|
|
|
|
|
|
|
|
|
|
  |
 |
  |
USAID Mission to Poland
Europe & Eurasia
>> E & E Home >> Poland >> SEED Reports >> 1997
Success Stories
Assistance Areas
SEED Reports
Contact Information
Last updated: 31
1997
POLAND INPUT INTO 1997 SEED REPORT
Political Developments
Poland is a parliamentary democracy based on a multiparty political system and free and fair elections. The President shares power with the Prime Minister, the Council of Ministers, and the bicameral Parliament. Poland has held two presidential and three parliamentary elections in the eight years since the end of communism.
The current government, formed after the September 1997 elections, is composed of Solidarity Electoral Action (AWS) – a grouping of rightist, center-right and Christian-national parties anchored by the Solidarity Trade Union -- and the centrist Freedom Union (UW). This coalition holds 260 of the Sejm’s 460 seats, and 59 of 100 seats in the Senate. The new government is continuing the basic foreign policy direction of its predecessors toward closer integration with the Euro-atlantic community, including full membership in NATO and the EU. It is also seeking to speed the pace of privatization, decentralization, and pension and health care reforms.
Poland’s new constitution entered into force in October 1997 following approval in a national referendum in May. The constitution enshrines sweeping liberal democratic rights, including freedom of speech, press, association and religion. It also guarantees civilian control of the military, and clearly delineates authority between Parliament, the government, the President and an independent judiciary.
Poland continues actively to reform its military to prepare for full membership in NATO. At the July 1997 NATO Summit in Madrid, Poland was formally invited to join the alliance. Under the constitution, the President exercises command of the armed forces through the civilian Defense Minister, who has clear command and control over the military Chief of General Staff and oversight of military intelligence. Growing numbers of Polish mid- and junior-level officers are being trained in American or NATO institutions, further entrenching principles of civilian control over the military.
Poland has been a principle activist and proponent of the Partnership for Peace (PfP) program with NATO, having participated in some 60 PfP exercises. Poland plays an important and constructive role in Central and Eastern Europe: it contributes some 470 troops to the Stabilization Force in Bosnia and is now forming joint peacekeeping battalions with Ukraine and Lithuania. Polish NGOs also contributed 230 volunteers to the supervision of the 1997 Bosnian municipal elections and the Republika Srpska Assembly elections. In 1998 Poland assumes chairmanship of the OSCE.
Economic Developments
Eight years after it began its transformation to a free market system, Poland stands out as one of the most successful and open transition economies. Since 1989, successive governments in Poland have generally, with some notable exceptions, pursued a policy of liberalizing trade, investment and capital flows, and privatization. Leszek Balcerowicz, initiator of Poland’s "shock therapy" program which put the country’s economy back on a path of sustained growth path, has returned as Deputy Prime Minister and Finance Minister, and is expected to continue with economic reforms.
Poland’s economy grew by 6.1 percent in 1996, and is estimated to grow by over 6 percent in 1997, marking its fourth year of GDP growth above 5 percent. The country is expected to maintain this pace until at least the year 2000. Growth is now being fueled by increasing domestic demand and continued growth in foreign investments. The elimination of price controls and subsidies, as well as the opening of Poland’s markets to international competition in 1989 caused inflation to skyrocket to nearly 600 percent. Inflation has steadily fallen, reaching 13 percent in 1997 and is expected to continue its decline in 1998. Poland is implementing trade liberalization agreements with the European Union and with its Central and Eastern European neighbors (CEFTA).
The privatization of small and medium state enterprises and liberal laws on the establishment of private business have led to the development of a vibrant private sector which now accounts for over two-thirds of the GDP (including the grey economy) and employs over 60 percent of the work force. The pace of privatization and restructurization of state owned industry, however, has proceeded slowly. The state still owns about half of all industry. In certain sensitive sectors, such as coal and steel, state-owned enterprises continue to operate at a loss. The government, however, is now beginning to move ahead with long-delayed privatizations in the energy and telecommunications sectors.
The government is also moving forward with the privatization of Poland’s major banks. Almost twenty foreign banks have already entered the Polish market. Poland’s capital markets have evolved slowly but systematically. Due to its size and transparent regulations, the Warsaw Stock Exchange is perceived by foreign investors as the most developed and best regulated in Central and Eastern Europe. Currently, the stocks of 118 companies are traded there.
