Ministers look to fix Poland's economy in 2002

Editor's note: The Democratic Left Alliance (SLD)-led government took power in October and has steadily introduced a series of policies that will deeply affect businesses and the economy. Below, the Business Journal profiles four ministries that will direct and implement government policy during 2002.

Finance Ministry budgets for future

The Finance Ministry's immediate task in 2002 will be to control government spending and ensure that the budget deficit does not exceed the planned zł. 40 billion ($10 billion). But meeting that target depends on the government's ability to maintain economic growth, forecast to come in at just 1% this year, compared to 4% in 2000, said Robert Beange, an economist at Lehman Brothers.

"The key variable for the budget is the strength of economic growth," Beange said. "I think that growth of 1% can quite easily be achieved so there won't be too much trouble in meeting their targets, which weren't very ambitious in the first place," he said.

The Finance Ministry's real task will be to put together long-term proposals that set public finances on more stable ground, including the reduction of employment costs for the small and medium enterprises. "The answer is the small and medium enterprise sector," Beange said. "The government has come out with some reasonable policies to create (regional) differentiation in the minimum wage … It's just a matter of whether they're going to get trade union approval to implement them."

Profile: Marek Belka

After graduating in Economics from Łódź University in 1972, Marek Belka, 49, went on to spend another 23 years at the institution. He received his doctorate in 1978 and became a professor of economics in 1994. He was also director of the Economic Science Institute at the Polish Science Institute (PAN) from 1986 to 1997.

Belka added Western training to his Łódź degree in the late 1970s as a Fulbright scholar at Columbia University, in the mid-1980s on a scholarship at the University of Chicago and in 1990 on another scholarship at the London School of Economics.

Belka's economic expertise led to string of advisory roles during the 1990s, first at the Central Planning Office (CUP), then the Finance Ministry and the Privatization Ministry. From 1994 he spent two years as the deputy head of the cabinet Social and Economic Strategy Committee under the SLD-Peasants Party (PSL) coalition before becoming economic adviser to President Aleksander Kwaśniewski.

Włodzimierz Cimoszewicz's 1997 appointment as prime minister boosted Belka to deputy prime minister and finance minister for the eight months before the SLD lost that year's general election. He returned to his duties as the president's economic adviser. Following 2001's elections he resumed his role as deputy prime minister and finance minister.

Treasury Ministry gets vertical

The Treasury Ministry will focus privatization on creating competitive industries rather than maximizing budget revenue, according to Wiesław Kaczmarek, ministry head. The ministry aims to achieve this by vertical integration of industries, such as the merger of power generators and distributors. But analysts warn that tying loss makers to successful firms will not help to meet the SLD-led government's aim of reducing unemployment and stemming the budget deficit.

"I'm afraid that if we consolidate, vertically integrate and create new holdings from state-owned structures, this will only hinder privatization and be a serious burden on the budget," said Krzysztof Rybiński, chief economist at Bank Zachodni WBK, warning against the vertical integration of profitable and unprofitable firms.

"If you take an inefficient, badly managed, loss-making asset that can't function at market prices and merge it with a profitable business you avoid price transparency," he said.

Vertical integration of national industries, such as the tying of energy distributors to generators, would hinder competitiveness by tying part of their operations to their weaker partners, rather than the market. "The only proper approach is to massively accelerate the privatization of loss-making sectors, to accept the fact that many people have to be laid off and provide a safety net by liberalizing the labor market to make it easier for them to find new jobs," Rybiński said.

Profile: Wiesław Kaczmarek

Kaczmarek, 43, graduated from Warsaw Polytechnic in 1981 with a degree in precision mechanics and stayed on to study for a doctorate. Through the 1980s he worked as a senior assistant at the department of mechanical technology.

In 1989 he became a member of the Sejm in the first round of general elections and began a two-year stint as deputy director of the Foreign Investors' Chamber of Commerce. In 1991 he worked as Warsaw manager for Polish bank Pierwszy Komercyjny Bank w Lublinie (PKBL), a job he left two years later to take up his appointment as the SLD's privatization minister following the 1993 elections. SLD moved him to economy minister in 1997.

