Privatization revenue to go to jobless

The Democratic Left Alliance (SLD)-led government will use privatization to make industry more competitive and reduce unemployment, rather than maximize budget revenue, Treasury Minister Wiesław Kaczmarek said last week.

In a draft bill outlining the guidelines for privatization presented by the treasury last week, the government aims to use privatization revenue to create competitive and effectively managed companies to expand capital markets and create jobs.

"We have no intention of halting the privatization process," Kaczmarek said. "But we must focus privatization on stimulating investment and not budget revenue."

But analysts said that lower revenue from the sale of state-owned assets will make it difficult for the government to service existing debt and finance the growing budget deficit for 2002, estimated at zł. 40 billion ($10 billion).

Last week Kaczmarek attacked the former Solidarity Election Action (AWS) government's privatization policy for selling state-owned companies only to generate revenue to fund the budget deficit. He said privatization under AWS lacked a wider strategy for the development of privatized industries, leading to a decline in support for the privatization process. He said a government survey of Polish managers this year indicated that only 25% were in favor of privatization, compared to 60% in 1998.

Mateusz Szczurek, senior economist at ING Bank Śląski, said the feasibility of the government's privatization strategy depends on how easily the budget deficit can be funded. Although the AWS government found it easy to finance the rapidly increasing budget deficit, the resulting cost of repayments on T-bonds and T-bills has escalated.

"In Poland we have zł. 8.5 billion ($2.12 billion) in T-bills and T-bonds maturing this month and this will grow further in the first quarter of next year," Szczurek said. He added that Argentina's public finances were choked when the state had to service debts of $1 billion-$1.8 billion for December. "It might turn out quite quickly that the government will have to fund the budget gap through privatization just as previous governments did," Szczurek said.

The government has already demonstrated its new policies by postponing the tender for the G-8 group of northern power distributors last week and canceling the privatization of Warsaw power distributor Stoen. But analysts said the government can ill afford to neglect privatization revenue, estimated at just zł. 6.8 billion ($1.7 billion) in 2002, compared to the zł. 18 billion ($4.5 billion) planned for this year. They point to the government's need to finance the costs of unemployment, which reached 16.4% in November, compared to 9.7% in November 1998, and the government forecasts an increase to more than 18% in 2002. Further pressure to generate revenue comes from state-owned loss makers such as the steel industry, which the Metallurgical Chamber of Industry and Commerce estimates will lose zł. 1.3 billion-zł.1.4 billion ($317 million-$341 million).

Greg Goodale