Thursday, March 31, 2011

Strategic thinking

A recent joke goes like thus:
- "Did you get a raise?"
- "In fact, I got two! On my mortgage and my electricity bill...."

Well, more rate hikes and price hikes are coming and one of them is going to make a lot of people unhappy. According to the daily Dziennik, the state will have to raise the excise tax on diesel fuel by 10 percent next year apparently as an EU transition period expires. With fuel prices hovering above 5 (1.6$) zlotys per litre (at least in Warsaw), all diesel car owners will feel had since car dealers charged them extra for their diesel cars, claiming the higher cost will be offset by cheaper diesel fuel compared with normal petrol. Riiight.

Obviously one man is happy, who most likely doesn't own a diesel as he has a driver and a government-issued car: Finance Minister Jacek Rostowski. He, like the old Uncle Scrooge, can already hear the soothing cling of coins dropping into the vault called the state budget. It is so convenient for him that another preferential tax-related transition period ends and that he can put the blame on somebody else.

There is another twist. You see, on Monday Prime Minister Donald Tusk opened (with all due bells and whistles, ceremonies, hugs and kissess) "the biggest Polish industrial investment of the 21st century" at the Gdansk-based refiner Lotos. The company spent 1.4 billion euros to upgrade its production capacity of... diesel fuel. Yep. The very same diesel that taxes are now going up on and which will bound to see demand fall.

And, by the way, the state owns 53 percent of Lotos, right? Good thing they plan to sell it next year. That's strategic thinking for ya'.

What POlling problem

The senior ruling Civic Platform (PO) was on the rocks mere weeks ago. Its polling rating was hammered by a tsunami of bad news, whether its botched handling of a Smolensk crash report or a pension reform that alienated core voters. PO members were also tapping into the George Walker Bush School of gaffes and offending widely.

But PO leader Donald Tusk, the prime minister, can give one loud 'stuff you' to everyone who began writing the party's obituary. The latest opinion polls have shown the PO either recovering or holding at levels that would have made any Polish political party in the past 20 years mad with joy with only just over 6 months to go before general elections.

The PO's support jumped to 46% in a survey done by GfK Polonia for the daily Rzeczpospolita, up from 43%. For comparison, with about half a year to go before the 2007 general elections, the then senior ruling Law and Justice (PiS) polled at 24%. About 5 months before the 2005 polls, the Democratic Left Alliance (SLD) polled at just 7%. The PO is clearly doing well.

Why? Tusk, ever a canny political operator, is reaping the dividends of a recent media offensive. Tusk blitzed the media with justifications and defences and schmoozed viewers on a popular weekend breakfast current affairs program (see picture). The PO leader might be more tarnished than he was, but he remains popular and, more importantly, effective (just ask Biedronka).

The battle over the pension funds might have put off some PO voters, but most don't understand or don't care enough. And if they did, who else is there to vote for? PiS? Clearly not. The SLD? They lack unity, vision and execution. The Polish People's Party (PSL) is small time and it looks increasingly like the two new splinter groups will be wiped out.

The PO also benefits from its much ballyhooed boast of Poland being 'the only EU country to grow in 2009.' As blah-inducing as it is to hear ad infinitum, it does help. Employment is growing strongly, wages are rising, pensions are climbing, unemployment is set to fall, and public finance concerns are likely to be papered over at least till after elections.

Yet, the pension anger could still come back to haunt the PO, particularly if it compels voters to stay home. PiS's electorate tends to be more disciplined. The PO could also conclude it has passed its test and can cruise to victory. The party still needs to offer a compelling reason to vote for it, much like it did in 2007 when it offered a clear alternative to a chaotic PiS as well as promises of fast economic growth and wage rises. Price hikes could pressure consumers.

In the end, the PO probably continues to poll at higher levels than it would actually receive in elections, but there's no denying Tusk has deftly charted his party's course through a rather treacherous recent stretch. Whether he can guide the PO to an outright victory in the autumn, however, remains a big ask and one I feel is still asking too much.

Tuesday, March 29, 2011

A vacation for laws?

A mysterious term has colonised the Polish newsworld of late that makes anyone who has used it sound instantly like a legal expert or perhaps a travel agent for legal documents: vacatio legis. Mmmm, it has a nice ring. Almost like an Italian cocktail. Yes, waiter, I will have two more vacatio legises (or is that legi).

