Saturday, February 12, 2011

Honey, let's go shoppin'

Picture this. The good cowboy Rostowski is riding his horse into the sunset with ecstatic music playing. He just won a tough battle with the evil privately managed pension funds (OFEs). He holds tight his well-earned loot while leaving behind the evil territory of the private sector.

But just when you expect to see the "The End," a woman coos from the side: "My darling Jacek. Now that you have made some coin, let me buy myself somethin' nice?! Pretty pleaaaaassse."

This is basically the current situation with Poland's pension"reform" at the moment. Only it's a bit worse since they haven't even defeated the "evil" OFEs yet and already Labour Minister Jolanta Fedak wants to spend the money they plan to "save" on pension fund fees by increasing pro-family expenditure. The Finance Ministry has apparently said "no" but this does not mean it will say "no" in the future, particularly in light of this October's elections.

One basic problem with the government's entire "reform" is not the OFEs, not the pensioners, not savings. It is HIDING debt and cooking the books. Poland will not be spending less on pensions -- it will hide the amount of money it used to disclose as OFE transfers and delayed the interest it would have to pay on that debt until Poles hit retirement age.

The whole "reform" thus does nothing else than move the responsibility for government failure to do other reforms from the administration onto future pensioners. The reform does not create any "savings." It creates accounting breathing room by hiding expenses.

And therein lies the biggest risk, one that Fedak's desires clearly bring to the fore. For the government, the hidden debt does not exist. It has vanished and will not have to be repaid. Ever.

Therefore the government, this one or the next or the next after that, will be inclined to consider the whole operation as "savings" and just spend away. Future ministers will go shopping for voter support until debt again nears the safety threshold of 55 percent of GDP. And then? They will again introduce some kind of a "reform" with the lowest possible political price instead of what actually might be good for Poland.

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