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„20 years after”
Challenges and Opportunities
Reflections on the Economic Transformation of the
Czech Republic, Hungary, Poland and the Slovak Republic
dr Paweł Wojciechowski
Deputy Foreign Minister
Ministry of Foreign Affairs of the Republic of Poland
OECD, Paris, 20 November 2009
Perception of transformation in Visegrad
countries is positive
Source: „Return to Europe” report by Institute of Public Affairs, in cooperation with Policy Association for an Open Society. Financed
by the European Commission and the Visegrad Fund, October 2009
Content
I. Measuring the success of transformation
II. The economic crisis – what next?
III. Challenges and opportunities
I. Measuring the success of
transformation
How to measure the success of economic
transformation?
Poland:
• Average salary: $20 in 1989, $100 in 1990, $1000 in 2009
• GDP increased eight-fold in years 1989 - 2008
• GDP growth rate about 2 times EU average
probably the only EU member country to experience
GDP growth in 2009, estimated at 1.2%
GDP per capita in 2008 (PPP) as % of EU27 average
Source: Eurostat, July 2009
Convergence of CEE to WE in GDP per capita
Western Europe = 100
* Includes: Albania, Bulgaria, Czech Republic, Slovakia, Poland, Romania, Hungary, former Yugoslavia
Source: A. Maddison (2003), „The World Economy: Historical Statistics, Development Centre Studies, OECD, Paris; after: „The Coming
Golden Age of New Europe”, M. Piatkowski, Center for European Policy Analysis, October 2009; and Eurostat
II. The economic crisis
– what next?
Reasons for outstanding performance of
Polish economy during crisis
• Relatively small openness of the Polish economy
• Size of the internal market and strong domestic demand
• Solid and stable banking sector
• Floating exchange rate and zloty’s depreciation
• Counter-crisis measures to mitigate economic slowdown
and maintain macroeconomic stability
PL: low openness of the economy
Source: National Bank of Poland, June 2009
PL: high % GDP share of private consumption
Country
Poland
Czech Republic
Hungary
Slovakia
Year
Private consumption
Public consumption
2000
64%
17%
2004
65%
18%
2008
61%
17%
2000
52%
22%
2004
50%
23%
2008
49%
21%
2000
51%
22%
2004
53%
24%
2008
52%
23%
2000
55%
21%
2004
56%
20%
2008
56%
18%
Source: National Bank of Poland, June 2009
PL: stable banking sector
• Risk-based capital ratio: 11.2%
(Q1 2009)
• ROE – net earnings to average
core capital: 16.7%, ROA - 1.2%
(Q1 2009)
• Loans-to-GDP ratio: 48% (2008;
total loans to non-financial
customers)
• Housing loans accounting for 33%
of total loans - 16% of GDP (vs. EU
average above 50% and ratios in
UK, Denmark or Netherlands
at ca. 100%)
Source: Ministry of Finance, Polish Financial Supervision Authority
Loans and deposits1) in 2006-2009 (PLN bn)
1) Loans - claims on non-financial and general government
sector. Deposits - liabilities towards non-financial
and general government sector
Counter-crisis measures in Poland
– as % in GDP 2008 - 2010
Source: OECD, June 2009
Volatility of Poland’s GDP growth projections
in 2008 and 2009
EC
IMF
World
Bank
OECD
Merrill
Lynch
III. Challenges and opportunities
Major achievements of Polish transformation
 but new challenges arise
Fiscal reform 1990-93: GG Deficit from 7.4% to GG Surplus 3.1 %
 but awaiting fiscal consolidation today
Privatization after 1989: 5909 SOEs privatized as of end of 2008
 but 2544 companies still to be privatized
Lowering long-term implied debt by reforming pension system
 but need to continue working on a universal pension system
and decrease fiscal burden resulting from early retirement
Decentralization of public finances through administrative
system reform
 but still improvement of system’s transparency required
Succesful introduction of CIT, VAT, PIT
 but still an overall reform simplifying the tax system needed
Post-crisis challenges for the Polish economy
• Deterioration of government finances in 2009-11, with general
government deficit forecast to rise
• Delayed recovery in 2010 reflecting a lagged response to the
effects of the economic downturn
• Growing unemployment
• EURO accession
• Structural reforms: Health, Tax and Social Security
Political challenges in making reforms happen
• No „easy” and „quick” solutions
• Weaker external „accession related” motivation
• Smaller „peer” pressure in the midst of the crisis
• Political myth that reforms are „costly”
Credibility
Authority
political
government
Stability
administration/
institutions
Summary
• Transformation accelerated the CEE convergence to West
European/EU values and standards of living
• Transformation was successful because CEE countries were
politically more stable than other EMs (higher level of openness,
freedoms and democracy, more homogenous population, higher
level of external security)
• Willingness to reform has decreased after EU-accession, but will
probably increase in the post-crisis period of recovery, because
crisis exposed fragilities of CEE, such as pro-cyclical structure of
public finances and high reliance on external financing
• Paradoxically, crisis may create momentum for reforms in CEE
countries and faster real convergence with WE
• Need to improve public communication/transparency, economic
education and legislative sequencing
Thank you for your attention
„20 years after”
Challenges and Opportunities
Reflections on the Economic Transformation of the
Czech Republic, Hungary, Poland and the Slovak Republic
dr Paweł Wojciechowski
Deputy Foreign Minister
Ministry of Foreign Affairs of the Republic of Poland
OECD, Paris, 20 November 2009