This time it's for real, honest!

   Flights of fancy or sound fiscal reality – that's the conundrum nagging financial analysts over this year's budget. With forecasts of 4.5% growth for 2001, the government now has to convince people that unlike last year, this time it's got it right.

   But many financiers remain understandably pessimistic about the forecast. Budget predictions for 2001 have already been redrawn three times from 5.7% last July, to 5.3% in October and then 5.1% in December.

   The main reason for the Finance Ministry's climb down to 4.5% is undoubtedly the tight mindset governing the Monetary Policy Council (RPP) and in particular the new central bank governor Leszek Balcerowicz, a renowned squeezer of fiscal affairs who entered stage right late last year. Once he was in place, all previous bets were off. Inflation is to Balcerowicz what empire building was to Alexander the Great – an obsession.

   Balcerowicz is convinced that a thrifty public purse and continuing reforms in labor relations are the key to cutting interest rates. But at the moment he doesn't see Poland as ready for such cuts and analysts are saying the earliest they may happen will be at the end of March.

   Balcerowicz also said recently that Poland had to lower its borrowing. He said loose government spending was making it hard to meet the demands of industry for cuts in Poland's high interest rates. Many in the government and the RPP say inflation will realistically fall to 7% by April and that's when interest rates could go down.

   But the government knows that interest cuts have to happen if its annual estimate is to maintain any credibility. Somewhat optimistically and almost like a plea for clemency, this month Prime Minister Jerzy Buzek said the RPP would surely cut interest rates immediately given that inflation had fallen to an acceptable level of around 8.5%.

   Poland's interest rates of 19-23% have helped stem inflation from 11% year-on-year in July to 8.5% in December. But the high costs of borrowing continue to slow economic growth, which was 2% in the last quarter of 2000. Buzek's polite pressure on the RPP and Balcerowicz to cut interest rates, in the interests of economic growth, will come to naught if inflation fails to tumble steadily.

   Meanwhile, a host of respected analysts are saying growth in gross domestic product for this year may not even pass 4%, others are saying it could be as low as 3%. If the latter is true, it won't only be Buzek pleading for clemency.