Market gives thumbs up to new bank president
Leszek Balcerowicz began his term as president of the central bank last Wednesday with the full backing of the market.
"He is a very able man and will do an outstanding job," said Henry Owen, senior adviser to Schroeder Salomon Smith Barney and a former U.S. government official. "Balcerowicz's appointment will maintain the already high degree of confidence in Poland."
Sworn in by the Sejm, Balcerowicz is expected to continue the tight fiscal policy of his predecessor, Hanna Gronkiewicz-Waltz, to maintain investor confidence in Poland.
But the honeymoon period is expected to be short for the man who earned his reputation fighting three-digit inflation with his shock therapy in the early 1990s. On the eve of Balcerowicz's official appointment, Finance Minister Jaroslaw Bauc announced that zl. 3 billion ($732 million) raised from the universal mobile telecommunications systems (UMTS) tender may boost budget spending, pushing the economic deficit to some 2% of GDP from the planned 1.6% in the budget draft. Such a move would alert the rate-setting Monetary Policy Council (RPP) and new boss Balcerowicz, who would likely draw back from lowering interest rates in the short term.
"Balcerowicz heading the NBP (National Bank of Poland) sends a very positive signal to the market. He is renowned for his commitment to sound macroeconomic policy," said Marco Annunziata, an analyst with Deutsche Bank (DB) in London. In the bank's recent economic overview on Jan. 5, Annunziata said the outcome of Parliament's January-February budget debate would determine the RPP's approach to interest rate cuts. The council will likely make its first rate cut by 100 basis points in March 2001, on the condition that there will be no hikes in budget spending, Annunziata said.
If Balcerowicz eases rates to boost investment, analysts said the government will have to keep spending under control. In the budget draft for 2001, public spending accounts for 42.6% of GDP, the highest level since 1995.
"In the medium term, Balcerowicz has to strike a balance between his plans as onetime-minister of finance to create favorable business conditions and his present role as a watchdog for a strong zloty," a DB analyst said. "The new central bank president has to push the government to take over more responsibility, to curb public spending."
The former finance minister's plan had included income tax cuts and tight control over public spending to pave the way for lower interest rates.
While the appointment of Balcerowicz has been welcomed by Dariusz Filar, chief economist with Bank Pekao and previous candidate for the job as NBP's president, Filar said it would not have a direct impact on the market because investors had already included the news in their investment decisions. "The most recent pressure to lower rates should be credited to the narrowing current account gap ($320 million last November) and to slowing inflation rather than to Balcerowicz's nomination," Filar said.
