Start cutting

   Go ahead, Leszek Balcerowicz, cut those interest rates. And not just a cursory 100-150 basis points either. This time lop off a good two percentage points – at least.

   When the Monetary Policy Council (RPP) meets later this week, the central bank governor and his rate-setting partners will have to decide whether to ignore politics for the moment and do what’s best for the nation’s flagging economy. As data rolled in last week that gross domestic product (GDP) would slow to a trifling 1-2% in 2001 and year-on-year inflation in September tumbled to a post-communism low of 4.3%, signs are rife that Balcerowicz’s long-held call to batten down inflation at the expense of economic growth no longer seems applicable. In fact, inflation hawking seems a tad behind the times, especially given that last month’s low consumer price index figures are based on comatose industrial output and domestic demand. Poles just aren’t buying.

   But the matter of central bank independence is a political one as Balcerowicz’s old adversaries, now in power, are looking for a say in how rates are set. In a move clearly intended to ruffle the governor’s feathers before this week’s meeting, the Democratic Left Alliance (SLD) called for cuts of up to 600 basis points over the next six months. Balcerowicz dimissed the suggestion as “unreasonable.” Opposition to the RPP’s policies extend deeper into Parliament, though, as longtime radical-turned-statesman Andrzej Lepper has on numerous occasions blamed Poland’s economic misfortunes on the policies of Balcerowicz, and in no uncertain terms has called for his head. Obviously, then, the last thing Balcerowicz wants now is to be forced to bow before politicians such as Prime Minister-designate Leszek Miller and Lepper, and in response he declared the RPP would not let its decisions be affected by calls to curb its independence.

   The problem is, if Balcerowicz decides to prove to his new colleagues who’s boss by continuing to trim too cautiously, as he’s already done four times this year, he may unwittingly open the door wider to those clamoring to reign in the council. And they wouldn’t be so wrong either. After all, Balcerowicz has gotten what he’s wanted: Following last month’s figures, inflation is now set to come in at 5% or less this year, significantly below the RPP’s target of 6-8%. The new coalition government of SLD-Labor Union (UP) and the Peasants Party (PSL), led by Miller and Finance Minister-candidate Marek Belka, also appears to be grappling well with the budget mess left behind by Solidarity Election Action (AWS). Lax fiscal policy, therefore, also can’t be used as an excuse not to start seriously hacking away at Poland’s punishingly high interest rates, which are nearly 10% above inflation.

   But while the conditions may be right, it remains to be seen whether Balcerowicz realizes that significant cuts rates now will not only help give the economy the boost it will need next year – when the government should be focused on European Union (EU) accession negotiations and not budget deficits – but it may also ensure the RPP’s continued independence.