A COLONIAL COUNTRY
Wieława Lewandowska talks with Dr. Zbigniew Kuźmiuk about a strange weakness of a zloty, fat banks and allegedly thin supermarkets
WIESŁAWA LEWANDOWSKA: – We are sorry and surprised to find out that the situation of bankrupt Greece still belonging to the sphere euro, causes the value decrease of the Polish zloty. Shouldn’t it be the other way round, if the euro is getting weaker and the Polish economy is allegedly doing quite well?
DR. ZBIGNIEW KUŹMIUK: – It is really very astonishing; because if the situation in Greece, a country which has already gone into bankruptcy, is pulling the euro down – in the situation when the government in Poland says that we have strong fundaments and economic growth – our money in comparison to euro should be getting stronger, not weaker. For example, it is so in neighbouring Czech Republic where Czech crown is not devaluing but is getting stronger. However, in our country this weakness of the zloty is repeating with a kind of a strange coincidence at the occasion of another commotion in Greece.
– How can it be explained?
– Maybe only in a way that there is another bottom here... As far as I think, here it is all about a level of our debts, which is not maintained on the borders of the required norm at all, despite of statements and declarations of the Prime Minister Rostowski, that it does not exceed 55 percent of Gross Domestic Product (the EU threshold of carefulness of 55 percent has already been exceeded long time ago, estimated with the EU method). It seems that financial markets negatively evaluate the global amount of the Polish public debt, which is still growing and amounting to over 850 milliard zlotys today, which, in comparison to the potential of Polish economy, especially with its export possibilities, raises worries among lenders whether this debt will be paid back. And its expression is just weakening of the zloty, the growth of profitability of Polish bonds. The market doubts the ability of Poland to deal with the enormous debt!
– The Finance Minister assures that there should not be any worries about it...
– Certainly the government assures that loan needs for this year have already been secured; we have a credit line in the International Monetary Fund, so there will not be any unexpected situations...
– And may they happen in your opinion?
– We cannot exclude the possibility that in a year or two years, we will announce that we are able to deal with our debt.
– What assumptions do you base your suspicion on?
– On the nervousness of the action of our government. We can only analyse the hectic way of proceedings about the raising of the pension age. It is a fundamental change concerning nearly 16 million people and in a civilised country belonging to the EU there should be a very serious debate on it. the Germans were debating on a similar Act for nearly two years.
– Why was it impossible to carry out such a deeply analytical debate in Poland?
– That’s it! Our Act was ‘pushed through’ by a government coalition so quickly that there is a suspicion of different purposes than it is publicly said...
– What are the purposes if it is not the care about the future pensioners?
– Prolonging of the pension age means more pension amounts of money from people working at present and a shorter time of receiving pension, so there will be more money to deal with the debt.
– However, the visible benefits resulting from it will not come so quickly, the raising of the pension age is supposed to take place slowly and gradually.
– That is true, but this mechanism will be implemented on 1 January 2013 – not in 20 years. But it seems that here the most important is a signal given to financial markets that in a quite near future we will be financially more credible. The rush in pushing through this Act, not paying attention to 2 million signatures prove that just this safe-conduct for financial markets was needed by the Minister Rostowski like air.
– However, the foreign capital was insufficient – as you write on your blog – it was not ‘blowing from Poland through doors or windows’?
– Certainly, insufficient, although it was very important. In Poland many protests in finances are supported thanks to a high share of speculative capital. Rates of the European Central Bank amount to nearly 1 percent today, in the Polish Central Bank they reach to nearly 6 percent (Lombard rate), so investing money in Poland is much more beneficial than in Western countries, in the sphere euro. However, there is a high risk that Polish finances may meet with a decrease and it causes a situation, when every slight devaluation of the zloty cause the outflow of the speculative capital.
– Why do you say – against a good self-feeling of our government – that the financial credibility of Poland is decreasing?
– Because, by presenting our optimistic vision, we do not consider the enormous debt of all economic subjects and households. We concentrate on debts of the state, the public debt including the debt of the State Treasury, a sector of social insurance and self-governments. And after all, the debts of Polish enterprises are not trivial in comparison to abroad and debts of households (a few hundred thousands of them have mortgages in foreign currencies). The sum of all our debts is 400 milliard dollars! It is about 75 percent of the Polish Gross Domestic Product. Let’s remember that markets do not look only at the whole Polish debt in foreign currencies. And every devaluation of the zloty cause the growth of debts counted into zlotys...
– Sothis it insolvency, bankruptcy?
– Yes. If this whole debt reaches so high amount, every devaluation of the national currency is drastically enlarging it. In this situation the international markets react immediately, by withdrawing their capital, which may lead to the decrease of our whole economy. Today the situation is quite serious; for, as long as the public debts is still within the borders in the relation with the Gross Domestic Product decided by the Constitution of the Polish Republic, debts of enterprises and households should not be neglected. Minister Rostowski cannot excuse himself today by saying that he is not responsible for their collapses because a collapse can be caused very quickly.
– In what moment and what can finally decide about it?
