minister, when he will have to choose to stay true to his anti-liberal rhetoric and further damage the Polish economy, or retreat publicly and apply the sort of measures that Balcerowicz would probably see as necessary. If the SLD fails to get an overall majority and is forced to enter into a coalition with the leftist Polish Peasants Party (PSL), then the latter course will become almost impossible for Miller.
It has been Marek Belka, economic adviser to President Aleksander Kwasniewski, who has been sensible in the past about the real economic policies the SLD will have to pursue when it comes to power. Last week saw him speaking at an SLD rally, and counselling caution to SLD activists about the real room for economic maneuver. Yet Belka's position in the next government will depend not so much on Miller, but on the president, for Belka although close to the SLD is on the outside of the party's core leadership, and has good personal relations with Balcerowicz and Bauc.
With the top leaderships of both the AWS and the SLD wedded to Keynesian-style economic thinking, it is left to technocratic semi-politicians like Balcerowicz, Bauc and Belka to hold the fort on economic rationality. In the case of the AWS, the relationship between the two groups was never a happy one to say the least. Do not expect Belka's lot if he indeed does become finance minister in Miller's government to be any easier.
Marek Matraszek is the Warsaw director of CEC Government Relations. He can be e-mailed at director@cec.com.pl (mailto:director@cec.com.pl).
