Not like the neighbours
From The Economist print edition
Most east European economies look sickly, but not Poland—so far
A LOT like South Korea, a bit like Mexico and not at all like its neighbours. That is how Poland wants to be seen after it set up a $20.5 billion credit line from the IMF. This was not a bail-out like those for Ukraine, Hungary and Latvia. It was a precautionary and unconditional overdraft offered only to top-quality borrowers, say officials. The only other country to get similar treatment is Mexico.
A more flattering comparator is South Korea which, like Poland, has let its currency slide, while shunning the deficit-swelling policies of Britain and America. The zloty has fallen by 30% from its peak. The central bank has cut interest rates from 6% in October to 3.75%. Poland faces the crisis in a stronger position than many. Krzysztof Rybinski, a partner at Ernst & Young in Warsaw, points to consumption of 61% of GDP in 2008, close to Western levels. Rapid wage growth and low debt make consumers more robust.
This is partly luck. An overly tight monetary squeeze early in this decade headed off an asset-price bubble. Bureaucratic government checked the property boom; so did tough bank regulation that restrained the borrowing, chiefly in foreign currency, that plagues Hungary. “The things that you criticised Poland for in the past are now proving a blessing,” says a senior official.
The government’s gloomiest forecast is of a rise in GDP this year of 1.7%. Neil Shearing of Capital Economics thinks GDP is more likely to fall by 3%. Unemployment, swollen by returning migrants from western Europe, is already 11.2%. Exports have stalled. Industrial production in the first quarter was down by a tenth on a year ago. Ill-considered currency hedges have hit some firms. Tax revenues are sagging. The government’s efforts to prepare for euro entry by 2012 look “fairly futile”, says Mr Shearing. He thinks 2015 is more realistic.
Yet firms that survived the bureaucratic and other problems of the past 20 years are a resilient lot. Krzysztof Sklorz, whose Katowice-based company exports bricks and tiles, says zloty instability is a problem. But, he adds, “I took out a loan in euros and that’s what my clients pay me in as well, so that’s all right.” Unconsciously echoing Schumpeterian notions of creative destruction, Jozef Przyblya, a hotelier in another Silesian town, Pszczyna, says the crisis has weeded out the “weak and reckless”. The strong euro brings new guests from Germany and even Slovakia (now in the euro). One survey found that over 60% of big firms plan new investment this year. German subsidies to car buyers have stoked demand at Polish factories.
Unlike others in eastern Europe, Poland’s government is strong and stable. But its main contribution, says Marcin Piatkowski, a former IMF economist now at Warsaw’s Kozminski Academy, has been “brilliant PR”. Downplaying the crisis has been good for confidence, but doesn’t help promote much-needed reforms, he notes. One such is of bureaucracy: Poland comes 76th in the World Bank’s ranking for ease of doing business, below Kazakhstan. Mr Rybinski calls this “shameful”.
At least limited reforms to health care, pensions and the labour market are under way. One excuse is that President Lech Kaczynski vetoes laws put forward by a government he detests. Yet by the standards of the region, both Poland’s politics and its economy look pretty good.