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Economic Policy Making in the 1990s

The presidential election at the end of 1990 and the completely free parliamentary election one year later revealed widespread dissatisfaction among the population about the hardships caused by the process of transformation, but not about its main direction. Campaigning politicians criticized the stabilization policy severely and promised a better alternative to the approach taken by Finance Minister Leszek Balcerowicz. Election results, however, showed continued strong support for privatization and wide acceptance of the principles of the stabilization program. The government of Prime Minister Jan Olszewski came to office in December 1991 promising to ease the burden the austerity program had imposed on society. A particularly thorny political issue was the threat that the communist-installed system of social services such as health care and pensions, to which Poles had become accustomed, would go unfunded at reformed government spending levels. Olszewski's proposals of higher spending were rejected by the Sejm (the lower chamber of the parliament), however, on the grounds that such spending would cause an excessive budgetary deficit whose effects would overshadow any revival of economic activity. Shortly thereafter the IMF warned that a proposed return of agricultural subsidies and price supports would increase the deficit and jeopardize the financial aid package of US$2.5 billion that the IMF had offered on condition of economic reform. IMF disapproval of the budget would also have ended aid in reduction of the national debt (over half of which was to be forgiven by terms of a 1991 agreement) and cut off foreign credits.

Because foreign funding was considered necessary to counteract capital flight from Poland and finance the national deficit while encouraging private enterprise, the government revised its budget proposal. Its new austerity budget, containing a deficit of only 5 percent of GDP, was approved by parliament in early 1992, and the IMF expressed approval as well. On a visit to the United States in spring 1992, Olszewski reassured the United States government, the IMF, and the World Bank (see Glossary) that his government remained determined to transform and stabilize the Polish economy.

Whatever the form of the coalition government, in 1992 effective political leadership was the most important requirement in dealing with the more intractable aspects of economic reform and balancing negative short-term effects with the long-term goals upon which most of Polish society still agreed. The Olszewski government did not pursue vigorously the expansion of its coalition or full-speed economic reform. Olszewski's fall provided an opportunity for Hanna Suchocka, his successor, to reinvigorate the reform program in the second half of 1992.

Data as of October 1992