Vacatio legis. I like writing it. The use of Latin naturally makes you smart. Knowledge of how to use the phrase makes you even smarter.

But what is it? Is it a vacation for hard-pressed work-weary laws? An Ibiza for bills perchance. Or perhaps it's a vacation away from law? Like summer camp for anarchists' children.

Vacatio legis, as Mr. Wikipedia states, is loosely translated as "the absence of law." It's basically a technical term referring to the time between a law being signed and the time that law takes effect.

In Poland, it's far more than that. In fact, it's the last hope for opponents of the government's controversial pension changes to try to block them or make the government look overly hasty. 

The government plans about a 1-month vacatio legis between when the president signs into law the changes (coming days) and them going into effect on May 1. Most legal experts say this is enough.

But some counter that if the vacatio legis is 29 days instead of 30 days, the Constitution will be horribly violated and the sky will fall, or something. If it's 28 days, the second coming could be at hand. Others want even a 3-month break. This is all very pathetic, in a bad way.

For, the pension changes are a done deal. Opponents are just going to have to stop worrying and love them. As for me, this post has made me think of a new Latin phrase: vacatio Scotto. Meaning I need a vacation.

Monday, March 28, 2011

Kaczynski versus Giertych

Jaroslaw Kaczynski, Polish patriot in chief, Mr. holier than thou, ex-prime minister, leader of the leading opposition party, the ultra conservative Law and Justice (PiS), is in the red and white corner. In the opposite corner is Roman Giertych, one-time wonder boy of the radical right, the former leader of the League of Polish Families (LPR), the former leader of the mini brown shirts All-Polish Youth, and the former ally of Kaczynski.

The pair once sought to bring about the so-called Fourth Republic in Poland in various governments in 2005-07. Now they are sworn enemies. At issue is Giertych's comments in a 2010 interview that Kaczynski gathered "dirt" on his political enemies when prime minister in 2006-07. Kaczynski promptly sued for slander. Giertych sued right back.

The cases have been frozen because Kaczynski enjoys immunity from prosecution for such charges as a member of parliament. Giertych has been battling to get Kaczynski's parliamentary immunity stripped, but Kaczynski was reported Monday to have given this up voluntarily.

What's really at stake? Nada. It is so obvious that Kaczynski gathered "dirt" on his enemies (and likely his allies as well) that it doesn't need much further comment. If it hadn't already been invented, Kaczynski would have created political mudslinging. Giertych, now a lawyer, is trying to somehow re-establish himself by distancing himself from Kaczynski and undermining the leader of the right.

Though not having great political importance, there is one bright silver lining of the dispute: seeing the morons who tried to impose the idiotic Fourth Republic undermining each other. For a comparison foreign readers can quickly understand, this would be like Bush taking on Cheney. The best thing about the battle? Both lose.

Saturday, March 26, 2011

Budget fast-track or bust!

Stop the presses! Prime Minister Donald Tusk took off the populist cap he's increasingly comfortable wearing to put on his thinking cap, even if only for a moment, and present a good idea. A day after he vowed to punish evil speculators for increasing prices, Tusk pledged to get the 2012 state budget adopted by July 1, the day Poland takes over the EU presidency and ahead of the October parliamentary elections.

Tusk said adopting the budget early -- it's usually adopted in December-January -- would minimise fuss and allow the government to concentrate on the EU presidency. It would also enable his Civic Platform (PO) to focus on winning the elections.

Deputy Finance Minister Ludwik Kotecki, who first floated the idea, was more honest: adopting the budget early would minimise not fuss but the chance vote-crazy members of parliament adopt spending increases in the run-up to the elections that will further stretch an already stretched budget.

Tusk and Kotecki are right. MPs are notoriously bad at looking to divvy out the pork ahead of elections. In 2005, an army of miners demonstrated violently outside of parliament a couple months before the election. Did MPs stand fast in the face of insanely costly pension calls? Nope. They caved in faster than an Albertan bobcat. The cost of giving miners special early retirement rights is some 70 billion zlotys over 15 years.

MPs don't of course only hand out largesse to miners. They cut taxes, up subsidies, increase subventions, and hike anything that can be construed as "popular." Then, when elected, they blame their predecessors for everything for 1-2 years until the accusations start ringing a little hollow.

