Pension Reform from Poland

Jacek_131016_állóPoland does not pay as much attention to the Hungarian financial and economic model as some of us suppose. In fact, none of the Polish parties plans to increase the economic role of the government in order to reconsider their relationship with the European Union. The people do not think that the Western world is falling, says Jacek Tomkiewicz, who is Research Director at TIGER (Transformation, Integration and Globalization Economic Research Centrum) in Warsaw.

According to him, both the Right and the Left agree with the attempts of the Tusk government to nationalize a part of the private sector pension fund assets as this would offset public debt. There are no political decisions involved and nobody assumes that the liberal-conservative government would abuse the savings, the interviewee says. He also refuses the foreign public opinion that the current reform would be followed by economic, financial, or political change (nationalization of foreign banks or service providers, reduction of utility prices), if the more conservative Kaczynski cabinet rose to power in Poland.

Zentai Péter: Am I right, if I say that “the Budapest express has arrived to Warsaw”? The Polish government takes the bulk of private sector pension fund assets away and prohibits them further government bond purchases. Will they propose a reduction in utility prices as well?
Jacek Tomkiewicz : I am sure that there is no politics involved in the decision that many of the assets owned by the private pension funds will be transferred to the state.  It was purely and economic decision driven by the need to reduce public debt. The (liberal-conservative) government led by Tusk simply had no other option. So there are no big discussions about it neither in the parliament nor in the press. Except for a few radical liberal politicians and economists, all of the parties support and agree with the plan. Either of the parties rose to power, it would have to make the same decision because the government in power has to keep to the debt ceiling and this is the best alternative to choose.

The large foreign wealth managers – and I suppose the Polish ones, too – say that this is harsh nationalization, which can shake the international faith in Poland, although it was considered as one of the most reliable and transparent partners.
Whatever we call it, it is nationalization: private savings are transferred to the state. Still, nobody thinks that the government is engaging in anti-market or anti-capitalist activities or abuses its power to use the money for something else than reducing public debt. One the one hand, there is no evidence to assume that; on the other hand, people traditionally have a certain trust in the state. They believe that it is a good decision because the state is more secure than the private financial market. Also the financial market, not the state is blamed for the crisis and the recession. I think that most of the people do not understand the economic correlations of nationalization but they believe that the state will take responsibility for their future pension, even if the returns are lower.

A few years ago, the same government spoke of the necessity of liberalization and privatization of the public sector. Now, they are nationalizing… Aren’t they called to account?
It is very unrealistic to think that the Tusk and his government did not remain market-oriented. Further nationalization of banks or insurance companies does not even come into question. Similarly, the government does not want to intervene in the utility sector. Although two years ago the heating service was sold to a private investor, there were no complaints about the price level.

What is the reason for Poland’s outstanding economic performance during the crisis? Between 2007 and 2011, its economy grew, while other European countries were hit hard by the crisis; however, now, the growth seems to come to an end, there is a slowdown in the economy.
Firstly, our banking sector was not as sophisticated after the Millennium as it was in Hungary or in the Baltic countries, which kept us from corporate, governmental and private indebtedness. Secondly, we have a much bigger and more closed economy and market than those of Hungary or the Czech Republic. The strong purchasing power and the size of the internal market prevented the deepening of the crisis and had a balancing role. Thirdly, we were lucky to have a huge fiscal expansion, while in other countries strict authority measures were introduced. Last but not least, the Polish national currency depreciated by 50% in 2009, which stimulated exports and helped exporters to amortize. That is why we were able to avoid the recession and to have a positive growth of 1.7%. Despite still being an export-oriented country, Poland is now facing the negative effects of fiscal expansion: the increase of the budget deficit. According to the debt ceiling in the constitution, the public debt can total up to 60% of the GDP. For many years, it has been around 50%; today, it exceeds 55%.  The nationalization of the private pension funds aims to stop this increasing tendency to avoid the situation where the U.S has been for the past weeks.

What about the millions of emigrants? Are they returning home?
No, they are not. In the past six years, about 2 million people left the country for mainly England, Ireland, and Scandinavia. Almost all of them still live and work there and only few of them return home. The unemployment rate is stable, stagnating around 10 percent in Poland.

Many analysts expect big changes in the Polish politics (including economic and financial policies), if the national conservatives win the next election. Kaczynski and his party would redefine Poland’s relation to the EU and – similarly to the Orban cabinet in Hungary – increase the role of the government.
I do not agree with that. There are no big differences between the most influential political parties in Poland. The differences lie in the way of conducting policies and the rhetorical strategies used. For instance, the propaganda of the Law and Justice party will be more nationalistic, compared to that of the current ruling party.  The former Kaczynski government was market-oriented and so will be any future government. In the current political discussions, there are no debates about the fundamental questions regarding taxation, expenditures, or EU membership. They do not plan any further nationalization and will not reconsider their relationship to the EU or the euro.  Although the right side is more skeptical about the EU than the Civic Platform, they will also wait to see which direction events are taking.

There must be some differences in their attitude toward the EU and the West. According to the Hungarian media, Kaczynski’s party pays special attention to Hungary and the actions taken by the government.
The Hungarian model is not as well-discussed in Poland as Hungarians assume. The public – but even the political elite – has little knowledge about what is happening in Hungary, especially about the details.  Thus, I think it is highly unlikely that the conservatives will establish their program and ideology based on the Hungarian model. All in all, either of the parties governed Poland, it would maintain a good relationship with the West. Although the large international banks are blamed for the outbreak of the financial crisis, the public opinion is that the Western societies are still more civilized and the European Union is the best alternative for development. The majority of Poles are happy to be a member of the EU because of the benefits provided, such as freedom and financial support for the economy.