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Success Stories Assistance Areas SEED Reports Contact Information Last updated: Thursday, 25-Jun-2009 16:23:57 EDT     1998 POLAND INPUT INTO 1998 SEED REPORT Political Developments Poland is a parliamentary democracy based on a multiparty political system and free and fair elections. The President shares power with the Prime Minister, the Council of Ministers, and the bicameral Parliament, made up of a lower house (Sejm) and upper house (Senate). Poland's new constitution of October 1997 enshrines sweeping liberal-democratic rights, including freedom of speech, press, association and religion, and guarantees civilian control of the military. Poland has held two presidential and three parliamentary elections since the crumbling of the Communist regime in 1989. The current government, formed after the September 1997 parliamentary elections, is composed of Solidarity Electoral Action (AWS) -- a grouping of rightist, center-right, and Christian-national parties anchored by the Solidarity Trade Union -- and the centrist Freedom Union (UW). This coalition holds 246 of the Sejm's 460 seats and 60 of 100 seats in the Senate. The government is continuing the basic foreign policy of its predecessors toward closer integration with the Euro-Atlantic community, including full membership in NATO and the EU. On domestic policy, it is seeking to speed the pace of privatization and in 1999 will launch major social sector reforms approved this year. Also, local elections held in October of this year were an important step in launching a sweeping public administration reform, which shifts significant authority from the center to local governments, particularly in the fields of health care, education, and regional economic development. Poland continues actively to reform its military to prepare for full membership in NATO. It is expected to accede to NATO by April 1999. Under the constitution, the President exercises command of the armed forces through the civilian Defense Minister, who has clear command and control over the military Chief of General Staff and oversight of military intelligence. Growing numbers of Polish mid- and junior-level officers train in American or NATO institutions, further entrenching principles of civilian control over the military. Poland has been a principal activist and proponent of the Partnership for Peace (PFP) program with NATO, having participated in some 75 PFP exercises. Poland plays an important and constructive role in Central and Eastern Europe: it contributes some 470 troops to the Stabilization Force in Bosnia and has formed joint peacekeeping battalions with Ukraine and Lithuania. Also, Polish NGOs contributed over 300 volunteers to supervising the Bosnian elections in 1997 and 1998. In 1998, Poland assumed chairmanship of the OSCE and has actively expanded the work of the organization in promoting democracy and stability in such areas as the Balkans, the Caucasus, and Central Asia. Economic Developments As it brings to a close the first decade of transformation to a democratic, free market country, Poland stands out as one of the most successful and open transition economies. The EBRD in late 1998 rated Poland and Hungary as the two countries most advanced in the transition process. Even with the financial turmoil in the emerging markets, all three of the major credit rating agencies (Standard and Poor's, Moody's and Fitch IBCA) have evaluated Poland positively. Each has given Poland an "investment grade" sovereign credit rating. Poland's bold reform efforts have paid off. The economy grew by 6.9 percent in 1997 and about 5.3 percent in 1998. In light of the global economic slowdown, the Polish economy in 1999 will likely slow to growth between four and five percent, still among the top performers in Europe. In its first year in power, the new government has made substantial progress in implementing its ambitious economic reform and privatization agenda. Pension reform, decentralization of political and financial authority to regional and local governments, and health care reorganization were passed in 1998 and will be implemented in 1999. Further, the government has embarked on a coal sector restructuring program that is aimed at closing inefficient mines, reducing excess labor, and returning the sector to profitability by 2001. In 1998, the government successfully completed the first stage of privatization of the telephone company (TPSA) and a large banking group (Grupa PEKAO S.A.), and for 1999 it plans to find strategic (most likely foreign) investors for these two giants. Also in 1999, the government should privatize most or all of its interests in the telecommunications, banking, insurance, and steel sectors. Further, it plans to privatize significant portions of the energy and defense sectors. This government has set itself the goal of privatizing 70 percent of its holdings by the year 2001. Polish monetary and fiscal authorities in 1998 reduced the inflation rate to under ten percent and have tightened the budget. For 1999, the government plans to lower the budget deficit from 2.4 percent of GDP to 2.15 percent and to reduce the inflation rate by at least another percentage point. The authorities' restrictive policies helped to cool off the economy in 1998, which kept the current account deficit from widening to over six percent of GDP as predicted earlier. The current account deficit did increase modestly, from 3.2 percent of GDP in 1997 to around 3.8 percent. Due to real appreciation of the Polish zloty against the dollar and economic slowdowns in major trading partners, the export growth rate has