Time for a reality check

   The government launched a coordinated effort to pressure the Monetary Policy Council (RPP) into lowering interest rates last week, with Finance Minister Jaroslaw Bauc and Economy Minister Janusz Steinhoff tag-teaming the independent group through a series of announcements. Earlier in the month, Prime Minister Jerzy Buzek also called on the independent body to give the country a "present" in the form of a cut.

   The council answered by calling a time-out and telling the trio not just to go back to their own corner of the ring, but to get back into the gym and get in shape before calling out the RPP.

   Inflation, which may perk up, and the budget are the causes for the time-out on interest rate cuts. The rate-setting gang judged two percentage points in two months adequate. The body added that the government needs to undertake basic structural reforms if it wants to solve the gravest causes of concern, namely high unemployment and slowing growth, not forgetting to tidy up the budget as well.

   So while the argument for lowering interest rates through the course of the year is strong, government pressure rings hollow given a rather circumspect fiscal policy and limited will to make the necessary reforms work. Of course, the government would like lower interest rates now to spur the economy prior to this fall's elections. But the economy won't feel today's rate cuts until after AWS' likely move into the role of the opposition. And if the government believes that interest rates should be cut and the economy needs to grow, it should rein in spending and start talking about the changes the RPP mentioned.

   The budget deficit reached 73.3% of the government's budget plan as of March 31. Help is on the way from telecom license revenue negotiated last year and tax revenues that generally don't settle into government coffers until the second half of the year. But there are definite causes for concern. Economic growth and inflation will be lower than the government projected, limiting revenues. The government last week scaled back gross domestic product growth estimates, but private economists think the figures are even smaller than the government is conceding.

   Meanwhile, fixed costs remain the same. The equation is simple to anyone with a household budget: If I'm going to earn less money this year than I expected, I'd better spend less money this year than I planned.

   Setting the fiscal fundamentals in order should be a priority. Turning to the bond market for more funds too often will increase public debt, a bad sign for investors and a bad move for the economy. And demanding interest rate cuts while not doing everything to hold back inflation and allow the economy to grow is meaningless.