US embassy cable - 05WARSAW1320

UNCLAS WARSAW 001320 
 
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:  Poland Cautiously Optimistic EcoFin Will Loosen 
Rules on Pension Fund Accounting at Next Meeting 
 
REFS:   A) Warsaw 1095 B) Warsaw 1057 
 
 (U) This cable is sensitive, but unclassified, and NOT for 
Internet distribution. 
 
1. (U)  Polish papers widely reported that EU Finance 
Ministers came to no final conclusions at their March 8 
EcoFin meeting on loosening the Stability and Growth Pact 
procedures for calculating deficits.  For Poland, this means 
that EcoFin has yet to make a final decision on how to 
classify the current surplus in Poland's Open Pension Fund 
(OFE's).  Poland has been pressing EcoFin hard to include 
these surpluses, which the Finance Ministry believes will 
allow it to lower its deficit-GDP ratio to 2.2% by 2007. 
Polish papers reported that Finance Ministers hope to make a 
final decision on March 20.  Finance Minister Gronicki and 
his deputies have suggested to Polish papers over the last 
several days that there is some hope EcoFin will accept an 
effective compromise under which countries would still have 
to meet the 3% debt-GDP ratio without including OFE 
surpluses.  However, the excessive deficit procedure would 
not be applied if an extra deficit was caused by pension 
system reform.  Just in case, the Polish Ministry of Finance 
announced on March 9 that it will release this week the 
expected "plan B" (ref a) to implement fiscal reforms to 
reduce spending. 
 
2. (U) Financial markets reacted calmly to the news from 
Brussels (as they did to the announcement last week that 
elections could be held on June 16, and speculation on March 
7-8 that Deputy PM Hausner might resign).  The bond market 
remained focused on the March 9 twenty-year bond auction 
(expected to offer yields of 3.4%).  Currency markets 
remained very strong, with the Zloty strengthening against 
the dollar.  Analysts believe that any EU announcement on 
March 20 of a compromise would strengthen both Polish bonds 
and the Zloty.  The Ministry of Finance also announced March 
8 that it plans to repay most of its 12.3 billion Euro in 
outstanding Paris Club debt by March 31.  Finance stated it 
already has 9.5 billion Euro in financing in place to fund 
this repayment (3 billion from a new Euro bond issue, 500 
million from a private placement and 6 billion in bridge 
financing).  Finance indicated that the remaining repayment 
amount could come from the budget (cash reserves are up 
significantly in the first two months of the year). 
 
3. (SBU) Comment: The Polish Finance Ministry will continue 
to push its case as long as it can.  The Government still 
very much wants to stay on track to adopt the Euro by 2009, 
which would require Poland  to meet the Maastricht criteria 
in 2007.  Finance officials are pleasantly surprised that 
markets have largely ignored both comments about the lack of 
good news from Brussels on OFE's and the potential for 
earlier elections.  However, given the sensitivity of their 
ongoing financing needs on both international and domestic 
markets, they will want to avoid any step which markets 
could interpret as backing away from early adoption of the 
Euro. 
 
Ashe 
 
 
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 2005WARSAW01320 - Classification: UNCLASSIFIED