been falling. Consequently, the current account deficit is expected to widen further in 1999; the government estimates a current account deficit of 4.9 percent of GDP in 1999. In contrast to global financial crises during 1998 that led to reversals of macroeconomic stabilization elsewhere, Poland continues to evolve toward financial sector modernization. Several factors have helped insulate Poland's economy from crisis: Poland's early and deliberate plunge into a market economy without delay or restraints; its shift in export orientation toward the West (two-thirds to the EU) rather than the East (under 10% to Russia); stock exchange capitalization that is majority domestic (60% compared to just 5% domestic capitalization in Russia); and well-entrenched long term foreign investment (an estimated $30 billion by calendar year-end 1998). In 1999, the Polish authorities will confront the issues of maintaining fiscal discipline in the new regional and local governments and health institutes, sustaining effective supervision over banks and the capital markets in a time of economic slowdown, and coping with the negative impact on exports of a strong Polish zloty. For the longer term, the Polish authorities face the challenges of restructuring and modernizing the relatively backwards rural sector, which employs about a quarter of the work force, preparing for accession to the European Union and entering the European Monetary System, and creating jobs for an upcoming wave of new entrants to the labor force. SEED Assistance Program Overview PROGRAM OBJECTIVES Poland's $900+ million SEED program is now in its tenth year, and is preparing for graduation at the end of FY 2000. By almost all measures, it has been highly successful: Poland has matured into a stable democracy and consistently has one of the highest growth rates among the former Communist states of Central and Eastern Europe. Debt restructuring, the Polish-American Enterprise Fund, and the stabilization/bank privatization fund were the program's hallmarks in the early nineties--all large scale initiatives aimed at pulling Poland out of recession and transforming the wealth-making structures of the economy. From 1996, SEED activities were fine-tuned into three strategic areas: Stimulating the private sector at the firm level, with emphasis on improving the profitability of small and medium enterprises (SMEs). Impacting this target group has required technical assistance for strengthening Polish SME support institutions and consultants, professional management training, U.S./Polish MBA programs, information banks, and energy saving technologies. Most recently, the program has tackled the problem of technology transfer to raise the value-added product of SMEs. Help in legal, regulatory and judicial reform fosters competition and SME-friendly government. A competitive, market-oriented financial sector, highlighted by increasing liberalization and investment in the banking sector, high levels of accountability, increasing professionalism, and strengthened supervisory structures for banking, insurance, and capital markets based on global standards of transparency. Also targeted is a new, competitive pension funds system that builds Polish capital markets and protects long term fiscal health. New or strengthened financial services include business/municipal credit ratings, licensed warehousing, banking associations, housing finance, credit unions, municipal bond markets, and cooperative banks. Effective, responsive and accountable local government, the largest single initiative as the SEED program draws to a close. The Local Government Partnership Program embodies both direct assistance to local governments to better manage resources and meet citizen needs and complementary strengthening of a network of government support associations. LGPP objectives have been buttressed by profound fiscal and political decentralization reform, including creation of a new "county" government tier. LGPP is at the heart of the SEED program strategy to embed democratization throughout all levels of society. The three main strategic goals have been rounded out by a set of special initiatives, carried out by a combination of U.S. Government agencies including: DOE and EPA enhancing environmental protection; DOL assisting workforce redevelopment in Silesia's "rust belt"; DOJ modernizing the criminal justice system; Treasury tax standardization pilot assistance; and USIA's Democracy Commission and Peace Corps' small grants. Non-USG SEED program initiatives winding down in 1998 include Solidarity Center's (AFL/CIO) building Polish Solidarnosc negotiating and consulting capacity, National Democratic Institute's efforts to bring women and youth actively into political party involvement, and PIER's well-received mine safety program. Two new themes are gaining heightened attention as concluding chapters of the SEED program, tracking renewed Polish Government interest in these areas. Poland is assuming the role of a model for other transition countries, and first with the U.S.