New fin min unsettles economists

Economists are worried that Grzegorz Kołodko's appointment as finance minister will bode ill for the 2003 budget and lead to worsening relations between the government and the National Bank of Poland. Kołodko replaces Marek Belka, who unexpectedly resigned as finance minister last Tuesday, pushing bond prices down and forcing the złoty to lose ground, as international financial markets stood in uncertainty until Miller tapped Kołodko Friday afternoon.

Warsaw economists anticipate that Kołodko, based on his past performance as finance minister from 1994-1997, would place further strain on the economy by attempting to increase deficit spending and arguing against the Monetary Policy Council's (RPP) hawkish stance on interest rates. "His statements before today were not encouraging," said Marcin Mróz, a senior economist at SG Bank. "He has a very confrontational approach to the central bank, and I think he will try to rework the current budget." Belka was a favorite among international investors for his measured approach to fiscal policy. He said "personal reasons" caused him to leave the political arena. But Belka resigned just after clashing with Prime Minister Leszek Miller over next year's budget deficit of zł. 43 billion ($10.4 billion). Economists fear that whatever gains had been won by eight months of Belka, could be lost at the hands of Kołodko. "We already remember him spending too much at a time when it was possible to balance the budget," said Mateusz Szczurek, a senior economist at ING Bank. Others find Kołodko too unpredictable for their liking. "The problem with this candidate is that his views are not really predicable," Mróz said. "We desperately need a reliable minister."

Another concern is that Kołodko's views on central bank independence are too much like Miller's. "He's strongly in favor of much, much lower interest rates," Szczurek said. Mróz agreed: "He has a very controversial approach to the central bank." Last month, the central bank cut interest rates by 50 basis points, bringing the base rate to 8.5%, which Miller said was still too high. Kołodko was chosen from an extensive list of SLD candidates, including Labor Minister Jerzy Hausner, the head of Miller's chancellery Marek Wagner, Miller's economic adviser Andrzej Sopocko, economist Witold Orłowski, and Speaker of the Sejm Marek Borowski. "He has a very strong personality, which is all right when he's on your side," Szczurek said. But if he goes his own way, that personality is tough to rein in. "So far there has been no disparity in views." That's because Kołodko is expected to march lockstep with Miller, economists said. "I would like to draw attention to the fact that Miller has an even stronger personality," Mróz said. As a result, Kołodko will not have full control over the budget, he added.

- Staff report