The new government confronts several economic challenges. First, the rapidly widening trade deficit has caused the current account deficit to grow quickly, which, if continued, could put Poland at risk of a financial crisis such as in the Czech Republic. The new government is planning to tighten fiscal policy to help control the trade deficit. Second, unemployment, at 10.6 percent as of October 1997, remains a problem, especially in rural areas, where regional unemployment can exceed 20 percent. Third, Poland’s large agricultural sector employs about a quarter of the work force. However, fragmentation, inefficiency and technological backwardness characterize typical farms. Restructuring of the agricultural sector has been long delayed, but will eventually have to be faced so that it does not drag down the Polish economy.
Poland’s main foreign economic policy goal is European Union membership. Negotiation on accession should begin in 1998. Poland joined the OECD in 1996.
SEED ASSISTANCE SUMMARY
Program Overview
Poland inaugurated SEED Act assistance in 1989. Highlights of the early years of SEED support in Poland included significant debt restructuring, the highly successful Polish-American Enterprise Fund, and the stabilization/bank privatization fund. Together with courageous Polish decision-makers pressing for radical shock therapy in the early nineties, these measures helped enable Poland to weather the economic crisis of hyperinflation and industrial slump, and emerge as Central Europe's leader in investment and growth. Country progress indicators show that fundamental economic strength and political maturity have been achieved.
With each year, Poland's economic and democratic transition issues increasingly reflect those found throughout Europe and the developed world; in itself, the manageable nature of these issues signals the thoroughness of the transition from the failed Communist system. More focused U.S. assistance is now building on the foundation of program successes in developing the private business sector, competitive banking and capital markets, public service delivery, non-governmental organizations, and housing privatization/finance, inter alia. As program graduation rapidly approaches, three clear and discrete strategic objectives have been identified as the capstone of SEED Act assistance:
• Stimulating the private sector at the firm level. Emphasis is placed on improving the profitability of small and medium enterprises (SMEs) through strengthened Polish institutions and consultants. Program tools include technical assistance, professional management training, U.S./Polish MBA programs, energy efficiency services, and private sector information banks. U.S. assistance in legal, regulatory, and judicial reform fosters competition and effective government administration.
• A competitive, market-oriented financial sector. A strengthened bank supervision inspectorate and Polish Securities Commission, and new regulations over private pension funds, all increase public confidence in the financial sector. Sector efficiency is being enhanced through a self-regulated over-the-counter market, a licensed warehouse system for commodity markets, a credit rating agency, and more capable investment banking departments of Polish banks. Housing finance, credit unions and a cooperative banking system will increase access to financial services. Continued growth in the municipal bond market further expands the breadth of investment vehicles available in Poland.
• Effective, responsive and accountable local government. Fiscal and political decentralization is being addressed through a two-pronged strategy: policy and legislative change through GOP ministries directly and through the strengthened voices of local government associations; and creating stronger local government capacity to manage resources and meet citizen needs. The new Local Government Partnership Program (LGPP) extends prior work in eight pilot "gminas" (local government units) to about 50 countrywide, in a "scaling up" ultimately impacting all 2,500. In terms of staff and program dollars, the local government initiative will be USAID's biggest effort and last to close out (FY 2001).
In addition to these three strategic objectives, SEED funds support a number of U.S. Government special initiatives by DOE, EPA, DOL, DOJ, USIA, and Peace Corps under inter-agency agreements, and:
-- FTUI support for the sustainability of Solidarity's Bureaus of Consulting and Negotiation;
-- PIER support for improved coal mine safety;
-- NDI support for political party building (with emphasis on women and youth).
Reflecting Poland's historical role as an East/West bridge and new role as model for other transitional societies, study tours and exchanges between Polish and Ukrainian officials in 1997 disseminated Poland's reform and restructuring successes. Support for sharing Poland's experience is likely to deepen and expand to other countries in the region.
As of September 30, 1997, the United States has contributed over $890 million in assistance to Poland, including approximately $40 million in FY 1997.
Program Impact
Economic Growth
By both EBRD and Freedom House standards, Poland is firmly placed in the top rank of Central and Eastern European countries' macroeconomic policies and performance. Poland would be ranked number one if it were not for the incomplete privatization of large state-owned enterprises, including coal mines and the electricity and telecommunications sectors. Strong growth is at an unparalleled performance within the region and all the more remarkable in view of the fact that Poland is the region’s largest single market. Small and medium business investment continues to be the single most important engine for domestic growth. The United States remains the largest direct foreign investor in the country, with over 500 American firms having invested $1 million or more. Labor productivity increases are the highest in Central Europe. Automobile registrations jumped nearly 30 percent during 1997 following an equally high increase in 1996.
