Monday, February 1, 2010

"The 'Secret' of Poland's Success" by Jacek Rostowski

Poland's Minister of Finance, Jacek Rostowski, has written an op-ed for Wall Street Journal Europe (excerpts below). The text follows an earlier op-ed published in the Financial Times on January 14, 2010 on the sources of the global crisis.

Irrelevant of whether I agree or disagree with Rostowski (I am not sure why, given that the general government deficits increased to 7% of GDP in 2009 and 2010, the author does not mention that Keynesian fiscal easing has helped cope with the crisis), I have to admit that he is doing an amazing job in advertising Polish economic success. For that, chapeau bas!

The 'Secret' of Poland's Success
February 1, 2009
By Jacek Rostowski

Warsaw -- Poland is the only country in Europe to have come through 2009 without recession. What is more, growth was about 1.5%, which is the trend rate of the euro-zone countries, though well below Poland's own potential. How can we account for Poland's success, and what lessons should we draw from it?

Several factors account for the country's performance: strong institutions, a resilient economic structure, and well designed economic policy during the crisis. High levels of trust in the government ensured that statements by politicians about the strength of economic fundamentals and of the financial system were believed. This trust was partly based on the success of Poland's institutions and economy over the last 20 years, during which time the country has had the highest sustained growth in the region -- real GDP has doubled over this period, while increasing only 70% in Slovakia, 45% in the Czech Republic, Hungary and Estonia, and not increasing at all in Russia and Bulgaria.


What makes Poland stand out is the economic policy it pursued.

That policy was based on a profound belief in free market economics. Fiscal policy is a good example of this approach. Most countries instituted stimulus programs at the beginning of the crisis. Those that did not were generally ones that could not obtain the necessary financing, such as Hungary or the Baltic states. Poland was probably the only country in Europe which could afford to finance a stimulus program, but decided not to. Indeed, we did exactly the opposite, cutting expenditure at the height of the crisis (in December 2008 and January 2009) by the equivalent of 1% of GDP. We also took additional revenue measures in July 2009 amounting to 0.8% of GDP.

The aim of these highly orthodox (but at the time atypical) measures was to re-establish investor confidence in the country, at a time when central and eastern Europe was (wrongly, as it turned out) viewed as highly crisis-prone. This lack of confidence was leading to an uncontrolled depreciation of the region's currencies, and runaway depreciation was the only serious threat to the stability of the banking system (which had a moderate, though significant, amount of foreign currency exposure).


At the same time, the Polish government realized that only free trade would allow Poland to get through the crisis successfully, and allow Europe to avoid a repeat of the economic horrors of the 1930s. [....] Poland also believes that international solidarity is a key to successfully overcoming the crisis. That is why we have contributed to international financial support for Iceland, Latvia, and Moldova.

Poland has stuck to its belief in free market principles during the crisis. Instead of a stimulus package, it enacted an effective savings program, as well as implemented several key structural reforms. That is the "secret" of Poland's success.

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