Tusk's plan is not without its flaws. Adopting the budget early will mean drafting macro assumptions like GDP growth and inflation early, decreasing their likely accuracy. Since the budget is in many ways based on these two indicators, big forecasting misses could lead to bad budgeting.

But the idea is right in its essence. Before Tusk puts his populist hat back on -- to announce that advertising is actually evil or something -- I hope he walks the expedited budget walk.

Friday, March 25, 2011

I wish I won the Lotto

Sometimes, when there is 20 million zlotys to be won in the Polish Lotto I stop to daydream. "What would I do with all that money...." However, having some basic concept of probability, I usually don't even bother buying a ticket.

Often I think that we Poles have a similar feeling on a national level. "If we had oil like the Saudis, we would be rich and powerful...." We long for unimaginable riches on a national scale that would just drop from the sky or pop out from the ground effortlessly. Look at all the commotion about unconventional gas in Poland and you will see what I'm talking about.

Poland, however, does have a resource that is now ridiculously expensive and lucrative -- copper. Poland's KGHM is Europe's second largest producer and, to show how lucrative the business is, let me just point out its net profit margin was 28 percent last year.

But that is not even the most important point. Take a look at what KGHM does with all its lucre. First, it pays its employees handsomely. With such margins it can afford to spoil them rotten and it does. Bonuses the company pays its managers are legendary. It also spoils its shareholders, mainly the state, with one of the highest dividend payouts from earnings on the market. I said it did because last year's dividend was unusually modest.

KGHM's investment patterns in recent were...chaotic to say the least. It made a decent move into telecoms to buy a stake in what turned out to be the leading mobile operator in Poland, but it also sponsors a loss-generating fixed-line operator. It bought a stake in the country's second-largest power producer, Tauron, for about a billion zlotys in order "to gain experience in the energy sector." It owns such things as hospitals, travel agencies and is now buying into travel resorts.

There are two things KGHM has not invested in: efficiency and copper. Efficiency plans have always fizzled on labour unions while after a disastrous venture into Congo to acquire copper deposits KGHM has dropped international expansion plans, slumbering through the now gone period of low copper prices and cheap buyout opportunities.

Now with prices at all-time highs, the company is finally trying to flex its muscle and, after a recent acquisition of a deposit in Canada, it promises to spend 2.5 billion dollars -- not doll-hairs -- on buying prospective copper fields across the globe.

KGHM's example is instructive and can help us answer the question of what Poland would do if it suddenly struck gold in the middle of Warsaw's main street? Easy. We would spend it all and then move to make more when it was too late.

Wednesday, March 23, 2011

Poor man's ads

It is obvious that celebrities charge for commercial appearances. Polish showman Szymon Majewski, for example, is said to have made over 1 million dollars for a series of ads for Poland's largest bank PKO BP. It is less obvious why Prime Minister Donald Tusk chose to promote the retail chain Biedronka and it is beyond my comprehension why he chose to do so for FREE!

During a recent press conference he went on for nearly a minute about how he and his family and friends shop at Biedronka and how good it is. He wasn't even asked about it! If I were a Biedronka marketing guy, I'd already be working on the slogan "Biedronka, recommended by the Prime Minister!", or something in that vein.

God knows Biedronka could certainly use a marketing boost. It sponsors the most miserable sports teams, Poland's national football team, something that has led people to say "crappy team, crappy stores." Moreover, ever since a major labour law abuse scandal a couple years back, Biedronka has been synonymous for slave-like exploitation of its workers, mostly women, in order to boost profits. Last but not least, it is fully owned by a Portuguese company.

That Biedronka is Portuguese-owned is of course not a bad thing, but it makes you wonder why the Polish PM chose to promote a foreign retailer famous for exploiting Polish employees providing cheap, low quality products to Poles.

Here's the reason: opposition Law and Justice (PiS) leader Jaroslaw Kaczynski criticised Biedronka. Yep, during a PR stunt when he was "shopping" at a local store to show how expensive food is, Kaczynski said, "Biedronka is for poor people."

So, guys and gals, if you need good advertising on the cheap, piss off Jaroslaw Kaczynski. Donald Tusk will surely come to the rescue of your ailing marketing budget.

