© 1994 International Monetary Fund

Library of Congress Cataloging-in-Publication Data

Poland : the path to a market economy / by Liam P. Ebrill … [et al.].

p. cm. — (Occasional paper, ISSN 0251-6365; 113)

“October 1994.”

Includes bibliographical references.

ISBN 9781557754110 : $15.00 ($12.00 students)

1. Poland — Economic policy—1990– 2. Poland—Economic conditions—1990– I. Ebrill, Liam P. II. Series: Occasional paper (International Monetary Fund); no. 113.

HC340.3.P6455 1994

338.9438—dc20

94-22746

CIP

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Contents

• Preface

• I. Overview

• Liam P. Ebrill

  • Background

  • Economic Developments

  • Assessment

  • Future Agenda

  • Bibliography

• II. Public Finances

• Gerd Schwartz

  • Fiscal Performance During the 1980s

  • Tax Reform

    • Reforming the Tax System

    • Reforming Tax Administration

  • Expenditure Reform

    • Reforming Expenditure Policies

    • Reforming Expenditure Management

  • Intergovernmental Fiscal Relations

  • Revenue and Expenditure Performance During the Transition

  • Remaining Agenda for Reforming Public Finances

  • Appendix: Major Changes in the Tax System During 1989–94

  • Bibliography

• III. Monetary Policy and Financial Sector Reform

• Ajai Chopra

  • Monetary Policy

    • Inflation Performance

    • Credit Expansion

    • Trends in Money Demand and Currency Substitution

    • Interest Rates

    • Money Market Development and Monetary Policy Instruments

    • Banking Supervision and the Payments System

  • Reform of the Banking Sector

    • Restructuring of State-Owned Banks and Enterprises

    • State–Owned Specialized Banks

    • Private Banks

    • Cooperative Banks

    • Priorities for Future Banking System Reforms

  • Capital Market Development and the Stock Exchange

    • Warsaw Stock Exchange: Some Background

    • Recent Stock Market Developments

    • Factors Underlying Stock Market Developments and Some Implications

  • Bibliography

• IV. Exchange Rate Policy

• Inci Otker

  • Choice of a Fixed Exchange Rate

  • Switch to a Preannounced Crawling Peg Regime

  • Exchange Rate Developments

  • Role of Exchange Rate Policy in Polish Stabilization

    • The Exchange Rate as a Nominal Anchor

    • Exchange Rate Policy and External Sector Performance

      • Indicators of Competitiveness

      • External Sector Balances and International Reserves

  • Conclusions

  • Bibliography

• V. The Supply Response: Microeconomic Liberalization, Sectoral Developments, and the Labor Market

• Charalambos Christofides

  • Background

  • The Supply Response: Output, Sectoral Developments, and Productivity

  • Price Liberalization

  • Privatization

  • Commercialization and Autonomous Reform of State Enterprises

  • Incomes Policy and Wages

  • Labor Market Adjustment

  • Conclusion

  • Bibliography

• VI. Integration into the World Economy

• Paul Mylonas

  • Developments in Trade Policy and the Trade Accounts

    • Trade Policy

    • Exchange System

    • Trade Accounts

  • Developments in the Capital Account

  • Conclusion

  • Bibliography

• VII. Social Impact of the Transition

• Gerd Schwartz

  • Social Safety Net at the Outset of the Transition

  • Who Were the Poor at the Outset of the Transition?

  • Social Protection During the Transition

  • The Poor During the Transition

  • Bibliography

• Tables

  • 1-1. Main Economic Developments

  • 2-1. Major Revenues and Expenditures of the General Government

  • 2-2. Demographic Developments and Their Effects on Pensions,1993–2050

  • 2-3. Pension System Cost Rates Under Alternative Benefit Rates

  • 3-1. Deficit Financing from Banks

  • 3-2. Credit to the Nongovernment Sector

  • 4-1. Exchange Rate Developments

  • 4-2. Competitiveness Indicators

  • 4-3. Index of Effectiveness of Nominal Devaluations

  • 5-1. Selected Official Price Increases

  • 5-2. Producer Price Index versus Consumer Price Index Trends

  • 5-3. Unemployment Growth by Main Factors

  • 6-1. Summary Balance of Payments in Convertible Currencies

  • 6-2. Changes in the Value, Price, and Volume of Exports and Imports

  • 6-3. Growth of Exports of Products Classified as Sensitive Under the Polish–EU Association Agreement

