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The Role of Currency Exchange

In this situation, expanded exports to the West provided the only alternative for the many enterprises whose survival depended on foreign trade. The government's stabilization policy had an impact that promised expansion of exports to hard-currency markets. In 1991 drastic limitation of domestic demand, devaluation of the zloty by 32 percent, and liberalization of access to foreign trade by private entrepreneurs resulted in significant expansion of export earnings in convertible currencies. In 1990 the volume of hard-currency exports increased by 40.9 percent to over $US12 billion, while hard-currency imports increased by 6.3 percent, securing a positive trade balance of $US2.6 billion.

The level of exports earning hard currency in 1990 was particularly impressive in comparison with the generally sluggish growth of that category in the late 1980s. In the last years of the communist era, fuel exports declined steadily, and metallurgical exports decreased in three of the last five communist years. Construction work in countries paying in hard currency declined in the first three years of the period, whereas exports from the wood and paper, engineering, and chemical industries behaved unevenly.

In 1990, by contrast, hard-currency exports increased in most sectors of the economy. The largest increases in that category were achieved in agricultural, metallurgical, and chemical products. In general, the share of manufactured products in Poland's export mix declined sharply with the sudden shift away from Comecon trade. In 1990 the largest major categories of manufactured exports were, respectively, machines and transport equipment, miscellaneous manufactured goods, and chemicals; their share of total exports was 42.4 percent, compared with 67.3 percent for the same categories in 1985. Growth in exports of food, raw materials, and fuels accounted for the difference.

Although the share of engineering products among exports declined, that group was the most important single earner of hard currency in 1990, followed by metallurgical, chemical, and food products. In 1992 all those industries possessed considerable capacity to expand their productivity, given appropriate investment in modernization and efficient marketing. However, both modernization and marketing depended heavily on cooperation with Western firms. Despite the remarkable increase in hardcurrency exports in 1990, their overall impact on the national economy was limited by the strong effect of reduced transferableruble exports on the priority sectors. In 1990 Polish light industry led the general decline in ruble exports.

At the beginning of 1991, however, the growth rate of hardcurrency exports declined, and imports increased very rapidly. Inflation remained high, and the advantage created by the 1990 devaluation slowly eroded. Another devaluation, this time 17 percent, was effected in May 1991. At the same time, the zloty was pegged to a combination of hard currencies instead of to the dollar alone. In October the fixed exchange rate was replaced by an adjustable rate that would be devalued automatically by 1.8 percent every month as a partial hedge against inflation. The final import figure for 1991 was 87.4 percent higher than that for 1990. In 1991 exports in convertible currencies were a little over US$14.6 billion and imports were nearly US$15.5 billion, creating a hard-currency trade deficit of about US$900 million.

Figures for the first five months of 1992 showed a reversal of the previous year's imbalance. The hard-currency trade surplus of US$340 million reported for that period was attributed to a combination of commodity turnover and cancellation of interest payments in Poland's debt reduction agreement with the Paris Club.

For years under the old system, Poland dispersed small amounts of its export and import trade to a large number of nonComecon countries on all continents. Experts considered such dispersion a policy weakness because marginal suppliers and buyers usually trade at less favorable terms than high-volume partners, making the former expendable in hard times. This factor became even more important in the first postcommunist years; in 1990 Poland's fifteen top import customers absorbed only 81.3 percent of exports, while the fifteen top suppliers contributed 86.2 percent of Polish imports. Poland's traditional partners in the former Soviet Union and Germany (before and after their respective realignments) retained disproportionately high shares in both categories in 1990 (see table 18, Appendix).

Data as of October 1992

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