EDIT: According to this article by Dziennik analysts estimate Biedronka revenues could rise by 2-5 percent thanks to Tusk comments, that is some 200-750 million dollars!

Tuesday, March 22, 2011

Snooze-ville

I am so tired. Still. The Fight of the Century between Leszek Balcerowicz and Jacek Rostowski turned out to be a SLUMBERFEST. It's almost as if some evil TV god injected me with a strain of some soporific disease making me sleepy ever after. I should sue.

The Monday night debate started out with a bang. No, not really. It started out with no bangs. Instead, the presenters, the journo-economist Tadeusz Mosz and weekly Polityka editor in chief Jerzy Baczynski, put the background first. As journalists, they should have known better. Putting the background first makes your intended recipient start yawning.

The combatants then began staging their gladiatorial test of skill and blade. No, not so much. Instead, Rostowski repeated again and again it was stupid for the government to borrow money by selling bonds to give the privately managed pension funds money that the funds then invest in Treasury bonds. I got the point in November 2009 when it was first made by Rostowski. That he still felt the need to repeat it ad nauseum (I held it in) on March 21, 2011, goes to show how effective his communication policy has been.

Balcerowicz, being Balcerowicz, attempted to score liberal point after another after another. He did score these, in the first 20 years of his career. When repeated on Monday night, the impact was somehow undermined. This is not to say Balcerowicz's points are good. I mostly agree that somehow blaming the open pension funds for the problem of public finances when nothing has been done for 12 years to deal with obviously mounting problems is a bit rich. But I wanted blood, not repetitions.

Balcerowicz also made the mistake of the night -- which I'll treat as the BLUNDER of the Century. He was huffing and puffing his way to some point when he said something like and "the millions of people watching…." Yes, Leszek, definitely "millions," especially after 60 minutes.

I guess the debate was never going to be a hot one. Imagine a US American presidential debate when voting has already finished and one candidate has already been announced the most likely winner. That's basically the current situation. The government's pension changes will happen on May 1 (or slightly after) since they are already in the midst of being passed, no matter Balcerowicz's bluster or the anger of many in Poland.

The silver lining is as follows: if you find you can't sleep one night, click this link for the full 75-minute debate and thank me for curing your insomnia.

Monday, March 21, 2011

Tusk and Kaczynski face off

Poland's Prime Minister Donald Tusk and opposition leader Jaroslaw Kaczynski, an ex-PM, decided to have an all-out mano-a-mano battle with each other to settle who is the best PM ever. Sounds interesting, eh? Unfortunately, they decided on the most boring medium ever: newspaper article writing to settle the grudge. Ouch.

Clearly Tusk is on the offensive, having launched ultra-long and ultra-boring articles in the daily Gazeta Wyborcza (here and here). The pieces were so long they had to be split into two parts (one on history and the second on wishful thinking) and still they took 3-4 pages of the daily.

Unfortunately the articles proved the rule quantity doesn't help quality. If one wanted to read through the thoughts and points of the prime minister, he or she would probably need a case of beer to do so, giving them the benefit of not remembering a thing after the painful excercise was completed.

One thing that struck me is the failures that Donald Tusk admitted to. After boasting of successes like road-building progress and "reform" of pension reform, he spoke of TWO failures: growth in the number of people hired in public administration and the terrible state of Poland's state railways. However, he quickly named the guilty: local governments (so it's not really Tusk's fault) and unnamed individuals who now comprise the former management of state railways PKP (so it's OK now and there is no need to think the government fucked up there).

So all in all, as in the previous, gloriously equal, socially responsible system, the general trend is perfect and we are swiftly overcoming minor obstacles and hindrances caused by enemies of the state.

Kaczynski's response can be read here and clearly was not written by Kaczynski. Let's be frank. It is impossible that Jaroslaw Kaczynski would mention the Smolensk crash in the second-last column. No way. It is also impossible for Kaczynski to try to be witty and snarky and sarcastic, which he is when he talks about Tusk being the PM.

The problem is that Kaczynski also speaks about himself, and obviously he believes it is he who is the alpha male, as in the best prime minister ever. So when he speaks about the economic successes of his cabinet and lists them as the cut in the disability pension contribution that saved Poland from global crisis, you cannot help but grind your teeth. The fact the tax cut was not paid for is one of the main reasons why "we" are dismantling the reformed pension system.

