Working Paper
Reform, Stabilization Policies, and Economic Adjustment in Poland

The mechanism and dynamics of the recent economic developments in Poland determine the mechanism and the implementation methods for adjustment programmes and stabilization policies. The syndrome of crisis phenomena in Poland is composed of three planes: systemic, structural and political. One must also view the adjustment and stabilization processes in the very same planes and configuration, as only such an integrated approach to the problem promises a solution.The attempt to introduce a radical, breakthrough systemic reform had been made in Poland in the years 1981-82 and is now continued in the second stage of economic reform. Monetization, introduction of market relations, an enhanced role of money and of the banking system, elimination of centralized planning in physical units and the gradual introduction of indicative strategic planning, reinforcement of grass-roots, company level initiative, promotion of worker's self-management, are the principal features of systemic changes now underway. These attempts must be accompanied by progress in the democratization of political relations, as there is a feedback between the latter and economic reform.The second major drive is directed at overhauling the legacy of a proinflationary, crisis-prone and uncompetitive economic structure. Progress achieved in the eighties is thus far inadequate. The Polish economy has a poor export capacity, is heavily dependent on imports and is excessively material and energy intensive. The end of this decade is witnessing new attempts aiming at changes in the structure of investment, designed to produce a more export-oriented production structure and one capable of balancing the domestic consumer market.Systemic and structural action must be backed up by appropriate economic policies. However, the traditional instruments of market stabilization cannot therefore be fully utilized, as they sometimes backfire and they must take account of the specificity of the centrally planned economy, enmeshed in very deep domestic and external disequilibrium.Stabilization policies in Poland face two fundamental dilemmas. The first involves competition between two tasks - prompt restoration of equilibrium in the current, account of payments and the restoration of internal equilibrium. It seems to be clear that domestic balancing should be given priority, as it is the key to successful systemic adjustment, on the one hand, and it offers better changes to eventually pay back foreign debts, on the other.The second, so-called shortageflation dilemma, is connected with the specificity of the economy of shortage. It concerns the choice between the scale of price (open) and repressed inflation. The efficient implementation of stabilizing and adjustment measures, as well as the needs of long-term external adaptation, require that priority in this trade-off be given to the balancing of the domestic market, otherwise the assumptions of the systemic reform will not be enforceable. The shortageflation syndrome in the case of reformed socialist economies seems to be analogous cost of the long-run adjustment process to the syndrome of stagflation in the developed capitalistic economies in the seventies and early eighties.The World Bank and the International Monetary Fund opt for measures designed to quickly restore equilibrium in the current account of payments, even at the expense of a further deterioration of living standards in Poland and of failing real wages. This position is quite understandable if one considers the interests represented by these organizations. It is equally obvious that the Polish government can pursue only such stabilization and adjustment policies which can safeguard the precarious social and political equilibrium. Generalizing, one may say that the fine art of stabilization policies and adjustment programmes in all the integrally interconnected planes, i.e. systemic, structural and political, must consist in striking the balance between economic necessity and political practicability.All the solutions presented in this study lead to two most likely scenarios for future developments in Poland. One is a scenario of continuation, which comes down to the preservation of the hitherto character and pace of the processes analysed here, with only minor alterations. The alternative scenario would be one of an acceleration of stabilizing and adjustment processes. There are many premises suggesting that the alternative scenario is becoming increasingly probable. This is also connected with a particular political climate, which has quite an impact on the efficiency of measures implemented in the economy.