Zloty continues to plunge in reaction to Finance Ministry's budget plan

The zloty tumbled for the second straight trading day yesterday, falling 4% against the dollar and euro. Analysts say the latest slump was a reaction to the Finance Ministry's budget revision proposals. The zloty has lost 9% of its value since Thursday. The latest fall came amid speculative selling after the Ministry signalled that it may increase debt issuance by 50% in the second half of 2001, a rise seen as difficult to absorb by the fixed income market. "The news of the additional debt supply triggered immediate zloty selling amid worries over the market's ability to stomach the debt," said Przemyslaw Magda, analyst at AmerBank in Warsaw. An internal Finance Ministry document obtained by Reuters reveals that total debt issuance in the second half of 2001 will rise to zl.33 billion, from the previous plan of zl.22 billion. According to Krzysztof Wojcik with Bank Handlowy in Warsaw, "This is a large increase, but it's no long-term catastrophe for the debt market." Steve Gilmore, an economist with investment bank Morgan Stanley Dean Witter, says the zloty's exchange rate is now favorable for foreign investors to purchase long-term treasury bonds. Gilmore also sees no reason for any further decline in the zloty's status. "Poland is simply having budget problems; it is not on the verge of a currency crisis," he said. (Rzeczpospolita, p. B!; Reuters) M.T.K.