On shaky ground

Since October, Poland's political pendulum had been swinging furiously between the prospect of early elections and the prospect of the minority Law and Justice (PiS) government building a coalition, either with the center-right Civic Platform or with smaller populist parties in parliament. The weeks of uncertainty finally came to an end on February 2, when PiS, the League of Polish Families (LPR) and Self-defense (SO) signed the government's so-called stabilization pact, aimed at guaranteeing the PiS minority government's political stability for at least the next 12 months.

The pact signed by the leaders of the three parties - Jarosław Kaczyński (PiS), Andrzej Lepper (SO) and Roman Giertych (LPR) - obliges the two smaller parties to support key government bills and refrain from attacking Ministers over the next year. They are also barred from supporting any such steps proposed by the opposition.

The vast majority of the agreement's content is devoted to defining future changes in the administration and the judiciary, as well as to "the mending and security of the state." The pact delineates changes to be made in the secret services, outlines the structure of a permanent inquiry commission to deal with scandals, and envisions the creation of the long-expected Central Anticorruption Bureau. A whole chapter was devoted to national heritage and culture, with significant mention of issues such as protecting war cemeteries and guarding the youth from explicit content in the mass media.

On the mend

"This is now a joint program that you can call the mending of Poland," Kaczyński said at a press conference after the signing. However, analysts are beginning to doubt whether any mending will take place in the sectors where they say it's needed most: the economy and public finances. The document devotes little space to these two issues.

"The bill on protecting places of remembrance and war cemeteries takes up about 10 times more space in the document than taxes. This raises our concerns," said the vice-president of the Polish Confederation of Private Employers (PKPP) Lewiatan, Jeremi Mordasewicz.

In the section of the agreement concerning public fi-nances, the titles of several proposed bills are listed, but without any detailed explanation.

"When forming a coalition, the issue of public finances is of the biggest importance. Here there isn't much talk of it. In fact the direction in which the policy on this issue is going is not clear," Mordasewicz said. The proposals in the economic section are a bit more informative, though the specifics rarely exceed a few lines.

"After reading the stability pact I don't know much more than before," the chief economist of Citibank Handlowy, Katarzyna Zajdel-Kurowska, said. "The document is very general - there is mention of draft bills, but the proposed changes are either not described or mentioned in one sentence," she added.

Ryszard Petru, the chief economist of Bank BPH, came away with the same impression: "This pact clearly has other priorities than the economy."

Inherent contradiction

Mordasewicz especially criticizes the expenditures set out in the agreement "which are expected by society, but are completely irrational from the point of view of the economy." These include: the fuel excise rebate for farmers; financing mortgage loans; early retirements or valorization of pensions which, apart from taking inflation into account, will also include wage rises.

Two of the more controversial spending bills proposed in the pact call for extra unemployment benefits for those "unable to work through no fault of their own," and extra benefits for the elderly.

Mordasewicz claims that the recently passed budget and the choosing of populist parties as coalition partners proves that PiS has chosen a policy of increasing expenditures rather than limiting them. "They chose to pay those on early retirement rather than workers building highways," Mordasewicz complains, adding: "Either the people in PiS do not understand the rules of the economy or they just want to buy votes."

Zajdel-Kurowska says the program is inherently contradictory. "You can't reconcile increasing public spending with lowering taxes," she said. She explained that in the short-term, cutting taxes means less income to the state budget. "I think that the chances of lowering taxes are diminishing," she concludes.

Bank bill

One of the most controversial proposals both in Poland and abroad is the draft act on the National Bank of Poland (NBP), which will oblige the bank to cater for economic growth and not just regulate inflation. Analysts claim that this is evidence the government is taking steps to curb the bank's independence, but markets have so far remained calm.

"The markets are not affected by the proposals with regard to the central bank - the issue has been mentioned so many times before," Citibank Handlowy's Zajdel-Kurowska says, although she agrees that the proposed changes to the NBP are perceived by financial circles as an effort to curtail the bank's power.

Zajdel-Kurowska finds it surprising that all the recent conflicts between Warsaw and Brussels have had little effect on the financial markets or the companies investing in Poland. She agrees that it solidifies Poland's image as a country unfriendly to foreign direct investment (FDI), which could affect investments in the long run.

Reality check

Despite the vagueness and the stress on expenditure, Mordasewicz does see some positive ideas in the pact. "Implementing the bill on business activity would be a positive signal," he offers, adding that simplifying the distribution of structural funds and the process of investments in construction are also viewed with favor in the eyes of entrepreneurs. "But these are just mentioned in the pact - there aren't many details," Mordasewicz says.

However, Zajdel-Kurowska thinks that the clauses in the agreement in most cases won't go beyond promises. "Reality will verify the pact," she said. She thinks that certain less costly acts will probably go through, but the convergence criteria, which Poland has to meet in order to enter the eurozone, simply do not allow for such expenditure.

"The best example is the three-million-flats promise, which ended as 300,000," Zajdel-Kurowska said.

"I just hope that the stabilization pact doesn't turn out to be a destabilization [pact]," Petru said. When asked what effect implementing the pact would have on the economy, he said that a lot would depend on which bills the government starts with.

"A different message will be sent if it starts with those aimed at promoting business activity or those dealing with the central bank or with financial supervision," BPH's economist explained.

However, Petru is skeptical that the political document will provide any lasting stability: "I think that they will have a difference of opinion as soon as it comes time to discuss the first bill."