Soooo, you wonder who won the face off? In terms of sarcasm Jaroslaw clearly is king (although he cheated a bit by not writing the article) while Donald Tusk has the upper hand in terms of the quantity of meaningless black marks put on the poor-quality paper of Gazeta Wyborcza.

However, they both lost, for the simple reason that in the internet era of blogs, twitter and youtube, nobody gives a smelly brown object about anything that is below the fifth line of text and thus no one probably bothered to read any of the articles. Which unfortunately, and ironically, is also probably true of this very smart conclusion to a rather lengthy post.

Listen to Polish music!

The Polish government is not content to forget about reform in order to reverse previous ones or focus on big issues like ensuring beer can be sold in stadiums. Now it wants to ensure everyone in Poland listens to more Polish music.

So listen up all those in Poland. A proposed amendment to media legislation would command that 60% of all music on radio stations is in Polish between 05:00 and 24:00. Yes, 60%! The current threshold is 33% but with no time guidance.

The Culture Ministry believes the restrictions will encourage Polish music as there will be nothing else that can be played. I think the Communists also believed restrictions on 'evil' Western music would encourage the formation of Homo Sovieticus. That I'm writing this in a free Warsaw shows how well that worked.

And there's no doubt the restrictions will not lead to better Polish music, but will rather undermine the existing radio stations. Instead of listening to radio that adds a lot of mediocre Polish music to the excellent Polish music that already exists, people will turn to the internet or satellite radio or to anywhere where they can hear what they want.

In fact, one might think a Poland that is the perfect 'poster' country for liberation from totalitarian regimes might pause in proposing harsh restrictions. This is especially so since the Civic Platform (PO), which leads the government, is full of former dissidents and those who actively fought against Communism.

But the tendency to restrict seems to be a worrying trend for the PO-led government. Trying to tell people what to listen to is just a further departure from its previous liberal roots. I think Prime Ministry Donald Tusk should do some listening of his own, that is, to some of his old speeches to rediscover his prior faith in an energetic, intelligent diverse Poland that does not need a paternalistic state telling it what to do.

Thursday, March 17, 2011

Nuked

Dear Readers, please for a moment unglue yourselves from CNN, BBC or TVN24 and the images of exploding Japanese nuclear power plants. We have something to say on the issue! Please! Please! No? All right, but we are going to say it anyway.

Let me start by saying I feel sorry for the Japanese nation and all the loss created by this terrible tragedy as it continues with the main question on everyone's lips being "is it gonna blow" as thousands remain homeless even as snow has begun falling.

Now, of course the repercussions of this little mishap in the "safest energy technology in the world" are global with such seismically active countries like Germany already pulling the plug on their nuclear expansion plans. Similar fears have reached Poland, but the Civic Platform (PO)-led government is so far sticking to its dream of having a nuclear plant ready sometime in 2020.

Many don't like it and say we should rethink our approach. Prime Minister Donald Tusk has a short answer for them: "we are not a seismically active country, and besides OUR plant will be safe." Now this of course does not really inspire such confidence. I don't think that 40 years ago the Japanese PM was telling his voters "Oh yeah, if a tsunami hits this plant its gonna go KABOOOM, but we are gonna build it anyway."

However, Tusk has a point in a twisted way. That is, if we do build that nuclear plant by 2020, it will probably be the ONLY building in Poland designed and built to withstand a major earthquake of a magnitude similar to the one that hit Japan. I urge you to call your building administrator and ask "is this building earthquake-proof" or call a nearby chemical factory or call the Gdansk-based Lotos refinery and ask "are you ready for a 10-metre tsunami?"

Think about it for a minute. If a disaster of this magnitude hit Poland, the damage would be far far far worse and the consequences for the nuclear plant would be very low on the list of our priorities, somewhere after "where is my family/food/home/, how am I going to survive?," even if the fate of the plant would be the only thing  CNN gave a shit about.

Wednesday, March 16, 2011

Funereal munificence

The government reduced Poland's funeral subsidy as part of its fiscal consolidation. From March 1, the state pays a subsidy of 'only' 4,000 zlotys, or some 1,000 euros, to those organising a funeral. That is well down from 6,400 zlotys previously. The sums involved are grave. The government will save 600 million zlotys in 2011 and then 1 billion a year from 2012. Like the issue, that's no laughing matter.

