Strong złoty spurs innovation
Interest rate cuts help bring currency lower
The złoty's strength over the past year has been a double whammy for shipbuilder Stocznia Szczecińska. The Szczecin-based company exports all of its products and is increasingly looking for fresh ways to gain a notch on foreign competition, which is almost always heavily subsidized by government programs. "Our position is difficult," said Wojciech Sobecki, Stocznia Szczecińska's export specialist. "We're signing contracts that won't be realized for another 10 to 18 months, so we have to foresee how exchange rates will look at that time. "These conditions are forcing us to change our competitive profile," he added. "We're now trying to differentiate our products, and adjust them to the particular demands of customers." During 2001, the złoty traded at a monthly average of 4.09 to the dollar, up from the previous year's 4.34, according to Bank Handlowy. Early last month the złoty hovered around 3.94 per greenback - a two-and-a-half-year high. When the Monetary Policy Council (RPP) last week cut its main lending rate by 150 basis points - to 10% from 11.5% - the złoty shed about 1.5% of its value against the U.S. dollar over the next few days and on Friday the currency opened at 4.17 to the dollar. Finance Minister Marek Belka has been trying to talk down the złoty in recent months, saying that an exchange rate of 4.25 to the dollar would be more realistic and blaming the RPP's "cautious" cuts for the high exchange. "It's cautious, perhaps even too cautious," a spokesman for Belka said of the RPP's 150-point cut last week. Fighting the currency For companies like Stocznia Szczecińska, the strong złoty and stiff competition mean rethinking strategy. "Some time ago, our export specialists proposed to build a conglomerate made up of various companies to provide a kind of hedge against exchange-rate fluctuations," Sobecki said. "We are also importing about half of our materials to protect against extreme exchange-rate surges." For Zelmer, a household appliance manufacturer, the buoyant złoty combined with increased business costs have brought significant belt-tightening. "We're experiencing a constant reduction of payments for the same goods," said Zbigniew Kździa, Zelmer's export manager. "The only thing to do is to try and live with it, cut our costs at home, lay off workers and wait for better times. In light of all this, (another) bad aspect for our production is that we do not import raw materials, which would surely help in this situation." Relying on imports of raw goods has allowed some firms to avoid the złoty's pinch. "It's not so crucial for us," said Mateusz Żmijewski, an export specialist at Vistula, a high-end clothing firm. "We import almost all of our materials from abroad. As long as our products are not cheap, we shouldn't suffer." The złoty's resurgence, which started in earnest last spring, was fueled largely by foreigners buying the currency and government bonds on prospects of high yields and relatively low risk. Economists say many Polish producers are already fit to ride out tough times due to well-timed cash injections in recent years. Through November 2001, exports totaled zł. 135.2 million ($33 million), up 7.4% year on year, according to the Central Statistical Office (GUS). "You can attribute it to very strong investments made by leading firms," said Krzysztof Rybiński, chief economist at Bank Zachodni WBK (BZ WBK). "The firms that made these strong investments are less sensitive to the business cycle." They have also become more efficient, according to BRE Bank head economist Janusz Jankowiak. "They're more competitive in foreign markets because of cost-cutting procedures that allowed for lower prices while those companies complain that couldn't have foreseen the current złoty value, now they have major losses with their foreign deals," Jankowiak said.
The złoty's strength over the past year has been a double whammy for shipbuilder Stocznia Szczecińska. The Szczecin-based company exports all of its products and is increasingly looking for fresh ways to gain a notch on foreign competition, which is almost always heavily subsidized by government programs. "Our position is difficult," said Wojciech Sobecki, Stocznia Szczecińska's export specialist. "We're signing contracts that won't be realized for another 10 to 18 months, so we have to foresee how exchange rates will look at that time. "These conditions are forcing us to change our competitive profile," he added. "We're now trying to differentiate our products, and adjust them to the particular demands of customers." During 2001, the złoty traded at a monthly average of 4.09 to the dollar, up from the previous year's 4.34, according to Bank Handlowy. Early last month the złoty hovered around 3.94 per greenback - a two-and-a-half-year high. When the Monetary Policy Council (RPP) last week cut its main lending rate by 150 basis points - to 10% from 11.5% - the złoty shed about 1.5% of its value against the U.S. dollar over the next few days and on Friday the currency opened at 4.17 to the dollar. Finance Minister Marek Belka has been trying to talk down the złoty in recent months, saying that an exchange rate of 4.25 to the dollar would be more realistic and blaming the RPP's "cautious" cuts for the high exchange. "It's cautious, perhaps even too cautious," a spokesman for Belka said of the RPP's 150-point cut last week. Fighting the currency For companies like Stocznia Szczecińska, the strong złoty and stiff competition mean rethinking strategy. "Some time ago, our export specialists proposed to build a conglomerate made up of various companies to provide a kind of hedge against exchange-rate fluctuations," Sobecki said. "We are also importing about half of our materials to protect against extreme exchange-rate surges." For Zelmer, a household appliance manufacturer, the buoyant złoty combined with increased business costs have brought significant belt-tightening. "We're experiencing a constant reduction of payments for the same goods," said Zbigniew Kździa, Zelmer's export manager. "The only thing to do is to try and live with it, cut our costs at home, lay off workers and wait for better times. In light of all this, (another) bad aspect for our production is that we do not import raw materials, which would surely help in this situation." Relying on imports of raw goods has allowed some firms to avoid the złoty's pinch. "It's not so crucial for us," said Mateusz Żmijewski, an export specialist at Vistula, a high-end clothing firm. "We import almost all of our materials from abroad. As long as our products are not cheap, we shouldn't suffer." The złoty's resurgence, which started in earnest last spring, was fueled largely by foreigners buying the currency and government bonds on prospects of high yields and relatively low risk. Economists say many Polish producers are already fit to ride out tough times due to well-timed cash injections in recent years. Through November 2001, exports totaled zł. 135.2 million ($33 million), up 7.4% year on year, according to the Central Statistical Office (GUS). "You can attribute it to very strong investments made by leading firms," said Krzysztof Rybiński, chief economist at Bank Zachodni WBK (BZ WBK). "The firms that made these strong investments are less sensitive to the business cycle." They have also become more efficient, according to BRE Bank head economist Janusz Jankowiak. "They're more competitive in foreign markets because of cost-cutting procedures that allowed for lower prices while those companies complain that couldn't have foreseen the current złoty value, now they have major losses with their foreign deals," Jankowiak said.
