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$Unique_ID{COW02957}
$Pretitle{362}
$Title{Poland
Progress Review of the Government's Program.}
$Subtitle{}
$Author{Polish Embassy, Washington DC}
$Affiliation{Polish Embassy, Washington DC}
$Subject{foreign
per
imports
cent
polish
enterprises
trade
prices
economy
exchange}
$Date{1990}
$Log{Table 1.*0295701.tab
}
Country: Poland
Book: Poland's Economic Transformation
Author: Polish Embassy, Washington DC
Affiliation: Polish Embassy, Washington DC
Date: 1990
Progress Review of the Government's Program.
1. On January 1, 1990 Polish Government launched the program of
stabilization and systemic transformation of the economy. This program aims
at radical deceleration of inflation and elimination of the prevailing
shortages, and hence - at restoring fundamental equilibrium in the domestic
market. The long - term objective of the program is transformation of the
formerly centrally planned economy into a market economy of Western type.
Poland seeks to introduce into her economy not just any market mechanisms and
institutions but those which proved efficient in other industrial countries.
The sequence of the program has been predetermined by the situation of
Polish economy in 1989. During the second half of 1989 prices rose at an
annual rate of 2000 per cent, and inflation was accelerating. The budget was
in deep deficit and credit generation was out of control. Nominal wages were
rising rapidly despite declining industrial output. Food shortages intensified
as farmers hoarded their products in anticipation of further price increases.
2. The stabilization package included five policy measures focussing
primarily on radical reduction of domestic demand:
a/ Reduction of the fiscal deficit. Measures were taken to reduce the
fiscal deficit from 8% of GDP in 1989 to 1% in 1990. They included deep cuts
in government expenditures, like food and energy subsidies, military and
security expenses, as well as expanding budget revenues through elimination of
various tax exemption schemes, increase of sales - tax rates (from an average
10% in 1989 to a more uniform 20%), and strengthening fiscal discipline of tax
collection. Cuts in subsidies were of particular importance, and the share of
subsidies in government expenditures was planned to decline from 36% in 1989
to some 10% in 1990.
Subsidies on coal, transport, and electric energy we radically reduced
as of January 1, 1990 and housing subsidies were to be gradually lowered. Most
of the other subsidies were eliminated. To compensate for subsidy reduction
the price of coal was raised by 500%, the price of electricity by 300% and of
transport 200%, thus bringing such prices closer to world levels.
b/ Monetary and credit restraints were imposed to cool off the economy.
The goal was to achieve positive real interest rates that would obviate the
need for credit rationing. Eliminated was also automatic financing of budget
expenditures through non-interest bearing credits by the central bank.
c/ Price liberalization. Prior to the reform 50% of all prices were
administratively determined; since then, 90% have been market-determined. The
government still administers producer prices of gas, electricity and
plant - protection chemicals, and excercises, in adclifion to that, controls
of consumer prices of bread, pharmaceuticals, public transportation, public
health services and alcohol.
Although the price liberalization should essentially be regarded as a
major institutional reform, it had a strong stabilization impact, as it
contributed to a rapid elimination of excess liquidity, helping to restore the
fundamental market equilibrium.
d/ The wage "anchor". To eliminate the wage-price spiral, wage increase
rules were tightened. For January, the maximum permissible increase in the
wage bill was set at 30% of the cost of living increase and for February and
March at 20%. In subsequent months the degree of indexation was to be revised.
At present it amounts to 60% of the inflation rate. Enterprises exceeding
these limits by less than 200% were burdened with excess - wage tax of 200%
paid out of net profits, and 500%, if the wages grew more than 2% above the
limit.
e/ Foreign exchange policy. Measures applied by the government included
sharp devaluation of the Polish zloty and the introduction of its internal
convertibility. The zloty was devalued in the second half of December 1989 by
58 per cent, and the new rate was set at 9500 zloty per U.S. dollar
corresponding to the prevailing parallel market rate. The moves were intended
to balance the supply and demand for foreign exchange, allow to remove
administrative restrictions in foreign exchange allocation, and unify a
segmented foreign exchange market. Poland became the first country in
East-Central Europe to introduce convertibility on current account
transactions. The system operates as follows:
a/ It applies to all current transactions with payment in convertible
foreign exchange. Payments for merchandise imports and their attendant
services, as well as receipts from exports are channeled through the banking
system. Capital movements and non-commercial transfers are still subject to
foreign exchange restrictions.
b/ Exporters have to surrender the receipts from exports in convertible
currencies and are credited with the equivalent amount in Polish currency.
They may open and maintain accounts in Poland only in Polish currency. The
foreign exchange retention system introduced in the early 1980s has been
discontinued. Under that system exporters were permitted to retain a part of
export receipts in their own foreign currency accounts. They may still hold
their foreign exchange accounts but there are no new deposits made to them.
Old deposits may be used to pay for imports and other expenditures until fully
utilized.
c/ Equal and unlimited access to convertible foreign exchange has been
created for all importers. Banks are obliged to accept and execute payment
orders for all imports in convertible currencies if they comply with the
existing import regulations. The National Bank of Poland must provide the
adequate amounts of foreign currency to commercial banks to secure liquidity
of the system of internal convertibility. There is no distinction between
imports made by firms or households.
d/ A permit is needed to open an account abroad or to draw foreign
credits exceeding the amount of US $ 500.000 annually. Joint ventures may draw
credits in foreign banks without a permit.
3. Trade liberalization. As part of the program of stabilization and
systemic transformation, the Government has taken important steps towards
opening of the economy to the world by establishing a transparent,
market-based trade regime. Exposure to international competition has become an
effective instrument of the policy aimed at promoting structural adjustment,
increasing efficiency, and ending monopolies of large state enterprises.
On January 1, 1990 all quantitative restrictions on imports paid in
convertible currency were eliminated. With very few exceptions such imports
can now be made without official authorizations (concessions) and import
licenses.
Concessions, which some years ago were required for the majority of
import as well as export trade, are practically non existent. They are
required only in case of imports (and exports) of radioactive materials and
arms. Consequently, imports of these goods are subject to import licensing. It
is worth pointing out that until January 1, 1990 most transactions required an
import license. It is against this background that the present liberal import
trade regime should be viewed.
Important changes were introduced into the customs-tariff regime. The
so-called non-commercial trade turnover was eliminated. In what follows
customs tariffs are presently applied uniformly to all imports irrespectful of
who the importer may be. There is no differentiation of tariff rates between