– A significant devaluation of the zloty may lead to a situation that some enterprises will not be able to deal with their debts. Let’s assume that euro exceeds the level of 4.5 – 4.6 zlotys and dollar is 3.7 – 3.8 zlotys, there will be a strong decrease in our finances and, consequently, a collapse will be caused in real economy. Then we will be on the verge of financial markets...
– ...and will we be overcome by those stronger ones? You say that we have already become a colonial country with which everything can be done...
– By saying so, I referred to the statement of the vice-prime-minister of the Hungarian government who stated that Hungary is treated as a colonial country, not an equal member of the EU. Unfortunately, I think that it refers also to most countries of the Middle and Eastern Europe, including Poland. Many foreign subjects, entering the Polish market, are behaving today like in colonies.
– Can you give an example?
– The best illustration of the whole mechanism is the Open Pension Funds. Among 14 companies of the Open Pension Funds, 11 companies are foreign companies. The Polish parliament implemented suitable regulations in 1998, under which the amount of payments from paid amount of money and also for managing it was 10 percent! Isn’t it a bright example of colonialism? Social Insurance Institution was obliged to give this money and the Open Pension Funds did not bear any costs of acquisition, if excluding financing one’s own advertisements encouraging for joining the Open Pension Funds. In this way the state has given about 230 milliards to them for 11 years. In order to deal with it – that is – to patch a financial hole in the Social Insurance Institution – 260 milliard zlotys (including interests) had to be borrowed. And assets of the Open Pension Funds were 225-230 milliard zlotys at the end of the year 2011.
– Does it mean that Polish pensioners did not gain anything?
– Worse. It means that some money was lost – in 2008 30 milliard zlotys disappeared and in 2011 – about 12 milliard got lost... it is so at the time being that 95 percent of this money is invested either on the Polish money-market or into Polish bonds. But, after all, we have already got a decision of the European Justice Tribunal which obliges Poland to liquidate this limit – then the investment abroad may even reach to 40 percent. If this condition had been obliging earlier, if this money had got onto other Exchanges, the losses would not be only 30 milliard zlotys but would be much higher. Both the World Bank and the European Commission were putting pressure on these solutions, knowing that they are not good for the poor country. The fact that we are being treated as a colonial country is proved also by other segments of our market.
– For example what segments?
– Let’s take the example of large shops. Income taxes coming from there have a symbolic dimension.
– Maybe in Poland they do not earn?
– You are joking or maybe somebody else believes it! In no other country in the Western Europe this trade would not be tolerated! There the Treasury apparatus would let itself to be duped into these tricks. And in Poland everything can be done because in this case we are a colonial country. It does not matter that another Finance Minister announces that he will look at the so-called transfer prices, as he is not doing anything in this matter.
– Because the big capital is dictating its conditions.
– And therefore the governing coalition has rejected another project of special taxing of well prospering banks in Poland, mainly the foreign ones?
– Yes, although this sector has really got something to share. These banks in the crisis years show a clear growth of benefits - last year it was 16 milliard zlotys, just after considering tax income – they reach the highest net benefit in the history of the Polish economic transformation. In 75 percent these are foreign banks. The government rejects the proposal of the additional bank tax – which would take 6-7 milliard zlotys annually - explaining that the banks will throw off the cost onto their clients.
– And wouldn’t it do it?
– It might happen so but why doesn’t the government care about citizens in the same way when raising the rate of VAT, it can lead to 5-percent inflation and will drain the pockets of the poorest ones? After all, the state has an instrument in the form of 25-percent Polish banking, so, for example, the Polish bank PKO may dictate a suitable policy of interest rate and costs of kept bills in the market.
– And shouldn’t we be afraid today about the future of all the banks in Poland?
– Indeed the crisis in the euro sphere may be reflected in our banking, because if banking cooperatives the mother in the West suffer from the Greek bankruptcy, so when they want to be rescued, they will be selling fat Polish ‘daughters’... There is only a question who will buy them. In Poland we do not have this money. Our banking system will not surely collapse but the restriction of credit possibilities will be a serious attack into the Polish economy.
– We are often said that we have to agree on this state of things and all conditions given to us because we gain a lot, when being maintained by rich countries...
– Hungary showed that it is possible not to agree on it. Certainly, it met with ostracism and it finds it hard to communicate with the International Monetary Fund about another loan instalment because these dispositions are coming from Brussels, from the World Bank. This ostracism results from the fact that foreign subjects - large shops, telecom companies, banks – must collect money for 3 years against the Hungarian crisis. Hungary enforced this ‘money collection’ in the form of additional taxing. And we are often said that it is impossible because of the European law... Couldn’t we apply this temporary solution in Poland, in order to reach into deep pockets for 3 years, for example? The Polish government is not willing to do it....
– Why is it so, if every penny for the budget is worth gold?
– Maybe because the Polish prime minister wants to be the European leader of reforms at any rate? So, he does not care that ordinary people will pay for it. The prime minister is well-perceived in the EU and he might want to be the deputy of the manager of the European Commission in 2004 – the chairman Barosso...The opinion of the leading reformer who does not attack big western corporations may be even useful at this time.