In all probability, Leszek Balcerowicz, ex-chairman of the Bank of Poland, is as popular as another great Pole – Lech Wa sa. While the legendary leader of the Solidarity trade union movement in fact helped Central and Eastern Europe shake off communist regimes, the author of “shock therapy” economic reforms of the late 1980s and the early 1990s has in fact “made” the Poland of today, which can boast of Europe’s highest 77-percent growth rate in the past 20 years.
So it is small wonder that Kyiv’s Diplomatic Club was chock-full during a recent routine session, when the Polish economist, who is Board member of the Peterson Institute and chairman of Bruegel, a European think tank, was making a speech. It was interesting for many Ukrainians to hear firsthand from Balcerowicz what he thinks about the causes of and possible remedies for the current global crisis and, particularly, about indispensable structural economic reforms in Ukraine.
Speaking to Ukrainian governmental officials, MPs, ex-ministers, diplomats, and high-profile media editors, the Polish economist confessed that he does not like the term “shock therapy” which he thinks scares people, reminding them of an electric shock effect.
He believes nevertheless that there have been too few reforms in Poland. “We could have achieved more if we had speeded up the reforms and cut inflation down to the European level. What Poland needs is a reform of public expenditures, reforms that will slow down public spending vis- -vis the GDP growth, completion of the privatization of, among other things, the banking sector, deregulation and removal of unnecessary regulations, as well as an effective judicial system,” he said to journalists from 26 European countries a few weeks ago.
Speaking of his experience in the Diplomatic Club, he advises to apply a radical strategy to carry out reforms. “You must not put out the fire slowly. This should be done quickly. Likewise, reforms should be done fast rather than in short steps,” Balcerowicz emphasized.
The Polish economist explains that what caused the current financial crisis was not the lack of regulation as such but the fact that the existing institutions, including those in the US, showed insufficient caution and ignored risks. One of the causes was, in his opinion, the US policy of accessible housing. But he added that some European countries had also pursued a risky policy. This resulted in a construction boom in Spain, Ireland, and the UK. He noted that there was a similar trend in some countries of Central and Eastern Europe. “All these countries used to spend very much, but, as is known, it is bad to have too many things at a time,” Balcerowicz said.
Comparing the situation with a long-distance race, he said one should not bolt at the highest speed on a short stretch, for there is a risk of having an accident.
Besides, in his opinion, very much depends on the monetary and fiscal policies of the government which should know how to cut down on public spending in order to avoid hardships in good times. “What is needed is a responsible society that can punish a government that is playing the role of Santa Claus. The majority should be worried when the government is overspending,” the Polish economist thinks. He adds that what we in fact need is a fiscally conservative society which will be a good guarantee of a correct governmental policy. Meanwhile, social populism should be banned.
Balcerowicz noted that he is not sure that the fiscal incentives that the US administration is resorting to will be justified. In his view, the crucial point is whether or not the US can ward off inflation. Besides, one must take into account that while the US can influence other countries, nobody can influence the US.
A third factor the crisis, according to the Polish economist, is “proliferation of sins” which depends on the previous growth rates – if they were high, the slump will also be nasty. Ukraine had very high growth rates, and now we see a great fall, Balcerowicz noted. According to the economist, smaller countries are more dependent on trade and export, so they are at the receiving end during the crisis. Very much also depends on the structure of exports. As is known, it is steel-making in Ukraine and oil products in Russia. And these are the industries that, by all accounts, have suffered the most from the crisis.
Speaking of prescriptions for riding out the crisis, Balcerowicz stresses that what suits one country may not guarantee a success for another. Moreover, different countries have different possibilities. While the US Federal Reserve System and the Bank of England can ensure, to a certain extent, investments by way of money emission, Ukraine does not have this kind of possibility.
So, in Balcerowicz’s opinion, in the current conditions Ukraine should carry out structural reforms, raise effectiveness of the government, competitiveness and labor efficiency, as well as reduce social spending.
Some time before, when asked by The Day what kind of correct policy the Ukrainian government should pursue to ride out the crisis, Balcerowicz said: “A correct policy for Ukraine is to make sure that the Ukrainian currency, the hryvnia, is stable. In other words, the policy is to make sure that the hryvnia is convertible without limitations. And this means controlling, not increasing, public expenditures.” The Polish economist was also critical of the proposals of some Ukrainian political circles which think that building roads may be a way out of the crisis for Ukraine. “My question is: where is money from? If it comes to printing money, this will cause the hryvnia to fall. And if the hryvnia falls, this will trigger a domino effect,” he said.
