Too fast off the mark

   The Monetary Policy Council (RPP) may have been unduly rash in its decision this week to raise all basic interest rates by one percentage point. While the council is right in wanting to be perceived as an inflation fighter, hiking the rates again, the second time in three months, is a little over eager.

   As economists pointed out last week, inflation is less of an immediate threat to Poland's economy than its ballooning current account deficit. Hiking rates actually hurts efforts to curb that deficit as higher rates lead to a stronger zloty. The higher interest rates actually yield a larger real return for investors in zloty-based instruments. A stronger zloty, in turn, is bad for exports, and stronger exports, combined with lower consumer demand, is what is needed to solve the current account deficit. The RPP is trying to address one of those factors, currently high consumer demand, with the rate hikes, but the real problem here is Poland's low exports. And higher interest rates, and the stronger zloty that results, won't help exports at all.

   While we at the WBJ would not dare to question the RPP's economic knowledge – they are a highly intelligent group of people – we do question whether the council's most recent move is the right one. The council alone cannot solve this economy's woes, which right now are relatively low productivity and bloatedness in several still state-owned sectors. To drive exports, industries need to be privatized, which will ideally improve their efficiency and therefore competitiveness on world markets. Poland's current account deficit is too big a problem for the National Bank of Poland (NBP) alone.

   Here's an idea: The government could try pushing through stalled privatizations. A good example is the sugar sector, which has watched its privatization flounder in recent months as renegade Solidarity Election Action (AWS) deputies pushed for a Polish cooperative called Polski Cukier. Several international firms interested in buying Polish sugar holdings have been put off while the government bickers over the issue.

   One way or the other, the government should move forward. If that means putting aside some holdings to be sold to foreign investors while others are grouped into a cooperative, then do it. But stop keeping investors, who have tried to participate in the industry's privatization for more than year now, on the sidelines. Try this action plan, AWS: consider the proposal, weigh it, approve or deny it and then stick with it. Inaction, indecision and infighting is what has caused many privatizations in Poland to move slowly – and the economy is paying the price. Pretty soon, the NBP won't be able to bail the nation out.