-supported Poland-America-Ukraine Cooperation Initiative and lately with launching of the Polish Know How Fund, is demonstrating how Polish development skills and experience can be shared with regional neighbors further back in the transition process. Within Poland, social sector reforms--especially in health and education and, as noted above, in government administration and pensions--address transition problems that had been deferred while democracy and economic growth were ensured. USAID efforts will focus on more effective Polish Government coordination of these reforms, and on building a two-way communication channel between government and the public (including parents, pensioners, and health and education practitioners) that influences policy decision-making. PROGRAM IMPACT IN FY 1998 Economic Growth The vitality of the Polish economy and the competitiveness of its businesses have been put to the test over the closing months of FY 1998 as financial crises in Asia and Russia had a marked impact on transition economies. While GDP growth forecasts for the near-term are revised downward, the transparent and well-regulated nature of Poland's financial markets and strong ties with Western--and particularly European--economies have allowed Poland to ride out the worst of the crises shaking investor confidence and threatening livelihoods in the neighboring countries of the former Soviet Union. Foreign direct investment in Poland in the first six months of 1998 alone exceeded $5 billion, with the U.S. heading the list of investors. The Polish government also continues to tackle reforms head-on; the funding needs for the four major social reforms has lead to increased action in privatizing state-owned enterprises. Private sector growth: In FY 1998, USAID support has lain at the root of major changes to the regulatory and legal framework affecting SMEs. USAID-sponsored research and technical assistance to the sector have: helped business associations work with the Polish government to minimize the bureaucratic burden on businesses. Proposals before Parliament will slash the number of licenses and permits, and lower, simpler business taxation replacing tax concessions and breaks is under consideration; ensured that the SME sector was among the first where settlement has been reached with the European Commission as part of the EU accession process; and readied Polish institutions to implement major reform laws. Through USAID assistance, the Energy Regulatory Authority is freeing up both energy and heat prices starting in 1999 (3,000 licenses out of 4,000 have already been processed, and banks and the judiciary are implementing collateral law. Business competitiveness in Poland is dependent on access to well-trained staff and professional Polish advisory services. The USAID-funded University of Minnesota program has produced a second cohort of 31 students receiving dual degrees at the Warsaw Business School. A further 55 students of the joint University of Maryland/University of _ód_ MBA program--as well as 600 "mini-MBA" trainees--have graduated from this second, financially- and programmatically-sustainable USAID partnership with Polish universities, and a third partnership--between Minnesota and Olsztyn Agricultural University--welcomed its first freshmen class in October, 1998. The number of small business-support organizations assisted by USAID which have become sustainable reached 36 in FY 1998, an increase of eight over 1997. Moreover, an association of home-builders reached sustainability, graduating from USAID assistance. This association provided concerted assistance to homeowners and builders in zones effected by the July, 1997 flood in southern Poland, with a seminar, media and mailing campaign providing technical advice on drying flood-effected housing to an estimated 33,000 homes. A USAID grant to the Small Enterprise Assistance Fund lead to conclusion of 24 investments in small and medium-sized private Polish businesses. Fundusz Mikro, a micro-lending program financed from SEED funds through both USAID and the Polish-American Enterprise Fund, has provided over 15,000 micro loans and has over 8,500 clients currently on its books - a rise from 6,000 loans just a year earlier. The "best practices" of these activities in management training, technical assistance to business support organizations, and the work of Fundusz Mikro is now being disseminated in Bulgaria, Russia, and Ukraine. Visitors from Bosnia and Moldova are also often referred to USAID/Poland implementors and their Polish counterparts for training, including business incubation and SME policy models. A clean drinking water collaboration between an NGO and municipal authorities in Cracow is being replicated in Lviv, Ukraine. Environment and Energy: While only 1/3 of electricity and 1/5 of heating costs were covered by consumers in 1989, all generation, transmission and distribution costs for these services are now consumer financed. USAID helped reach this milestone through regulatory/pricing policy and energy efficiency assistance. Three newly-established pollution prevention centers launched 24 waste minimization projects in FY 1998, which have already lead to documented cost savings of $700,000 in eight non-ferrous metal mills, and $1.5 million savings through utilization of fluorine wastewater by a sulphur manufacturer. Parliament began passage of the thermo-modernization law in November, 1998 and a related USAID-supported system supported the design, evaluation, and management of up to 50,000 building-related energy-efficiency projects--leveraging an additional $400,000 in EU-Phare funding. USAID projects in Poland will lead to $6 million attribution to GCC initiatives. The total value of public and private support leveraged is estimated at $20 million, especially through increased participation in the framework convention on climate change, and through reduction of emissions from the energy sector, industry, and urban areas. USAID also helped the Polish government identify a national coordinator for the green-house gas inventory. A Competitive, Market-Oriented Financial Sector: Polish bank and securities and exchange supervisory authorities, both recipients of USAID technical assistance, continue to be