The government will conquer rampant inflation. Since Poland joined the EU,
demand for its food products has soared, causing food prices to rise by as much
as 27.7 percent. This is a situation that is great for farmers, but terrible for
consumers. The central bank is predicting an inflation rate of 6 percent in
the first half of 2005. The good news is that National Bank of Poland Governor
Leszek Balcerowicz is an inflation hawk who has instituted tough monetary
policies to keep it under control. To address the problem, the Monetary Policy
Council recently hiked basic interest rates. As a result, the zloty has become
stronger, a move that, at least in the short run, may take steam out of Poland’s
exports and reduce investor willingness to pursue new projects; but a
precipitous drop in domestic purchasing power would be a more serious problem.It is able to create enough jobs to ease the 20 percent unemployment rate. A
growing body of young, educated people remains in need of interesting career
opportunities, and an impoverished rural community needs a new direction.
Political stability rests on the government’s ability to replace the protective
social safety nets that have been discarded over the last 15 years. There are
political parties that lean very strongly toward the old communist system, and
in any election the unemployment problem has to be addressed. My expectation is that Poland will be so successful that it may usher in an era
of repercussions with France and Germany. The Poles, and other Central and
Eastern Europeans, are going to be reluctant to give up corporate tax
incentives. If France and Germany have to capitulate to a new order and change
their own tax and regulatory structures, the new EU players will be the force
behind a drastically new Europe. Robert Faris is president and CEO of Enterprise Investors, a private equity firm
that has invested more than $700 million in Poland.
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