Bloomberg View

Poland takes a wrong turn • The soda tax is work­ing in Mex­ico

Bloomberg Businessweek (Asia) - - CONTENTS -

In the two months since it won an ab­so­lute ma­jor­ity in Par­lia­ment, Poland’s Law and Jus­tice Party (PiS) has seemed in­tent on achiev­ing some­thing close to ab­so­lute power.

The new govern­ment an­nulled its pre­de­ces­sor’s ap­point­ments to the coun­try’s high­est court, put in five of its own ap­pointees, then passed a law to curb the court’s pow­ers. Com­plain­ing of me­dia bias, it fired the man­age­ment of Poland’s state broad­cast­ers, weak­ened the me­dia reg­u­la­tor, and named a for­mer party cam­paign man­ager to run pub­lic tele­vi­sion. An­other PiS stal­wart has been tapped to lead the in­tel­li­gence ser­vices. Th­ese and other moves have been strongly crit­i­cized in Europe. In Poland they’ve sparked protests and eroded pub­lic sup­port for the party.

Yet the new rulers’ most alarm­ing changes may be ahead— be­cause they’re pre­par­ing to re­tool Poland’s eco­nomic pol­icy. Eight of the 10 mem­bers of the cen­tral bank’s mon­e­tary pol­icy coun­cil will soon reach the end of their terms. Par­lia­ment will name six re­place­ments, and the new PiS-sup­ported pres­i­dent, An­drzej Duda, will ap­point the other two. PiS has made it clear it wants a more govern­ment-friendly cen­tral bank, one that’s more will­ing to lower in­ter­est rates—some­thing that Marek Belka, the cur­rent bank gov­er­nor, says isn’t needed. (Belka’s term ends in June.)

This could be a prob­lem, es­pe­cially if the govern­ment fol­lows through on prom­ises to in­crease spend­ing. It has pro­posed, among other things, to pro­vide a 500 zloty ($125) monthly child sub­sidy for poorer house­holds, to lower the re­tire­ment age, to raise tax-free in­come thresh­olds, and to boost the min­i­mum wage. It’s es­ti­mated the child sub­sidy pro­gram alone will cost 19 bil­lion zlotys in 2016.

The dan­ger is that PiS will want to pay for its pop­ulist pledges by bor­row­ing—and will count on the cen­tral bank to pave the way by low­er­ing in­ter­est rates. It would be a dou­ble shame, be­cause Poland’s econ­omy still needs steady, com­pe­tent man­age­ment.

The econ­omy has cer­tain strengths af­ter years of growth, in­clud­ing sturdy trad­ing re­la­tion­ships and a deep bench of in­ter­na­tional in­vestors. But liv­ing stan­dards re­main well below the Euro­pean av­er­age, parts of the coun­try haven’t reaped the ben­e­fits of growth, and la­bor mar­kets re­main too in­flex­i­ble. Poland has one of Europe’s fastest-ag­ing pop­u­la­tions, putting a strain on so­cial ser­vices. While gross do­mes­tic prod­uct is grow­ing—of­fi­cially, at a rate of about 3.5 per­cent in 2015—a weak cur­rency makes this growth ap­pear stronger than it re­ally is.

Poland’s prob­lems are struc­tural, not of a mon­e­tary na­ture, so the govern­ment shouldn’t lean on the cen­tral bank to solve them. But its ag­gres­sive moves to dom­i­nate the con­sti­tu­tional court and the me­dia have made in­vestors worry that it might.


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