recognized as leaders in Central and Eastern Europe. Changes to legislation implemented in 1998 reinforced these supervisory structures and provided them with the mandate needed for effective enforcement. Poland's payments system is considered adequate for clearing and settlement, but limited in terms of efficiency due to the still high proportion of paper transactions. USAID's technical assistance to the Polish Bank Association in the area of bank payments systems has helped reduce settlement times, with more than a third (by value) of business-to-business payments now settled within 24 hours. USAID direct assistance to the six-year old Warsaw Institute of Banking (WIB) ended in FY 1998. As a result of U.S. assistance, WIB now has an experienced team of instructors; standard course offerings; offers fee-based services such as in-bank training, consulting and study tours; and is able to design, price and market its own courses. More than 7,500 individuals from 50 Polish banks have participated in WIB training programs. Cooperative banks continue to show operating improvements, although consolidation among coops and conversion to credit union licenses will continue as banks move toward meeting minimum regulatory capital requirements. The USAID-supported credit union movement continues to grow in Poland with more than 250 institutions registered by FY 1998. As a result of USAID's assistance through the World Council of Credit Unions, more than 220,000 Poles have convenient access to a broader range of financial services at lower cost than traditional sources, and more than $100 million in savings have been mobilized. The USAID-supported Central European Rating Agency (CERA) moved closer to self-sustainability in 1998, signing a strategic alliance with internationally renowned Thompson Bank Watch. Momentum in developing a market-based housing finance sector moved dramatically forward in FY 1998 with USAID's assistance to new partners, especially the Polish Bank Association (PBA) and the National Bank of Poland. An estimated 100,000+ market-based residential mortgages were made in 1998--a four-fold increase over 1997 estimates. Some 28 banks now offer long-term mortgage and construction loans, the PBA now has an active housing finance committee, and three bank training institutes offer housing finance courses. The National Bank's banking supervision authority is modifying its on-site inspection manual, with USAID assistance, for better staff oversight of housing loans. The municipal bond market kept pace with 1997 growth, with 14 bond issues closed and 17 pending compared to 17 closed in 1997. The government recognizes that legislative changes are needed to remove impediments to increased growth of this and the corporate bond market. Independent of USAID assistance, financial sector counterparts (e.g., banking and securities supervision authorities; bankers' training; cooperative banking) have begun to share their expertise with Poland's Baltic neighbors, and the USAID-supported CASE Institute "East-East" initiative is assisting Ukraine to improve bank supervision. Building Democracy and Local Governance Democracy in Poland is well established. The necessary laws and legal institutions to support democratic processes are in place. Local governments have assumed greater responsibility and are demonstrating increased capacity. During 1998, the Polish government began to implement an Administrative Reform, which created larger regional self-governments and a new county level of government (powiats). The reform is intended to further decentralize tax powers and public service responsibilities to the regional and county levels, which will begin operating in January, 1999. Cities in Poland already have substantial service responsibilities. Open and competitive elections for the new regions and counties and cities were held in October. The Government has launched a major initiative to train elected and administrative personnel for the newly created local governments. On the civic side of the equation, non-governmental organizations have continued to improve their capacity to play an active and constructive role in public affairs. In this context, USAID focused its activities on three interrelated areas supporting democracy and building effective local governments: legislative and policy reforms that support decentralization improved municipal management civil society organizations. Legislative and Policy Reforms: The government's administrative reform required the development of legislation defining responsibilities for the new levels of local government and designing appropriate systems to finance activities by these local governments. USAID?s Democratic Governance and Public Administration(DGPA) program advisors provided key assistance to the Ministry of Finance and the Minister Plenipotentiary for Administrative Reform on designing a new public financing system through the Law on Local Government Revenues. Doubts about how best to achieve tax equity among Poland's regions did not permit the Polish government to decentralize local government finance as much as it desired. Accordingly, in the coming two years, this problem will be tackled as a prelude to further fiscal decentralization, with DGPA advisors providing assistance. Additionally in 1998, DGPA advisors provided analysis and comment on the Law on Public Finance, which sets prudent rules for spending public funds, including limitations on public debt. A third USAID effort provided assistance to the Water Standards Board, an inter-ministerial group developing policies on cost recovery. The goal of the effort is to increase cost recovery (and