Private Sector Growth: In 1997, USAID's advisors contributed to a revision of Poland's business legislation, especially provisions on tax administration, public procurement, and bankruptcy. They helped the Polish SME Foundation develop a formal strategy for small businesses and helped draft a modern collateral law that will take effect in 1998. In October 1997, the new Polish parliament voted to set up a Committee on SMEs, the first such body in the region. USAID has contributed to the rapid expansion of the private sector by helping over 700 Polish small businesses develop business plans and improve marketing and overall enterprise management. Over 600 homebuilders have been helped nationwide. In FY 1997, assistance shifted to developing the capacity of indigenous business support organizations (BSOs) and local Polish consultants to provide direct assistance at the firm level.
Polish capacity to train entrepreneurs in business skills has been strengthened by the establishment of seven Polish management training institutions throughout the country. On October 19, 1997, the Warsaw School of Economics and the University of Minnesota held joint graduation ceremonies in which the first cohort of 31 Executive MBA students received degrees from the University of Minnesota.
As of September 1997, the Polish-American Enterprise Fund had direct investments in 37 medium size enterprises and had made loans to 6,220 small enterprises through its subsidiary Enterprise Credit Corp. and over 6,000 micro enterprises through its subsidiary Fundusz Mikro. USAID advisors helped in the creation of a total of 18 local Agencies for the Support of Housing Initiatives (AWIMs) not-for-profit financially self-sustaining housing development organizations.
A Competitive, Market-Oriented Financial Sector: In the banking sector, significant progress has been made in helping transform the General Inspectorate of Banking Supervision at the National Bank of Poland (GINB) into a more effective and competent bank regulatory authority. Bank Handlowy, Poland's trade bank, was privatized in 1997 with assistance of the U.S. Treasury advisor. USAID's technical assistance in the area of bank payments systems has helped reduce settlement times; more than a third (by value) of business-to-business payments now are settled within 24 hours. The five year old USAID-created Warsaw Institute of Banking (WIB) today has an experienced team of 17 U.S.-trained instructors, dozens of standard course offerings, has trained more than 4,000 bankers, and provides such fee-based services as in-bank training, consulting and study tours on a limited basis. Cooperative banks continue to show strong operating improvements. Some 178 coops participated in a Peer Bank Comparative Analysis developed through USAID technical assistance, and 236 employees of local and regional cooperative banks, the National Bank of Poland and the Bank Guarantee Fund have been trained in the use of the USAID-funded Bank Financial Planning Model. The USAID-supported credit union movement continues to grow in Poland with more than 250 institutions registered as of mid-1997.
The USAID-supported Central European Rating Agency (CERA) rated its first debt issue in 1997, and had two more in the pipeline as of November.
More than 25,000 housing loans were made in 1997, equivalent to about 45 percent of private sector housing completions. Some 25 banks offer long-term housing loans, all at market prices, and a variety of mortgage instruments are now being offered.
The municipal bond market grew dramatically from 1996 to 1997, with 17 bonds issued through July 1997, compared to just 12 for all of 1996. One municipality's bond was traded on the over-the-counter market.
Next Steps: SEED private sector activities will continue to emphasize increasing the capacity of business support organizations and local Polish consultants. Private sector programs will also focus on enhancing the technological capacity of Poland by encouraging innovation and technological development through indigenous institutions and private enterprises, and help to establish a sustainable process of transferring technological innovations from inception to commercialization. Financial sector activities will target future economic restructuring activities in Poland, further improving bank supervision, and increasing the volume of housing constructed and financed by the private sector. Development of municipal bond issues and increased strength of the credit rating agency (CERA) will ensure greater access to finance by local government, as well as contributing to a more viable and comprehensive financial sector. Further work will proceed in deepening capital markets by developing institutional investors such as private pension funds, and Poles will need to be educated on the range of private pension choices soon to be available. In education, graduate-training programs in business management in Warsaw and Olsztyn will be further strengthened by moving towards joint-degree programs, and through distance learning programs at Lodz University.
Building Democracy and Local Governance
Democracy in Poland is well established. The necessary laws and legal institutions to support democratic processes are in place. Local governments have assumed greater responsibility and are demonstrating increased capacity. The non-governmental organization (NGO) sector has grown rapidly, has matured professionally, and has improved its capacity to sustain itself and be a partner with local government and business in addressing important social and economic problems. In this context, USAID has focused its activities on three interrelated areas supporting democracy and building effective local governance:
(1) legislative and policy reforms that foster decentralization;
(2) improved municipal management; and
(3) civil society and NGOs.
Legislative and Policy Reforms: The Working Group on Local Government Finance Reform--in which USAID is a key player--developed the new municipal finance code, which Parliament will take up in 1998. The Working Group, composed of central and local government officials, develops policy guidelines for new local government legislation. USAID advisors counseled the Ministry of Finance and local government associations on improvements to the budgetary law, like the separation of operating and capital budgets and the authority for local governments to enact multi-year appropriations. This effort, welcomed by the Polish partners, aims at removing legislative barriers to efficient and responsive local budgeting and financial management.