The Polish economist is putting special emphasis on the responsibility of the government and especially the public which must be responsible for whom it elects. Asked by the shadow minister of economics Iryna Akimova about the government’s responsibility for averting a crisis, Balcerowicz cited the example of Hungary. In his words, that country is successfully carrying out reforms but gets into a crisis once in 10 years. According to the Polish economist, this can be put down to an irresponsible social policy of socialist governments. “People go wrong when they elect a Santa Claus. If there is noise but no good policy, the market will get agitated,” Balcerowicz said.
Asked about the influence of democracy on development, he noted that comparison should be made with the opposite systems. “There may be mistakes under democracy, but there are much more of them under a dictatorship. Suffice it to recall Stalinism and genocide,” the Polish economist said. Then he added: “Democracy does not guarantee good policies. Some must say ‘Coca Cola,’ and some must say ‘good policies’.”
At the same time, Balcerowicz always emphasizes in his public appearances that Poland has achieved successes in the conditions of democracy. “Under democracy, we switched to capitalism and the rule of law. So we favor the strengthening of democracy,” he stressed. But he also emphasizes the necessity of restructuring institutions and establishing private enterprises whose owners are not politically engaged and, hence, will not bow to pressure. “Then they will be good controllers. Besides, there should be economic incentives for carrying out fast reforms. People will accept reforms when they see they are irreversible,” Balcerowicz reiterates.
What the Polish economist said at the end of his speech cheered up the audience: “Every country should do something to ride out the crisis. I do not think life will be boring.”
The Day’s REFERENCE
Leszek Balcerowicz was born on January 19, 1947, in Lipno, Wroclaw voivodeship. In 1970 he graduated with distinctions from the Foreign Trade Faculty of the Warsaw-based Central School of Planning and Statistics (now Warsaw Higher School of Economics). He worked there as research associate and teacher. He received his MBA from St. John’s University in New York in 1974 and doctorate from the Central School of Planning and Statistics 1975. In 1978—1980 Balcerowicz worked at the Warsaw-based Institute of Marxism-Leninism. In 1978—1981 he led a group of academics that was drawing up an alternative project of economic reforms in Poland. He was a member of Polish sociological and economic leagues, always took part in scholarly conferences in Germany, the UK, Sweden, India, Hungary, and other countries.
On September 12, 1989, Balcerowicz assumed the office of vice-premier and minister of finance in the cabinet of Tadeusz Mazowiecki. He also chaired the Economic Committee of Poland’s Council of Ministers. Balcerowicz offered his own plan of a very rapid transition from a state-run planned economy, a legacy of the Polish People’s Republic, to market relations and the primacy of private property. The proposed set of reforms came to be called Balcerowicz Plan, also referred to as shock therapy.
The Balcerowicz Plan called for drastically cutting the inflation rate, balancing the state budget and the commodity and money market within a year, and putting all economic spheres on a market foothold. To this end, retail prices were raised, budgetary subsidies were reduced, and cash incomes were restricted. Businesses could now make deals in the partially converted zloty which also had a fixed exchange rate.
Although the reform was successful, its social consequences began to arouse discontent and controversial comments in the very first year. As soon as in December 1990 Wa sa’s economic advisor Jan Olszewski refused to have Balcerowicz in the cabinet he was supposed to form. Balcerowicz retained his office in the cabinet of Jan Krzysztof Bielecki, but in December 1991 Jan Olszewski formed a government without him.
After Balcerowicz left the government, he was invited to work as a visiting fellow at Brown University and at the Center for European Policy Analysis in Washington. In the same year he was elected professor at the Warsaw School of Economics. He took part, as an advisor, in implementing economic reforms in Russia and other Comecon countries. He was chairman of the National Bank of Poland from January 10, 2001, until January 10, 2007. In 2003 Balcerowicz was elected member of the prestigious Group of Trustees at the Zurich-based International Institute of Finance.
On November 11, 2006, President Aleksander Kwasniewski of Poland awarded Balcerowicz the country’s highest decoration – the Order of the White Eagle – and said that, had it not been for Balcerowicz, Poland would have joined the European Union much later, if ever at all.
In July 2007 the European Enterprise Institute, a think tank in Brussels, awarded Balcerowicz the title of “The Greatest European Reformer 2007.”
In October 2008 Balcerowicz became one of the eight members of the High Level Expert Group with IMF Managing Director Jacques de Larosi re at the head, which makes recommendations on tackling the consequences of the global financial crisis in EU countries.







