Published October 12, 2012
WARSAW – Polish Prime Minister Donald Tusk announced a big program of investment on Friday aimed at reviving the spluttering economy and shoring up support from voters worried that two decades of uninterrupted growth are coming to an end.
Tusk said he would find billions of euros for investment in energy and other infrastructure projects, while at the same time keeping a tight rein on government borrowing in Poland, eastern Europe's largest economy.
Poland has been a rare bright spot in Europe over the past few years, managing to sustain robust growth even while its neighbors slumped. But growth will slow next year to just over 2 percent, half the figure for last year.
"There is no other way for Poland than sustaining growth through investments," Tusk told parliament. "Poland has a real chance to defend economic growth."
"We will fight to ensure debt and deficit stay at safe levels," he said in his first big set-piece speech setting out the government's response to the slowdown.
Later on Friday the government won a parliamentary vote of confidence that Tusk himself had requested to slap down criticism of how he is handling the slowing economy.
Two hundred and thirty-three members of the 460-seat lower house of parliament backed Tusk in the vote, while 219 voted against him.
The vote was largely symbolic because Tusk and his coalition partner between them have a four-seat majority in parliament. Nevertheless, the zloty currency had weakened earlier, with traders citing nervousness that Tusk could lose the vote.
Investment in road-building and other infrastructure projects has driven Polish growth up to now, yet the European cash that paid for it will dip over the next two years. Borrowing to fill the gap would drive up debt and dent Poland's reputation for fiscal prudence.
The solution outlined by Tusk is to channel state-owned assets, including company shares and privatization revenue from 2014, into a special fund which will use these assets to underwrite private investment. The fund will be administered by state-controlled bank BGK.
"According to calculations ... we should create leverage for investments and credits worth around 40 billion zlotys ($12.66 billion) to 2015 and around 90 billion if we count over six years," Tusk said.
Reuters reported last week that the government was considering creation of a fund of this kind - broadly modeled on schemes already operating in Brazil and South Korea.
Under the scheme that was under consideration, the assets underwriting investment would be in a non-state vehicle and so its liabilities would not be classified as state debt, allowing the government to meet its targets for cutting borrowing.
"The prime minister managed to solve a few problems. He announced a major investment program that will underpin the economy," said Maciej Reluga, chief economist at Bank Zachodni WBK.
"At the same time, he offered a mechanism that will ensure debt and deficit levels aren't affected. Rating agencies and markets should be happy."
The plan does have drawbacks. People working on creating the fund acknowledge it could take a long time to set up. Poland needs cash right now, so the government may have to come up with other ways of getting short-term money.
The fund also involves the state taking on substantial risk. If, for example, a new power station underwritten by the fund turns out to be loss-making because of changes in EU emissions rules, the state would have to compensate investors' losses.
Poland is the only country in the EU that did not slip into recession since the start of the global financial crisis four years ago.
The global downturn is now making itself felt. Unemployment is ticking up. Offices and apartments built on a wave of confidence in Poland's "economic miracle" are now standing empty.
The slowdown has hurt Tusk's popularity, with polls showing his party had been overtaken by the opposition Law and Justice Party. Fading public support could make it harder for him to hold together his governing coalition between now and the next election in three years.
In a measure likely to please voters, Tusk announced that maternity leave would be extended and more help provided to families with children. That was met with a round of applause from lawmakers listening to the speech.
"It's a good anti-crisis and pro-family instrument," said Malgorzata Krzysztoszek, economist with the Lewiatan business lobby. "The prime minister told Poles: 'Hey, the labor market is tough but you can wait it out. Your job will be protected, go have a baby." ($1 = 3.1604 Polish zlotys)
(Additional reporting by Marcin Goettig, Karolina Slowikowska, Adrian Krajewski and Maciej Onoszko; Writing by Christian Lowe; Editing by Patrick Graham and Toby Chopra)