US embassy cable - 05WARSAW924

UNCLAS WARSAW 000924 
 
SIPDIS 
 
 
Sensitive 
 
STATE FOR EUR/NCE TARA ERATH AND MICHAEL SESSUMS 
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS AND MWILSON 
TREASURY FOR OASIA MATTHEW GAERTNER 
FRANKFURT FOR TREASURY JIM WALLAR 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PREL, PL, Economy 
SUBJECT:  Polish Government Declares Half a Loaf on Public 
Finance Reform a Victory 
 
 
 (U) This cable is sensitive, but unclassified, and NOT for 
Internet distribution. 
 
1. (U) On February 1, the Council of Ministers issued a 
communiqu claiming that provisions implemented to date of 
the government's fiscal reform plan (the "Hausner plan," 
named after its chief architect, Economy Minister Jerzy 
Hausner) would save 25.4 billion Zloty ($8.2 billion) 
between 2004-7.  The release broke the 25 billion Zloty 
figure into 9.5 billion Zloty from a combination of spending 
cuts and increased revenues, and 14.4 billion Zloty realized 
from changes to social policies.  This total compares to the 
plan's initial estimate of 54.6 billion Zloty in savings 
($13.6 billion at the original exchange rate). 
 
2. (U) In public comments, Minister Hausner said he was 
pleased that, through the end of 2004, 50% of the plan has 
been completed. He expects another 25% to be completed in 
2005.  Hausner estimated that, ultimately, the plan could 
generate 40 billion Zloty ($12.9 billion) in savings between 
2004-2007. The GOP has submitted several more reform 
provisions included in the plan to the Sejm, including bills 
to reform: the disabled assistance fund (PFRON), which could 
save 500 million Zloty ($160 million) and; a bill to 
centralize public procurement agencies and close some 
advisory bodies, which could save 100 million Zloty ($32 
million).  After extensive discussion with the Sejm over the 
last year, the GOP is finalizing amendments to draft reforms 
of the agricultural social security fund (KRUS), which could 
save one billion Zloty ($320 million).  The GOP hopes to 
submit a new version of the package to the Sejm at the end 
of February. 
 
3. (SBU) Based on recent Sejm votes against key reform 
plans, however, most analysts see no real chance that any 
further provisions of the Hausner plan will be passed.  The 
Sejm recently rejected draft bills which would have 
increased social insurance contributions for entrepreneurs 
and changed regulations on combining additional earnings 
with pensions or retirement benefits (lowering the benefit 
threshold at which pensioners are discouraged from working 
on the market as a means of generating employment).  These 
bills would have produced up to one billion Zloty ($320 
million) through a combination of increased revenues or 
savings in expenditure.  The GOP has resubmitted a revised 
version of these bills to meet objections raised in the 
Sejm, under which the combined savings would be 800 million 
Zloty. 
 
4. (SBU) Comment: On February 1, Hausner told the Ambassador 
that the government finds itself in a difficult position. 
As a minority government, it is not clear which parties in 
parliament will support its reform program.  The opposition 
parties clearly want the government to stay in office, but 
do not seem willing to support any significant changes or 
reforms.  Given the increasingly fluid political situation 
in advance of general elections, it is unlikely that 
parliament will tackle any significant new reforms which 
could prove unpopular with voters.  There is widespread 
press speculation that Hausner himself may soon resign from 
government, particularly now that he has resigned from the 
governing SLD party.  As commentators begin to write 
obituaries for the Hausner plan, it is useful to remember 
that the GOP's financial situation looked much more grim 
when it was first proposed 18 months ago.  Many analysts at 
the time doubted that even half would be achieved.  While 
GOP finances are better now, there is still a long way to go 
to put them on a more sustainable track to meet Maastricht 
criteria.  The opposition parties may avoid having to 
confront difficult public finance reform issues before the 
election, but will have to deal with them in the next 
parliament. 
 
Ashe 
 
 
NNNN 

 2005WARSAW00924 - Classification: UNCLASSIFIED