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