Minister sees bright future
The country may have gone through a turbulent couple of weeks in its relations with the European Commission, but Finance Minister Andrzej Raczko gave a glowing self-assessment of the government's economic policy and the economy's prospects following accession. Speaking at last Thursday's Warsaw Business Journal business breakfast, the minister also discussed the details of the system for structural and cohesion fund transfers.
The minister defended the centralized system of structural and cohesion funds transfer and allocation, explaining that the government aims to create competition between ministries and projects that they prepare.
"We don't want ministers to sit there comfortably and feel that the money has already been allocated to them," he said. "We want them to prepare the best projects possible." This will be achieved through creating a single pool of money with the finance ministry that would be transferred to ministries once their projects have been approved.
Raczko denied earlier press reports of the finance ministry's disagreement with the European Commission over the role of commercial banks in handling the transfers. The Commission has recently announced a tender for a commercial bank to manage its local account, likely to handle zł.59 billion (€12.8 billion) by 2006.
"We were surprised and we have asked the Commission for details," Wiktor Krzyżanowski, finance ministry spokesman said. "The reply has not yet come." Raczko denied there was a misunderstanding, saying there must be an account with the central bank, while commercial banks could handle subsidiary accounts.
The minister added that the government does not see a role for commercial banks in the process of co-financing EU-funded projects. In the initial period, the bulk of the money would come from the central budget in order to ensure that the shortage of funds would not become a stumbling block. He admitted that this would be a change from the usual standards in earlier EU entrants, where as much as 70 percent of co-financing came from commercial sources.
"We could use mezzanine debt or securitisation (to co-finance projects)," Raczko said. "But for now we are not going to have recourse to these instruments." Commentators point out that this approach and official disbelief in commercial sources' ability to provide a steady flow of finance will add to the greatest of problems confronting the government, namely the budget deficit.
Raczko identified the deficit and debt burden as the sole blot on the otherwise bright economic outlook. While the financial markets have gone through a turbulent few weeks, the minister denied that these developments had anything to do with the economy's fundamentals or the government's economic policies.
"Markets were trying to get over some negative political news," he said. "The economy is in good shape in real terms." He described fundamentals as "all quite OK," pointing to low inflation, 3.5 percent GDP growth and a current account deficit of less than 3 percent. "Long-term investors are not worried," he added, suggesting that the market's nervous reaction was all due to the actions of short-term portfolio investors and traders.
ABN Amro president Frederik-Jan Umbgrove's question about the impact of recent difficulties in placing the government debt on the market might, however, suggest that the minister's optimism bears little relation to reality.
That is also the opinion of Rafał Antczak, an economist at CASE independent think-tank, who said he did not understand the minister's optimism in his "new found role of the spokesman for foreign investors." He pointed out that foreign direct investment has been steadily falling over the recent years and the country has lost several flagship investments to other countries, such as Slovakia.
Raczko also denied that the outlook on the economy is generally seen as bleak, pointing to the fact that Standard & Poor's recent downgrade of złoty-denominated government debt was offset by a move in the opposite direction by the Fitch rating agency.
"It is just absurd to suggest that investors would not be concerned about S & P's downgrade," Antczak countered. He also stressed the importance of the European Commission's critical report, which talked of the reforms having come to a halt in the autumn of last year.
Raczko deflected the EC criticism, saying that the report was based on the state of affairs on September 30.
"A lot has been done since then," the minister said, naming tax laws as an area where progress has taken place over the last six weeks.
"I don't see any change in the negative dynamics in economic and fiscal policy," Antczak said. "The minister must be basing his opinion on knowledge unavailable to the general public."
The minister defended the centralized system of structural and cohesion funds transfer and allocation, explaining that the government aims to create competition between ministries and projects that they prepare.
"We don't want ministers to sit there comfortably and feel that the money has already been allocated to them," he said. "We want them to prepare the best projects possible." This will be achieved through creating a single pool of money with the finance ministry that would be transferred to ministries once their projects have been approved.
Raczko denied earlier press reports of the finance ministry's disagreement with the European Commission over the role of commercial banks in handling the transfers. The Commission has recently announced a tender for a commercial bank to manage its local account, likely to handle zł.59 billion (€12.8 billion) by 2006.
"We were surprised and we have asked the Commission for details," Wiktor Krzyżanowski, finance ministry spokesman said. "The reply has not yet come." Raczko denied there was a misunderstanding, saying there must be an account with the central bank, while commercial banks could handle subsidiary accounts.
The minister added that the government does not see a role for commercial banks in the process of co-financing EU-funded projects. In the initial period, the bulk of the money would come from the central budget in order to ensure that the shortage of funds would not become a stumbling block. He admitted that this would be a change from the usual standards in earlier EU entrants, where as much as 70 percent of co-financing came from commercial sources.
"We could use mezzanine debt or securitisation (to co-finance projects)," Raczko said. "But for now we are not going to have recourse to these instruments." Commentators point out that this approach and official disbelief in commercial sources' ability to provide a steady flow of finance will add to the greatest of problems confronting the government, namely the budget deficit.
Raczko identified the deficit and debt burden as the sole blot on the otherwise bright economic outlook. While the financial markets have gone through a turbulent few weeks, the minister denied that these developments had anything to do with the economy's fundamentals or the government's economic policies.
"Markets were trying to get over some negative political news," he said. "The economy is in good shape in real terms." He described fundamentals as "all quite OK," pointing to low inflation, 3.5 percent GDP growth and a current account deficit of less than 3 percent. "Long-term investors are not worried," he added, suggesting that the market's nervous reaction was all due to the actions of short-term portfolio investors and traders.
ABN Amro president Frederik-Jan Umbgrove's question about the impact of recent difficulties in placing the government debt on the market might, however, suggest that the minister's optimism bears little relation to reality.
That is also the opinion of Rafał Antczak, an economist at CASE independent think-tank, who said he did not understand the minister's optimism in his "new found role of the spokesman for foreign investors." He pointed out that foreign direct investment has been steadily falling over the recent years and the country has lost several flagship investments to other countries, such as Slovakia.
Raczko also denied that the outlook on the economy is generally seen as bleak, pointing to the fact that Standard & Poor's recent downgrade of złoty-denominated government debt was offset by a move in the opposite direction by the Fitch rating agency.
"It is just absurd to suggest that investors would not be concerned about S & P's downgrade," Antczak countered. He also stressed the importance of the European Commission's critical report, which talked of the reforms having come to a halt in the autumn of last year.
Raczko deflected the EC criticism, saying that the report was based on the state of affairs on September 30.
"A lot has been done since then," the minister said, naming tax laws as an area where progress has taken place over the last six weeks.
"I don't see any change in the negative dynamics in economic and fiscal policy," Antczak said. "The minister must be basing his opinion on knowledge unavailable to the general public."
