Update on the Polish Economy

Richard J. Hunter, Jr.

While Poland's Gross Domestic Product has shown a 2.5% increase over 1992, industrial production has risen by a hefty 8.1% in 1993, and Warsaw launched the largest bank in the post-communist period, Bank Sl'ski, the success of the Social Democrats (former communists) in the elections of 19 September 1993, and the failure of the Democratic Union (under former Prime Minister Hanna Suchocka) which dominated three of the four post-communist governments, may impede investor enthusiasm in Poland. Recent decisions by Owen-Illinois to buy Jaroslaw, Poland's largest glass producer, Schweppes $30 million plans to build a candy factory in western Poland, a $500 million investment by Pepsico in its snack, beverage and restaurant business, and Fiat's continued investment activities may all be affected.

As a result of the elections, there will be enormous pressures and expectations to satisfy pent-up social demand in such areas as pensions, unemployment, insurance and nominal wages and to raise business taxes and customs duties, all seen as disincentives to foreign investments but necessary concessions to a population which may have reached the barrier of social endurance. It is also recognized that because inflation still lingers at about 38% and unemployment stands at 15.5% of the work force, the government must remain conscious of public opinion concerning the pace of privatization and further stabilization efforts.

Initially, some observers predicted that the new government, however constituted, would assuredly slow the pace of privatization and give more power to workers to decide whether a deal should move forward or to allocate more shares of a privatized company to the workers themselves. Yet, the Economist (January 15, 1994, p. 56) reports that while the "radical left coalition" won more than half the seats in the Sejm, the new government led by Waldemar Pawlak, head of the conservative Peasant Party, seems "neither very radical nor very left." The Social Democrats themselves have instead turned out to be "strong supporters of privatization and the new minister says he will push ahead with a mass privatization scheme in 1994."

What is certain is that the entire privatization equation has been upset by the uncertainty demonstrated by the Polish electorate which has given a clear message of widespread unhappiness with the pace of reforms. Richard J. Hunter, Jr., is Professor of Legal Studies at Seton Hall University and a member of the Board of Directors of the Polish Institute of Arts and Sciences of America.

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The Sarmatian Review
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