beyondbrics

Leszek Balcerowicz isn’t in the habit of trowelling on the compliments, so it wasn’t much of a surprise when the former chairman of the National Bank of Poland summoned reporters to his think tank on Monday morning to lambast the government’s fiscal tightening and economic reform plans.

The architect of Poland’s jump from socialism to capitalism in the early 1990s was acerbic in his views of Jacek Rostowski, the Polish finance minister, and of the reform proposals put forward by premier Donald Tusk late last year.

The big problem, according to Balcerowicz, is that the proposals focus much more on increasing revenues – bringing in a new resources tax on copper and silver, tightening up tax loopholes and increasing employers’ social security contributions – and much too little on slashing what he sees as an overgrown and malfunctioning state apparatus, although he did praise a promise to increase the retirement age to 67.

“Increasing spending needs are creating the drive to raise taxes and other government revenues,” says Balcerowicz,  pouring particular scorn on a letter from Rostowski to the European Commission where one of the new sources of revenue is 1bn zlotys ($289m) in increased traffic fines thanks to a denser network of police radars.

Balerowicz, who has served in the past as finance minister as well as central bank governor, was initially a supporter of Tusk’s government, but became disenchanted with its inability to tackle politically difficult reforms. He ended up leading a failed attempt to prevent the government from partially nationalising part of the pension system and since then has kept up a steady barrage of criticism from the sidelines.

His FOR economic think tank pointed out that from 2010-12 public expenditures in Poland fell by 0.6 per cent, less than the EU average of -1.6 per cent. Tusk’s reform promises will cut spending by 0.1-0.2 per cent of GDP, while revenues in 2012 will increase by 3.8 per cent of GDP.

Rostowski asserts that the deficit will fall below 3 per cent this year, down from a high of 7.8 per cent in 2010, part of the government’s insistence that it is doing enough to bring the deficit under control without choking off growth.

There is a view both among government officials and many analysts that the markets are being unduly harsh on Poland, punishing the zloty for the sins being committed by Hungary and by a general weakening of sentiment towards Europe thanks to the eurozone crisis.

Nonsense, says Balcerowicz, who feels that markets and ratings agencies have it about right – treating Poland with more suspicion that neighbouring countries like the Czech Republic. He points out that last year the average cost of Polish 10-year bonds was about 6 per cent, while Germany, France and Britain (all with higher debts than Poland) had borrowing costs that ranged from 2.6 to 3.4 per cent, while the Czechs had to pay an average of 3.7 per cent.

Coming from the man who infuriated Rostowski by putting up a huge pubic debt counter on Warsaw’s main intersection, more sniping from Balcerowicz cannot make for pleasant listening at the finance ministry as it attempts to steer Poland through the coming economic squalls.

Related Reading:
12 for 2012: Why Poland will avoid recession even if whole EU does not, beyondbrics
Poland: the zloty’s Magyar moment, beyondbrics
Poland: end-of-year zloty shenanigans, beyondbrics
Poland finance minister lays out worst-case scenario, Reuters