Poland Treads Warily Between Voters and IMF

In Warsaw, Prime Minister Olszweski tries to build support for a budget that limits the deficit to 5 percent of GDP and aims to trim inflation to 40 percent

POLAND'S shaky new government is betting its future on this year's proposed budget for the nation, which it will present to Parliament today. If it is rejected, Prime Minister Jan Olszweski says he will resign.

Mr. Olszweski, only in office since December, got a shock earlier this month when the Sejm, the important lower house of Parliament, failed to pass the government's plan for economic reform.

Hoping to avoid a similar fate for the budget, the prime minister is busy trying to broaden his support in the Sejm. He has begun talks with prominent rivals to join the government's tiny coalition, which has no more than 30 percent of the vote in the Sejm.

Poland's government is in dire straits. Its main source of revenue used to be state-owned industry. But that pillar has crumbled. Although private industry is growing nicely, it also easily dodges Poland's underdeveloped tax-collection system.

Last summer, when the government overshot the budget deficit negotiated with the International Monetary Fund, the IMF suspended its payments to the cash-strapped government. Fulfillment of the IMF stabilization program is necessary for the completion of the debt write-off that Poland negotiated with the Paris Club of nations last year. Under that agreement, the Paris Club is forgiving 50 percent of the $35 billion that Poland owes its governments.

Poland's finance minister, Andrzej Olechowski, flew to Washington last week to plead the case for the new budget before the IMF. The budget proposal limits the deficit to 5 percent of gross domestic product and targets inflation at 40 percent, versus 60 percent last year.

The IMF found the targets acceptable and expressed support for the budget. However, the IMF is not satisfied with promises only. It wants concrete action before it resumes payments.

Whether Poland can actually stick to a budget is the big question. Its track record is not good and tremendous pressure is being exerted from the population (9 million Poles live at or close to poverty) to lighten up on economic reform.

Andrzej Wroblewski, editor of the banking publication Gazeta Bankowa, says the Sejm will probably pass the budget, "but it [the budget] will deteriorate step-by-step" as the year goes on. Budget cuts will begin to be felt and the politicians will capitulate to public pressure, he says.

Many lawmakers and observers here agree that the Sejm will eventually pass the budget, simply because it has little choice. Elections last October put 29 parties in the Sejm, with no party gaining more than 13 percent of the vote. Few parties want the upheaval that would come with a resigning government. Neither do they relish the idea of new elections - a possibility if no budget is passed within a given time.

"Parliament can vote against the budget, but we know how difficult it was to form a government coalition and we're aware how hard it would be to form a new one," says Zbigniew Janas, a member of the Sejm and of the Democratic Union, which is talking with the government about possibly joining the coalition.

If the prime minister succeeds in broadening his coalition, it would help in smoothing the way for the budget and in the "post-budget" stage as well, political analysts here say.

For instance, in order to implement the deep cuts necessitated by the proposed budget, the prime minister wants Parliament to grant the government special powers. This, however, could only be approved with a two-thirds majority of the Parliament.

Western economic analysts here also say that in order to have any hope of meeting the deficit target, Parliament must overturn two recent decisions by the country's high court. This would also require a two-thirds majority.

The court declared certain pension reductions and government wage freezes as illegal. If these two decisions stand, they will together add up to the 5 percent of GDP which the government has set as the deficit target. "You will have no budget unless these decisions are overturned," says an influential Western economist here.

Although the budget proposal appears to reflect a willingness to continue with the hard-edged reform begun by its predecessors, some observers believe this government is softening on reform.

One Western diplomat says the government's recently rejected economic plan showed a tendency toward a looser monetary policy, which he viewed as dangerously inflationary. "The viewpoint from the West was that this was a step backwards," he says.

"The plan was misread," says Ian Hume, director of the World Bank in Warsaw, talking about the West's negative reaction. There were a few elements in the plan, he says, that the World Bank could not support, but basically, "this government is determined to try and maintain a degree of budget discipline."

Mr. Hume, however, strongly criticizes the government because it has not yet begun its privatization program, a months-old plan, in earnest. The delay, he says, "is debilitating."