Time to work together

Will Belka and Kaczmarek work together to pull Poland out of its economic mire?

   These may be somber times, but Polish markets gave a collective sigh of relief last week after Prime Minister-elect Leszek Miller unveiled his new cabinet.

   Some investors were worried that the Democratic Left Alliance (SLD) and its smaller coalition partner, the Peasants Party (PSL), would brazenly call for immediate neo-Keynesian-style public spending programs, higher taxes, an end to the autonomy of the central bank and a halt to the ongoing privatization program.

   But it was never going to be that bad – at least not yet. However, the stage is set for what looks like an inevitable conflict of interests between the much-respected finance minister, Marek Belka, and the maverick treasury minister, Wiesław Kaczmarek.

   Ironically, the appointment of these two key players in the cabinet helped placate the markets: Belka with his tight spending plans and Kaczmarek because at least he’s a known entity, and has had experience in government. But what happens in the markets now will be a result of how far either minister is prepared – or indeed allowed – to go along his chosen path.

   Even before taking up his post, Belka stepped into the fray early last week by defending the independence of the National Bank of Poland (NBP) against junior members of the Cabinet. Belka is adamant that the central bank and its rate-setting committee, the Monetary Policy Council (RPP), will remain autonomous from politics. President Aleksander Kwaœniewski also weighed in on the side of Belka saying to do otherwise would be against the constitution. Nevertheless, for all his talk Belka has immediately pushed the RPP to ease interest rates, which many analysts said may be cut by as much as 150 basis points next week. Meanwhile, the markets are keeping a close eye on Belka’s proposals to achieve a zł. 40 billion ($9.52 billion) budget deficit target for next year, some 5% of gross domestic product and considerably less than the 11% predicted a few weeks ago. For many optimists, Belka’s sturdy policies are a sure sign that times are now changing for the better.

   Step forward Kaczmarek. The treasury minister could play a crucial role in undermining much of what Belka is trying to do. Analysts are well aware of Kaczmarek’s interventionist tendencies. He first made the headlines shortly before the elections by proposing the new government should raid pension funds to help public finances. It was a statement that immediately confused markets – and no doubt infuriated Belka – given that pension funds are vital to the government for its debt servicing.

   Last week, Kaczmarek continued along the path of prevarication. He told investors he has no intention of slowing the general push for privatization, but in the same breath stressed that priorities will be given to debt-laden sectors such as steel. He said he wanted to forge ahead with energy privatization, but first consolidate the power generation and distribution sectors before selling them. This is contrary to the minority stakes in companies offered to investors previously. The market is also worried by Kaczmarek’s statements that he will reject the previous policy of selling large stakes to one buyer, and opt for diversified shareholdings.

   But regardless of all this doublespeak, Belka and Kaczmarek, above all, know they have to work together to pull Poland out of its economic mire. While no one really knows how Kaczmarek is going to play the privatization card, an estimated $4.4 billion worth of revenue from asset sales will go a long way to easing the country’s budgetary problems. Both Belka and Kaczmarek would have to agree with that.