Poland's New Governing Coalition Bickers Over Budget and Reforms

POLICY CLASH

DESPITE major disagreements between Poland's two governing parties, the country's three-month-old ``post-communist'' leadership has managed to maintain the economic reforms begun in 1989 when communism fell.

But the resignation of the finance minister Feb. 4 reflects economic-policy differences between the two parties that could endanger Europe's fastest-growing economy.

Marek Borowski resigned after his boss, Prime Minister Waldemar Pawlak, removed a deputy finance minister without consulting Mr. Borowski. Borowski, a member of the former communist Democratic Left Alliance (SLD) that finished first in last September's parliamentary elections, interpreted the removal of his deputy as a personal vote of no-confidence.

Critics portray Borowski's exit as a political victory for Mr. Pawlak, which could translate into budget-busting measures, such as greater spending for social programs and the subsidizing of large, inefficient state-owned firms.

Pawlak, whose Polish Peasant Party (PSL) placed second in the September elections, dropped Deputy Finance Minister Stefan Kawalec Jan. 27 after the latter allegedly underpriced stock offered to the public.

Last November, as part of a privatization drive, 30 percent of Bank Slaski shares were offered to the public for 500,000 zylotys ($23) each. A further 25.9 percent were sold to the ING Bank of the Netherlands in an effort to inject some Western technology and management technique.

Share price soared

But pandemonium broke loose Jan. 25 when Bank Slaski opened on the Warsaw Stock Exchange at 6.75 million zlotys ($315), 13.5 times the initial share price. Pawlak's Peasant Party claimed that the budget had been cheated of precious revenue and Kawalec was dismissed. The stock market reached an all-time high that day but has since leveled out.

Most observers dispute the PSL's claims that the original share price was too low and that the Dutch bank was unnecessary as a strategic investor. Instead, they say the economy, which grew by 4.5 percent last year, remains in good hands as long as Borowski's team stays in power. With Borowski gone, however, some fear his replacement will be unable to stave off demands for looser monetary, fiscal, and wage discipline.

Despite the fact that Borowski and Privatization Minister Wieslaw Kaczmarek are former communists, foreign and domestic observers often heralded them as pro-marketeers. Borowski's replacement will find himself defending a tight budget against a hungry Parliament.

Analysts say there is little the new leadership can do if it does not want to unravel the economy. ``If you don't want to go down the road of hyperinflation, you have to control your budget, you have to privatize,'' one observer says.

In the Cabinet's budget proposal last month, Borowski managed to convince his fellow ministers to keep the deficit at 4.1 percent of gross domestic product, as recommended by the International Monetary Fund.

Pressure on budget

The coalition's two-thirds majority in the lower house of Parliament, the Sejm, is expected to pass the budget next month. Even so, some observers worry that Sejm deputies will try to increase spending.

Such pressure could come from the Democratic Left Alliance itself, since 61 of its members belong to the OPZZ trade union and habitually remind the party of its promises to ease the pain of reform.

Pressure could also come from Pawlak's Polish Peasant Party, which seldom hides its desire to protect the Polish market and provide farmers with cheap credit.

Borowski told the Warsaw daily Gazeta Wyborcza Feb. 5 that ``the PSL is playing the role of a brake on the economy,'' and thinks only of ``sucking everything out for the farmers.'' PSL leaders have also been criticized for trying to limit foreign ownership in state firms undergoing privatization.

For their part, PSL leaders note that 16 percent of Poles are unemployed and nearly one-third of Polish farmers are having trouble making ends meet.

Andrezej Wroblewski, editor of the business weekly Gazeta Bankowa, suggests that if the PSL gets its way on economic policy, development in Poland could be hindered. Mr. Wroblewski says that ``by helping his own constituency [Pawlak] fossilizes the economic and social structure'' in a country where nearly one-third of the population still lives on the land and cultivates small, inefficient family farms.

``What would be a healthy development, following Western societies, is if more people from agriculture and the countryside move to services and industry,'' Wroblewski says. ``Right now we have heavy unemployment and there are no jobs awaiting those farmers. But to preserve agriculture like it is leads to nowhere, it only postpones the problems that sooner or later have to be solved.''