provide profitability) for municipal services--a key element in attracting private sector investment in infrastructure. Strengthening Municipal Management: USAID?s Local Government Partnership Program (LGPP) undertakes activities to make local governments more effective, responsive, and accountable to their citizens. The LGPP is working with Polish local governments, consulting firms, universities, NGOs, and local government support institutions/associations to help them develop and implement tools and approaches which make governments work better. USAID and 30 Polish cities have developed strategic plans for the delivery of technical assistance to these cities. Polish institutions, supervised by USAID technical advisors, have begun delivering assistance in strategic management, task based budgeting, capital investment planning, housing strategy development, and public participation strategy development to these and other cities countrywide. When the LGPP is completed in March, 2001, Polish institutions will have the capacity to supply the improved management tools and approaches demanded by Polish cities. Civil Society Organizations: Since 1989, civil society organizations such as NGOs and political parties have reached an impressive level of institutional strength and professional maturity. USAID?s just-completed DemNet project played an important role in this. DemNet promoted the evolution of service-oriented NGOs into organizations participating more actively in policy formulation and implementation, especially as partners with local governments. Successful advocacy campaigns were conducted by DemNet-supported NGOs, which influenced national and local level legislation leading to a constitutional amendment on children?s rights, developed national environmental legislation, and promoted local government ordinances on a variety of topics. USAID will continue to support increased public participation in local government through the LGPP program. The National Democratic Institute (NDI) project helped major political parties improve their ability to reach out to members and plan election campaigns, most recently the September, 1998 local government elections. Special efforts were made to enhance participation of 500 women and 680 youth activists in politics at the national and local level. NDI has also left behind a successor organization--the European Institute for Democracy-- capable of providing party building training regionwide. Social Sector Restructuring/Quality of Life Pension Reform: After two years of USAID assistance in educating legislators, trade unions, journalists and other opinion leaders, four of five essential components of enabling legislation for Poland's new three-pillar public/private pension system were passed. The Government credits USAID's assistance in helping to influence opinion leaders toward the passage of this essential legislation that will build resources to deepen Polish capital markets and will promote long-term fiscal health. In FY 1998, assistance continued in the area of public education and was expanded to help establish essential capabilities of the newly created private pension fund supervisory authority, including pension funds registration, information management, taxpayer education, and complaints adjudication. Social Benefits and Services: The Harvard School of Public Health/Jagiellonian University collaboration in Krakow demonstrated how public health services could be totally reorganized (e.g. free choice of family doctor, cost assessment methodology, quality monitoring) and has been an important model for nationwide health care reform passed by the Parliament in 1998. The impact at the Krakow health clinics was significant: research on patient satisfaction showed dramatic increases on 20-30% on average over the course of just one year. The Harvard/Jagiellonian collaboration continues to influence the unfolding health reform experience. Labor Transition: FTUI/Solidarity Center's assistance to Polish Solidarnoc regional consulting centers wound down in FY 1998. In September, Solidarnosc's national conference endorsed a sustainability plan that will keep these services available at the plant level as Polish enterprises and workers adjust to the increasingly competitive European business environment. The U.S. Department of Labor's support to trade centers in Lodz, Gdynia, and Warsaw also entered its last year: the Lodz training in "white collar" skills has been a clear success; the Gdynia and Warsaw construction trades centers - a joint effort with the AFL-CIO - have had a harder time achieving sustainability, and some program consolidation is underway. USDOL launched a major activity in the coal and steel center of Upper Silesia that will bring modern methods of worker retraining and job placement to these downsizing industries. U.S. and Hungarian experiences are being used as models. Ultimately, this project will help cope with the 100,000-150,000 workers expected to be displaced by Poland's sweeping restructuring of the coal industry. Finally, the PIER mine safety program came to a successful conclusion in 1998. Fifty-five post-graduates in mine safety attended the PIER-developed program at the Technical University of Silesia in 1997 and 1998, and a new Polish safety institute formed involving collaboration among miners, mine managers, and Polish technical experts. The impact and spread-effect of this project was underscored by the fact that 9,000 miners responded to a PIER-sponsored questionnaire on mine safety - a survey which showed that safety awareness has significantly increased.

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