Political Standoff In Poland Puts Reform at Risk

PRESIDENT Lech Walesa named privatization as a top priority for Poland's new government last week. But there is some question as to whether the parliament can muster enough unity to approve a new cabinet and prime minister, let alone carry out economic reforms.Ninety percent of Polish industry is still state-owned. Many people here are concerned that the Oct. 27 elections, which left the country with a splintered parliament of 29 parties, could delay the process of shifting these operations into the private sector. Ian Hume, director of the World Bank's Warsaw office, says it's too early to tell whether the political disarray will stall reform. Poland has spent the last two years designing a comprehensive privatization program, which Mr. Hume characterizes as "feasible" and ready to be put into practice. But there is widespread disagreement among the new members of parliament about the next stage of economic reform - how fast it should be and to what extent the government should intervene.

Timing crucial Mr. Hume warns against major changes to the privatization program. "The time [to implement] is now," he says. "If they don't implement it now, and [instead] start redesigning, it could be another year away. That would be most unfortunate." The timing is crucial. Although Poland has a booming private sector, which has created 2.5 million jobs since 1989, this is not enough to make up for the depression in state industry. The government budget is in a crisis, and the sooner it gets state industry into private hands and running more efficiently, the faster its tax base will revive. There's another reason for the urgency: the race in Eastern Europe for foreign capital. "It's clear in Poland we do not have enough capital to buy up the big concerns," says Elzbieta Boniuszko of the Ministry of Privatization. Investment from the West, therefore, is essential. But it looks as if most Western companies seeking an East European base want to locate in only one country. If Poland waits much longer, it may lose out to competitors such as Hungary, which already has a head start on its neighbor to the north. It is misleading, however, to say that Poland has done nothing on the privatization front. It spent two years of concentrated effort working on its program, which aims to privatize 8,000 concerns in three years. The program allows several different ways to privatize, and also is "socially conscious" in that it will distribute some shares in the new companies to Polish citizens.

Bulk of work ahead As of the end of September, Poland had privatized 881 concerns, Ms. Boniuszko says. According to Hume, about 80,000 to 90,000 local retail, wholesale, and service businesses have also been auctioned off. But Boniuszko admits that the bulk of the work lies ahead. "Now it's the question of privatizing the big industrial plants," she says, explaining that the first step here is to restructure them into more efficient running units that are attractive to investors. Hume is surprised that the level of Western investment in Poland is not much higher. There has been a lot of interest, he says, but "we're disappointed with the lack of commitment." He says the investment climate has much improved, with monetary reform having brought inflation more or less under control; the government now willing to allow repatriattion of 100 percent of profits; and good opportunities in the food, textile, telecommunications, and services industries. The country is in a severe depression, however. And normal business conditions - such as smoothly functioning telephones - are missing. But Hume says these problems are "temporary." Two years of planning may mean that Poland can pursue privatization in its own way, and in an orderly fashion. But the wait may make it more difficult to actually implement privatization, especially as far as workers are concerned. Poland already has about 2 million people unemployed, about 10 percent of the work force. Hume says unemployment could reach 3 million once privatization gets rolling. Poles are not averse to reform, per se, but they are tired of the financial hardship involved. Monetary reform, for instance, left many Poles worse off financially.

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