MPs silent over budget in run up to election

By : Jeffrey Sparshott

   Politicians continued to fight over Poland’s distressed budget last week, though markets are ignoring the rhetoric and finding their own way through the campaign season while waiting for a detailed public spending plan.

   “Everyone knows that next year’s budget requires big sacrifices from all ministries and in socially sensitive areas,” said Marcin Mróz, senior economist with SG Bank. “It’s a very sensitive topic before elections; that’s why nobody is talking about it.”

   Parliamentary elections are set for Sept. 23. Polls project that the Democratic Left Alliance (SLD) opposition will defeat the current Solidarity Election Action (AWS) government by a wide margin.

   The AWS revised 2002’s economic growth and inflation assumptions last week, projecting a more optimistic scenario than recently dismissed Finance Minister Jarosław Bauc. The AWS-led cabinet foresees 2.5-3% gross domestic product growth next year and inflation from 5.1-5.5%.

   Overly optimistic assumptions are one reason for 2001’s budget shortfall – the spending plan had to be revised when revenues failed to materialize – and the opposition was quick to pounce on AWS’ numbers.

   “The former government is gaining more money, but it will not be real money because their new ideas are based on wishful thinking only,” said Marek Wagner, an SLD MP and one of the party’s leading voices on public finance, during a debate in the Sejm last week. “In my opinion, again, we are dealing with the reproduction of last year’s mistakes and of constructing a budget on quicksand.”

   Wagner followed Prime Minister Jerzy Buzek (http://www.kprm.gov.pl) to the Sejm’s floor. Buzek called for a bipartisan solution to the ballooning fiscal deficit and outlined general proposals to gather in expenses that, if left unchecked, could cause the 2002 deficit to reach zł. 88 billion ($20.9 billion), according to the most recent government figures. Both parties have publicly agreed that a zł. 40 billion ($9.5 billion) deficit is the most the country could afford.

   President Aleksander Kwaœniewski, SLD’s national leader, met with the cabinet early last week and called for a bipartisan solution to the situation. But both sides appeared to be in campaign mode.

   Even with the fiscal uncertainty, the Warsaw Stock Exchange (WSE) and the national currency held steady through the course of the week.

   “We have a quiet market, which is typical for a pre-election period,” Mróz said.

   Relatively positive economic data, including a lower than expected current account deficit, and privatization news buoyed markets but investors remain concerned about the unfolding economic picture and mixed signals on monetary policy. The market is especially wary of some proposals to fill in the hole in public finances by raising taxes.

   Adding uncertainty, members of the central bank’s Monetary Policy Council (RPP), which sets inflation targets and interest rates, are divided between hawks and doves and during the week different individuals offered contrasting perspectives on future rate moves – either August’s reduction was the last for some time or substantial cuts are still feasible.