After the SLD was unseated in the 1997 general election, Kaczmarek failed to garner significant support in the ensuing party leadership contest. He lost a party contest against Leszek Miller, now prime minister, by 87 votes to 311. In 1999 he became a member of the SLD national executive and was appointed treasury minister after the 2001 general election.

Economy Ministry makes private plans

This month the ministry will publish a national development plan covering the next four years, outlining the SLD-led coalition's strategy for the development of the economy prior to European Union (EU) accession, which will determine the level of EU aid it will receive in 2004-2006. Officials are also set to complete plans for privatization of the steel industry, including the creation of Polskie Huty Stali (PHS) and its sale to foreign investors. By February the ministry is to unveil its energy policy, based on demand forecasts for energy and fuel, which will form the basis for the treasury's strategy in privatizing the energy sector.

Preparation for privatization in the steel and energy sectors will play a minor role in the government's efforts to revive Poland's ailing economy, according to Maciej Reluga, a senior economist at ING Bank.

"I don't think there is much left to do in privatization as the revenues planned for next year are only zł. 6.8 billion ($1.72 billion) - not a significant amount compared to last year," Reluga said. "I think that the main goal for the government is to create economic policy with more transparent rules for enterprises. The most important thing for Poland at the moment is the liberalization of the labor market."

Profile: Jacek Piechota

Jacek Piechota, 42, has been active in Polish politics since joining the Communist Party (PZPR) in 1978 at the age of 19. After graduating as a chemical engineer from Szczecin Polytechnic, Piechota spent a year as a high school teacher before becoming the head of the Polish Scouting Association (ZHP) in Szczecin, where he worked until 1990.

When the PZPR was disbanded in 1989, Piechota became one of the founding members of the Polish Social Democracy (SDRP) party, which served as the election platform for members of the PZPR and became the core of the SLD. As the head of the party's regional council for Szczecin, he landed a job on the supervisory board of BIG Bank and after the SLD's defeat in the 1997 general elections, Piechota began to rise rapidly through party ranks. From 1997 he served two years as the deputy leader of the SDRP, becoming the head of the SLD regional council in Pomorze Zachodnie in 1999 and joining the SLD national executive in 2000. In 2001 he was appointed economy minister.

Employment Ministry jobbed in New Year

Faced with an unemployment rate that surged to 16.8% in November 2001 from 9.7% in November 1998, the Employment and Social Policy Ministry plans to introduce a series of measures to facilitate job creation. In January, Employment Minister Jerzy Hausner will announce plans to liberalize regulations for the employment and dismissal of employees, including the right for employers to dismiss workers who have been on sick leave for over a month, reducing the cost of sick leave and overtime. Hausner will also announce a packet of measures to subsidize employers who take on new university graduates.

But the ministry will face an uphill struggle in the face of demographic trends that will push the unemployment rate to 20% in the first quarter of 2002, Rybiński said.

"No matter what the policies, unemployment this year can only go up because of demographic trends," Rybiński said. "In the next five years there will be over a million new job seekers ... and that is next to impossible given the opposition from trade unions to make the necessary changes to the labor market."

Removing the budget burden of subsidies for inefficient state-owned industries is the only option for stimulating the creation of new jobs, he added.

"The deficit would fall, allowing the Monetary Policy Council (RPP) to introduce more substantial reductions to the interest rate, leading to a recovery in growth," Rybiński said.

Profile: Jerzy Hausner

Hausner, 52, graduated with a degree in economics from the Kraków Academy of Economics in 1972 and went on to become a teaching assistant and lecturer. His position at the academy brought him into contact with the PZPR, where he served as Secretary of Education in the party's Kraków arm from 1986 to 1989. He became a professor of economics in 1994 and is now the head of the Department of Economics and Public Administration.

A year after the election of the SLD-PSL government in 1993 he became director of the cabinet office and served as chief adviser to Deputy Prime Minister Grzegorz Kołodko. In 1997 he was appointed undersecretary of state in the prime minister's office and headed a team charged with planning reforms to Poland's state pension system. In 2001 he was appointed minister for employment and social policy.

Greg Goodale