  • 6-4. External Debt

  • 7-1. Poverty Head Count Indices

  • 7-2. General Indicators of Population Well-Being

• Charts

  • 2-1. Population Dependency Ratios and Pension System Dependency Ratios. 1993–2060

  • 3-1. Money and Inflation

  • 3-2. Treasury Bills Outstanding, May 1991–December 1993

  • 3-3. Credit to Government and Nongovernment Sectors

  • 3-4. Real Interenterprise Credits and Revenue Arrears

  • 3-5. Velocity of Money

  • 3-6. Household Deposits

  • 3-7. Foreign Currency Deposits

  • 3-8. Zloty–Dollar Interest Differentials

  • 3-9. Real Interest Rates

  • 3-10. Nominal Interest Rates

  • 3-11. Interest Rate Spread

  • 3-12. Warsaw Stock Exchange Index

  • 4-1. Real Exchange Rate Indicators

  • 4-2. Exchange Rate Indicators

  • 4-3. Monthly Exchange Rate Depreciation and Inflation Differentials

  • 4-4. Annual Exchange Rate Depreciation and Inflation Differentials

  • 4-5. Three–Month Interest Rate Differentials

  • 4-6. External Sector Performance

  • 5-1. Selected Economic Indicators

  • 5-2. Industrial Production index

  • 5-3. Wage Norm

  • 6-1. Export and Import Volumes

  • 6-2. Poland’s Nonperforming Medium–and Long-Term Debt to Commercial Banks

  • 7-1. Main Pension Fund (FUS): Contributors and Pensions

  • 7-2. Main Pension Fund (FUS): Dependency Ratios, December 1984 to December 1993

• Statistical Appendix Tables

  • Al. Development of Selected Indices

  • A2. Population, Labor Force, and Employment

  • A3. Employment by Sector

  • A4. Summary of Government Financial Operations

  • A5. State Budget Subsidies

  • A6. Finances of the Main Social Insurance Funds

  • A7. Main Revenue Sources of the Local Authorities

  • A8. Monetary Survey

  • A9. Competitiveness and External Sector Performance

  • A10. Selected Economic Indicators

  • A11. Privatization Routes

  • A12. Basic Data by Ownership Sector

  • A13. Recommended Property Conversions of State–Owned Enterprises as a Function of Size and Financial Status

  • A14. Balance of Payments

  • A15. Current Account of Balance of Payments in Convertible and Nonconvertible Currencies

  • A16. Evolution of Customs Tariff Structure

  • A17. Tariff Structure, as of December 1993

  • A18. Protectionist Measures Introduced by the European Union, March 1992–December 1993

  • A19. Summary of Nontariff Trade Barriers, 1994

  • A20. Trade Balances with Different Country Groupings

  • A21. Composition of Exports by Type and Destination

  • A22. Commodity Composition of Exports

  • A23. Commodity Composition of Imports

  • A24. Servicing of Medium–Term and Long–Term Debt in Convertible Currencies

  • A25. Scheduled Debt Service by Creditor

  • A26. Foreign Investment in Poland by Commodity

Preface

This Occasional Paper takes stock of Poland’s experience with the transition to a market economy some four to five years into the process. IMF staff have been involved in this process from the outset under the leadership of Massimo Russo during the initial liberalization and stabilization phase associated with a 1990 standby arrangement with the IMF; Peter Hole for the 1990–91 period leading up to a Paris Club debt and debt-service reduction operation and an associated extended Fund facility with the IMF; and Michael Deppler since then. Many other staff members have contributed along the way, notably the two Senior Resident Representatives. Mark Allen (1990–93) and Markus Rodlauer (1993–present).

Too many individuals have assisted with, and offered valuable comments on, the various drafts of the sections to be mentioned here. However, the authors would like to thank Robert Sierhej for his assistance in obtaining data and Sepideh Khazai for her valuable research assistance. The authors are also indebted to Patricia Emerson and Indra Perera for their extensive secretarial support. J.R. Morrison of the External Relations Department edited the paper for publication and coordinated production.

The views expressed here, as well as any errors, are the sole responsibility of the authors and do not necessarily reflect the opinions of the Government of the Republic of Poland, the Executive Directors of the IMF, or other members of the IMF staff.

Except where otherwise indicated, the paper reflects information available through March 1994.