Political polonaise - forum attended by Polish Prime Minister Jozef Oleksy and US business leaders - Panel Discussion

Chief Executive, The, Jan, 1996 by J.P. Donlon

Privatization and the rapid growth of a new entrepreneurial class have transformed Poland's once-stodgy, centrally planned economy. Recently, Poland's Prime Minister Jozef Oleksy - a former member of that centrally planned past - spoke with CEOs in New York, reassuring them that his government remains a committed partner in the dance of economic liberalization.

One of the first countries to shake off communist rule, Poland was also one of the first to reelect former communist politicians. Those 1993 elections were brought about by President Lech Walesa, former electrician and Solidarity leader, in the mistaken belief that he would consolidate his power and stabilize his anti-communist government. The exact opposite happened. A split Solidarity movement had to share power with a coalition led by SLD, the Democratic Left Alliance. Recently, the SLD's 41-year-old leader, Aleksander Kwasniewski, a former minister in Poland's last communist-era government, narrowly beat Walesa in a second-round presidential election. He then promptly resigned his party membership in an attempt to shed the "ex-former-post Communist" label, all the while insisting he's been a social democrat for the past six years. He joins SLD Prime Minister Jozef Oleksy in a unified government that will lead Poland into the 21st century. "In the short term, Kwasniewski's election will have no effect on Poland's economic reform," says John Mroz, president of the Institute for East West Studies. "The concern lies in the medium term. Will we see a shift toward the Slovak model, in which political cronies get rewarded and private business is penalized?"

Before the elections, Prime Minister Oleksy spoke to CEOs at a Chief Executive forum in New York. Oleksy sought to persuade assembled business leaders, several of whom have sizable direct investments in Poland, that the government plans to continue its program of economic liberalization and privatization. Currently, 60 percent of its GDP comes from the private sector. Two-thirds of its trade is with European Union countries. A third of the country's direct foreign investment comes from the U.S. Clearly, Oleksy & Co. - despite their ties to the discredited communist regime - do not wish to disturb this capital influx. The prime minister emphasized his government's keenness to join the EU and NATO before the end of the century.

With 38 million people, Poland is roughly the same size as Spain. The fall of communism brought the country to the brink of economic collapse. Government responded with "shock therapy," the name given to price liberalization and rapid privatization. This also led to rapid unemployment and underemployment, which produced internal friction within Solidarity and a certain nostalgia for the old bosses. Poland's voters, observers say, are no longer frightened that former communists will bring back Stalinism. With Poland expected to continue the 5 percent growth rate it posted in 1995, there is obviously no need to worry on that score. With the unemployment rate down to 12 percent, the country is on a par with France and is doing better than Spain. Inflation has come down but remains stubbornly high at 25 percent. In December 1994, millions of Poles had the chance to buy coupons giving them a stake in the 15 national investment funds set up to manage more than 400 state companies included in the first round of the next mass privatization scheme.

Poland joins Hungary in returning former communists to power. Only the Czech Republic, led by single-minded intellectual Vaclav Klaus, has not done so. Described as Central Europe's Margaret Thatcher, Klaus tirelessly promotes his free-market reforms and Friedman-like monetary policies. Both the Poles and Hungarians claim they are no less market-oriented, only that their means must be more pragmatic. The poor financial condition of state enterprises remains an acute problem for officials in all three countries. In many cases, these enterprises continue to deliver products to traditional clients, expecting local banks or the government to bail them out with soft loans or monetized central bank policies.

Hungary attempted to restructure before privatization and leads the region in having the strictest bankruptcy laws, whereby enterprises are effectively privatized through liquidation. In contrast, the Czech government delayed implementation of bankruptcy until privatization was largely underway, thereby leaving the solvency question to private markets. Poland has pursued a two-track scheme, offering incentives to creditors to reorganize rather than liquidate debtors. The difficulty lies in the transition from central planning to market-based solutions. Bad debt or underperforming assets were made by public-sector banks to state-owned enterprises. There was no postwar tradition and, until recently, no legal framework to resolve unmet commitments. Poland, along with other Central European economies, is beginning the final phase of this transition.

- J.P. Donlon