Poles Try the Free Market, and It Fits

The federal budget - set under an agreement with the International Monetary Fund - has been a favorite target for legislators. In April,the Sejm protected an increase in benefits for pensioners, undermining the budget. The farmer parties, meanwhile, are clamoring for minimum prices for agriculture goods. One recently quit the ruling coalition over the issue.

In Poland, however, "one has to make a distinction between daily events and the fundamentals," comments Ian Hume, director of the World Bank in Warsaw. Day-to-day politics is a very rough-and-tumble affair, but "the fundamentals are strong in Poland," Mr. Hume says with conviction. "The reforms are working."

Hume praises the Poles for "broadly maintaining" the painful macroeconomic reforms launched by then Finance Minister Leszek Balcerowicz in January 1990. These policies called for fiscal, monetary, and wage discipline, a task made slightly easier by the decision of the Paris Club of creditor nations to write off 50 percent of Poland's $32 billion debt.

The country is meanwhile introducing Western taxation methods, including a personal income tax and a value-added tax. Free trade, pricing, and market forces also have solid footing in Poland, with about 80 percent of the economy running on market prices.

Although Warsaw dragged its feet in setting up a plan for mass privatization of state industry, other methods have enabled 1,500 state enterprises to be privatized since 1989. Including new business start-ups, the private sector accounts for nearly half of the country's gross domestic product, which grew by an estimated 0.5 percent to 2 percent last year.

A staggering number of state concerns, more than 6,000, remain to be privatized. But because much of the state sector appears to be restructuring, improving products, and redirecting exports westward, economists are not as discouraged about this as they could be.

Meanwhile, Poland has been able to reorient its trade so 80 percent now flows to Western Europe.

But all of this restructuring and reorientation has caused massive upheaval in Polish society. In March, 2.6 million Poles were unemployed (14.2 percent) and the forecast is for 3 million by year's end. According to an April poll by the CBOS Public Opinion Research Center, about one-third of Poles consider themselves near or below the poverty line.

The gap between rich and poor is still growing in Poland and wages are not keeping up with inflation. "It's very tough on people in the working ranks," Hume admits. Most observers expect more protests and strikes this year, although they do not believe it will come to violent unrest. `Little patience'

The prime minister sees hardship experienced by many Poles as the most likely threat to economic reform.

"People don't have enough patience and they still have this old way of thinking from the communist era, namely, that the state provides for social security and provides the right to employment," she says. "Certain parties are inspired by this old way of thinking and they want to play this card" by calling for early elections - which Suchocka says would be a diversion from economic reforms.

The Suchocka government has tried to address popular frustrations by concentrating the state's limited funds on especially depressed areas, setting up tax havens there, and allowing unemployment benefits to run longer in those regions. Medical care is still government-funded, although patients must partially pay for medicine. Meanwhile, the mass privatization plan is intended to share some of the assets left over from communist rule with the population.

Andrzej Wroblewski, editor of the banking journal Gazeta Bankowa, worries the government may go too far in trying to satisfy Poland's newly poor. The government, he warns, cannot afford to be a "good uncle" to everyone. "However cruel it may be, you must reward those who are pulling our economy ahead more than those who are pulling out."

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