beyondbrics

Marek Belka has only been on the job as Poland’s central bank chief for a week – but he’s already managed to end a long-running dispute with the finance ministry over applying for a Flexible Credit Line from the IMF.

Thanks to a deal struck between Belka and Jacek Rostowski, Poland’s finance minister, Poland is reapplying for a $20bn FCL – an option available only to countries with otherwise healthy economies who could be subject to unwarranted external shocks.

“It’s good to have an additional weapon in our arsenal,” says Belka, who is just setting himself up in the central bank’s offices.

The FCL application had been opposed by Belka’s predecessor, Slawomir Skrzypek, who died in the April 10 crash of the Polish government airliner.

Skrzypek had argued that Poland’s foreign currency reserves were sufficient to protect the country against any turmoil, and that the FCL would generate unnecessary costs. However, the cost of the FCL is only about $50m, a cost that will be more than repaid if Poland’s borrowing costs drop by more than 3bps due to the added security of having the line in place, notes Piotr Kalisz, an economist with Poland’s Citi Handlowy bank:

“The Flexible Credit Line is an insurance-type instrument whose virtues could become more evident in case of large financial turmoil. Therefore, although at the moment we treat the FCL as neutral for the market, we think it could potentially be supportive for PLN in the longer term and at least it could limit the amplitude of FX movements in case of renewed market tensions. This should also help the Finance Ministry to keep selling bonds at favourable prices as the prospect of IMF’s support may be an important factor especially for foreign investors”.

The finance ministry had already been working to change the bank’s mind but the arrival of Belka – a former European director of the IMF – ended the tensions.

Poland, like the rest of central Europe, has been hit with the aftershocks of the crisis in the eurozone, with skittish investors retreating from emerging Europe, causing local currencies to drop against the euro and the dollar.

Poland, one of the EU’s best performing economies, should not have much of a problem in getting the IMF”s approval. John Lipsky, the Fund’s deputy managing director, said: “The IMF’s management intends to seek approval by the Fund’s Executive Board of the request in early July.”

Asked if the comity over the FCL is a sign of a cuddlier relationship with the finance ministry – which lies just across the street from the bank – Belka grins and says that some level of friction is normal. He should know – as a former finance minister, he was involved in several
bruising battles with his central bank opposite numbers.

“It’s healthy to have a little tension,” he says. “Which does not exclude decent cooperation.”

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At Poland’s central bank, Belka likely to mend fences with finance chief – beyondbrics