World Economy

Poland Capable of Rebalancing Growth

Poland Capable of Rebalancing GrowthPoland Capable of Rebalancing Growth

Free market economics have served Poland well. Since a brief downturn in the early 1990s when it launched its post-communist transformation, it has had no recession. Its economy grew right through the global financial crisis. A Polish World Bank economist has calculated that in two decades, Poland has offset 500 years of earlier relative economic decline against western Europe.

So the declaration of a “Farewell to Neoliberalism” in an interview by Poland’s Economy Minister Mateusz Morawiecki has caused understandable alarm among international partners and investors. They fear that by switching to a more nationalist, state-dominated approach, Poland could repeat Hungary’s mistakes and damage its business climate—and growth. Its new Law and Justice government has already aped Budapest with moves towards a more “illiberal” democracy, FT reported.

Warsaw is not about to jettison the market and return to central planning. Morawiecki wants to rebalance the economy, reducing the huge dependence on foreign capital. Instead of relying on cheap labor to make products for German or French-owned groups, Poland needs to nurture its own internationally competitive and innovative enterprises. That means a role for the state, he says, as a “partner and guide” for business.

These are valid aims as Poland moves into the second phase of its post-communist development. Poland’s embrace of foreign investors in its 1990s privatizations led to rapid modernization through the import of international capital, technology and best practices. It avoided creating Russian-style domestic oligarchs.

  Pitfall Exposed

But it led to foreign companies heavily dominating some sectors, notably banking. The financial crisis exposed the pitfalls, when international financial institutions had to act fast to ensure western European banks did not pull capital out of their eastern European arms to bolster balance sheets at home.

To increase the share of domestic ownership in banking and elsewhere, however, Poland should not follow Hungary by squeezing out foreigners. There, Premier Viktor Orban’s government imposed “crisis” taxes on the retail, telecoms and energy sectors, all dominated by international investors and temporarily destroyed banking profitability. Some smaller foreign players sold their operations to Hungarian buyers. Bank lending and foreign investment slumped.

Warsaw is planning a retail tax and has imposed a bank levy. Like Orban, Poland’s President Andrzej Duda published plans to make banks shoulder the cost of converting $42 billion of Swiss franc ($43.62 billion) mortgages, where the exchange rate has swung against borrowers, into local currency. After regulators warned those plans could provoke a banking crisis, Duda signaled he will water them down.