Who will be Poland's next central bank chief?

By bne IntelliNews November 29, 2006

Jan Cienski in Warsaw -

A growing number of lists are appearing in the Polish capital featuring the names of potential central bankers as the government begins its search to replace Leszek Balcerowicz, the current governor whose term expires in January.

Balcerowicz was the architect of Poland's 1989 economic reforms that catapulted the country from socialist stagnation to fast-growing capitalism. But the painful transformation created as many losers as winners, and Balcerowicz, with his no-nonsense economic liberalism, became the target of fierce criticism from those who thought the transition too fast and that he had unnecessarily sold off key state-owned assets to foreigners.

A big hand for Mr Balcerowicz

Balcerowicz came under a fresh wave of condemnation when he became central bank chief in 2001, immediately putting the screws to rising inflation by pushing for an increase in interest rates.

He also fell out with the current conservative Law and Justice party government by refusing to cooperate when the government tried to block the merger earlier this year of two local banks owned by Italy's UniCredit Group.

An enraged parliament rushed through legislation creating a special investigative commission to look at the banking sector since 1989, and its first witness was Balcerowicz's wife, who heads an economic think-tank. The commission was declared unconstitutional before it could force Balcerowicz himself to appear before it.

Now many of the politicians who led the calls for his defenestration are in power and they will get to choose Balcerowicz's successor.

Who's who

Lech Kaczynski, Poland's president, will have to nominate a new central bank governor, and his choice then has to be ratified by the parliament. Speaking in a recent interview, Kaczynski made clear his distaste for many of Balcerowicz's policies, arguing Balcerowicz led Poland down a path that was "socially very costly."

Kaczynski made apparent that he did not want someone with the prestige and influence of Balcerowicz to take the job.

"Mr Balcerowicz is an unusually powerful person in our country and that system of interests tied to the banking sector is unusually strong. That has to be changed," he said.

Poland's president also wants the bank's mandate widened to include economic growth as well as price stability as its policy goals.

"Of course the central bank should be an institution that should work with other bodies so that there is the fastest possible development," he said.

In his traditionally caustic fashion, Balcerowicz dismissed such suggestions, noting that such a move "would violate European and Polish law".

He added that any such statute change would also make a subsequent bank governor less resistant to government pressure, endangering Poland's current record as having a strong currency and one of Europe's lowest inflation rates.

Even if the government does not change the bank's mandate, a lot can be accomplished by bringing in a governor who shares the government's scepticism of classic economic liberalism.

Recently the president's twin brother, Jaroslaw Kaczynski, Poland's prime minister, said that he was thinking of a candidate "who is right, in contrast to the current national bank governor, who is almost always wrong."

There was speculation he was thinking of Urszula Grzelonska, a microeconomist at the Warsaw School of Economics.

One senior government official said he was surprised at the nomination because Grzelonska is quite elderly, often falls asleep at meetings and has no known monetary policy views.

Grzelonska's chances have probably dimmed after a recent interview in which she shook currency markets by wondering about the benefits to Poland of adopting the euro.

Since that comment, six or seven other names have been appearing in various lists making the rounds of Warsaw.

They all feature Zyta Gilowska, the current finance minister, as well as Stanislaw Kluza, the head of the newly created Financial Supervisory Commission and a former finance minister.

There is also talk that Kazimierz Marcinkiewicz, a former prime minister who earlier this month lost his bid to become Warsaw's mayor, could take Gilowska's job, which would then open the way for her to move the central bank.

The government is likely to have a nominee before Christmas, but whoever it is will have a difficult task matching Balcerowicz's record, said Dariusz Filar, a member of the Monetary Policy Council which, together with the central bank governor, sets interest rates.

"Leszek Balcerowicz's record is inflation very close to its target levels, a strong zloty and a stable financial sector. It would be good if a successor were to retain a similar level of stability," he said.

Send comments to Jan Cienski

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