Polish govt tries to ram through spending as early polls loom

By bne IntelliNews August 31, 2007

Jan Cienski in Warsaw -

Jaroslaw Kaczynski, Poland's prime minister, is cranking up promises to increase spending while trying to soothe ruffled relations with trade unions as early parliamentary elections loom ever closer.

Kaczynski earlier this week signed an agreement with the Solidarity trade union that promises to boost the minimum wage by 20% and delay by a year plans to reform an early retirement programme for politically powerful workers like miners. The total cost to the budget is expected to be about PLN1bn (€260m).

"Cynics are saying that [the Law and Justice party] are pushing to complete legislation which will make them look good in the upcoming electoral campaign," says Annie Krasinska, analyst with Wood & Co. "The irony is that it is only in their final hours that they have been galvanised into actually passing legislation, rather than just bickering over it."

Analysts at BHP Bank agree, remarking that, "the election campaign has begun with election handouts."

But Kaczynski insists his decision had nothing to do with politics or with the increasing likelihood of early elections. "That is a completely baseless accusation," he said August 28 while administering a few solid kicks at the political opposition, calling them "primitive" and "boorish".

The promises come before the vote scheduled for September 7 on dissolving parliament and holding early elections, possibly in October. The vote became necessary following this summer's messy collapse of the governing coalition amid accusations of corruption and the alleged misuse of law enforcement agencies as political police to spy on the opposition, business and journalists.

Facing a quick return to the ballot box, Kaczynski has revisited the economically populist themes that helped his party squeeze out a narrow electoral win over the more pro-business Civic Platform party two years ago by appealing to those who had not done well out of Poland's economic transformation. During a weekend party rally in the port city of Gdansk, cradle of the Solidarity movement that helped bring down communism and which is claimed by both the Law and Justice and Civic Platform parties, Kaczynski called for a victory of social solidarity over economic liberalism. "These have been the best years in Poland in many decades," he told his cheering supporters.

The economic numbers certainly look very good.

But where credit is due?

Gross Domestic Product expanded by 7.4% in the first quarter of this year and growth for the year is expected be about 6.5%. Unemployment, which peaked at 20.7% in 2003, is down to 12.4% and many analysts expect it to drop below 10% by the end of the year. Foreign investment came in at $6.4bn for the first five months of this year - a record.

But very little of the credit for that economic record rests with Kaczynski's government. He has focused most of his energies on trying to root out former Communists from public life and, so far unsuccessfully, uncovering a conspiracy of bent politicians, business oligarchs, criminals and spies that he claims rules Poland from behind the scenes.

In its early months almost two years ago, Law and Justice, under the leadership of former PM Kazimierz Marcinkiewicz, promised to lower taxes, improve infrastructure, sell off most state-owned companies, and break with the practice of the ex-communist left and appoint managers based on open contests and professionalism rather than connections and cronyism.

The record has not been kind to those promises. Public finances have not been reformed; privatization proceeds last year were about PLN600m, while the budget projection had called for PLN5.5bn in sales revenue; tax cuts have been put off until 2009; the pension system has not been reformed; a promise to address the housing shortage by building 3m apartments remains unfulfilled; a programme to slash red tape for businesses is still stuck in parliament; and Poland this year will see the construction of only 6km of new highways. Finally, loyalists have been installed in ministries, regulatory agencies and state controlled corporations.

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Polish govt tries to ram through spending as early polls loom

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