In order to strengthen the voice of local government in the national policy debate, USAID provided institutional strengthening assistance to the national municipal associations which represent local governments vis-a-vis the central government. This assistance aims to increase the policy analysis and lobbying capacity of the associations, as well as to improve their communication with membership.
Strengthening Municipal Management: To complement its legislative and policy reform efforts, USAID is undertaking several activities to make local government more effective, responsive, and accountable to its citizens. The major activity in this effort, which summarizes experience of previous projects, is the new Local Government Partnership Program, which will be implemented through FY 2000. To enhance municipal management capacity throughout Poland, the LGPP will work with Polish local governments, consulting firms, private businesses, national municipal associations, universities, and NGOs, to help them develop, test, and disseminate tools and mechanisms to make local governments work better. These tools and mechanisms include strategic planning and management, financial analysis, economic development, housing strategies and management, municipal infrastructure provision, and citizen participation. In FY 1997, USAID implemented a Pilot LGPP, which developed such tools and mechanisms in eight Polish municipalities; an additional 40-50 municipalities will be covered by the Program in FY 1998-2000. After LGPP completion, Polish partners, like municipalities, municipal associations, consulting firms, and training institutions, will have the capacity to use and further develop these management-oriented tools.
To date, U.S. assistance has supported the establishment or improvement of four (out of ten existing in Poland) university degree training programs for local government officials.
Civil Society and NGOs: Since 1989, the NGO sector has grown rapidly with the registration of over 20,000 new organizations. The legal framework is generally conducive to NGO functioning, but restrictions on NGO ability to engage in revenue-generating activities remains a key barrier. The public image of NGOs has improved, but there is still a need for the NGO sector to adopt self-regulatory measures. NGO professionalism has improved with indigenous capacity to provide training to NGOs in fund-raising, project management, promotion, and working with media. NGO ability to engage in public policy debate has been strengthened, and USAID-assisted NGOs in 1997 conducted successful activities to promote environmentally sound projects, to promote rights of the disabled, to introduce democratic practices in school management, and to help create jobs to combat unemployment.
Independent Media: The SEED supported Warsaw Journalism Center remains a strong voice in ensuring fair and accurate reporting in the Polish print and electronic media. Among its 148 graduates/students are notable TV journalists.
Next steps: Under the new Local Government Partnership Program, NGOs that can serve as partners to local government will be helped to achieve sustainability. Best practices in local government and NGO cooperation will be identified and made ready for replication, while the development of local sources of funding for NGO activities (such as community foundations) will be promoted.
Social Sector Restructuring/Quality of Life
Pension Reform: Pension reform made great strides in 1997 with the passage of key legislation establishing private pension funds and a supervisory body. As part of the government's public education strategy, several key legislators, journalists and government officials participated in USAID-sponsored study tours to Chile and Argentina, upon whose pension programs the Polish reforms are based.
Social Benefits and Services: The Harvard Project team assisted Krakow in 1997 to prepare a reform program for the city's health service delivery system, now scheduled to be launched in early January 1998. This is a pilot effort for Poland, and the experience is now being analyzed and debated in the context of national-level health services policy reform. The USIA-run English Language Teachers project had covered more than 1000 teachers trained by September 1997. Working with local governments, USAID advisors have directly helped with the creation of 70 rental housing associations.
Labor Transition: The Solidarity movement, the Ministry of Labor, the Polish Central Labor Office, and U.S. Department of Labor continued a fruitful collaboration in entrepreneurial and white collar training, labor statistics, and the Women's Reemployment Advisory Center. Plans advanced for a displaced workers program in the Silesia region.
Environment and Energy: By 1997, a total of 70 waste minimization projects assisted by SEED funding have reduced environmental pollution by industry, leading to savings in the range of $24 million. Environmental Action Project Support provided technical assistance to 56 local environment and infrastructure projects from which 29 prepared financial and business plans and presented them to funding institutions. In 1997, 10 applications have already been approved for funding by appropriate institutions. The total value of investments is $2,020,000. USAID has supported the new energy regulatory agency, helping to ensure market-based liberalization of prices and rational resource use by Polish businesses and industries. The Army Corps of Engineers has taken over management of the Flue Gas Desulfurization Project at the Skawina Central Heat and Power Plant near Krakow and a joint Polish-U.S. design team is preparing blueprints on-site. A new energy law, considered to be one of the most progressive in Central Europe, entered into force on December 4, 1997.
 |
|||
Last Updated on: March 13, 2002 |