Critics might scoff at the inhumanity of a government that dares try to repair public finances by taking money away from those that have just lost a loved one, but the Polish government remains exceedingly generous.

Slovaks get just 320 zlotys for a funeral. Czechs receive about 750 zlotys. Austrians have it slightly better, getting 1,800 zlotys. All of these should be thankful as many European countries' citizens get nothing. Rich countries like Germany, Italy, Sweden, and the UK spend zero.

But you're wondering, how much does it actually cost to hold a funeral in Poland? Well, a story in the daily Gazeta Wyborcza says the 4,000 zlotys won't cover a funeral in Warsaw but it should do in the rest of the country.

Warsaw is costly. A yeoman's funeral will set you back 5,600 zlotys. That includes 700 zlotys for the coffin, 90 zlotys a day for the needed cooling, at least 150 zlotys for body preparation, 200 zlotys for flowers, 600 zlotys for a caravan, up to 1,500 zlotys for the Church and another 1,500 zlotys for the plot. Plots can be much more depending on where, rising to around 4,000 zlotys. If one wants to reserve a place while still living, the price tag is a sombre 17,000 zlotys.

The funeral business is not happy with the reduction, but they wouldn't be, would they. Giving 6,400 zlotys each puts a floor under the entire funeral business as people have every incentive to spend the maximum possible. The only loser is the taxpayer.

A dignified funeral is a fair way to pay respects to the dead, but at a time when the pension system is being gutted and other serious spending reductions are being considered, the Polish government should not be picking up the tab and the funeral subsidy should be itself buried.

Tuesday, March 15, 2011

In-fight night

Law and Justice (PiS) tends to toe the crazier side of the political line, but every now and then one of its MPs uncovers the truth. Adam Hofman said the planned March 21 debate over the government's pension changes between Finance Minister Jacek Rostowski and the famed economist Leszek Balcerowicz would be a battle between two sides of the same family and thus meaningless.

"No matter which version wins, we believe it will be a raid on our pensions," he told a current affairs TV program on Tuesday.

The government plans to cut pension contributions to the privately managed pension funds in a move that will reduce the fiscal deficit and public debt but that has also triggered intense debate. In the Monday night fight night, Rostowski will of course explain just why the government's plan is genius and why critics are merely stooges of the private pension funds. The perennial fighter Balcerowicz will come out swinging. He will slam the government for not reducing public expenditure, for avoiding structural reforms, and for taking the easy way out in a de facto grab of future pension money.

Regardless of who wins, Hofman is entirely right. This will be a fight between members or likely supporters of one political option. In many ways, a sign of just how dominant the PO is these days is that the battle over pensions fought out in the press and on TV in recent weeks and to be debated on Monday is between those who are basically PO supporters. If the PO has alienated some, these people would probably merely find a "PO, the sequel." The opposition, whether PiS or the Democratic Left Alliance (SLD), has been left aside.

This of course bodes well for the PO in the run-up to the parliamentary elections set for October. For the opposition, it will be tough to present an attractive alternative when they can't even get a seat at the table.

Monday, March 14, 2011

To sell or not to sell

This Hamletian dilemma to sell or not to sell is well known to any post-communist government in the region that over last 20 years was left with the burden of state-owned, inefficient, outdated companies on its hands. Government attitudes over the years have been split between hectic selling at whatever price to whomever, often cementing monopolies or leading to massive layoffs and shutdowns, to a total freeze and preservation of inefficiencies at the cost of running companies into the ground. No wonder Poles, and likely many other CEE citizens, still to an extent perceive privatisation as a form of institutionalised theft or corruption.

However, the current Civic Platform (PO)-led government seems to have gotten something right in this regard. Efficiently using the financial strength of pension funds and Poles' love for the stock market, it has successfully turned a number of state companies public, listed them on the Warsaw Stock Exchange and at the same time made a few bucks, several billion to be precise.

It worked so well the government has decided it wants to take another step, but here it has hit a wall. You see, all was fine and dandy but the government's problem was...it hasn't really sold anything. True, it has turned a number of companies public. True, it has listed them on the Warsaw bourse. True, it has made money selling its stakes, but these were usually minority ones and it turned out the state is still is in control of these assets and it still has to deal with the problems of those companies.

So three years into the term and after making billions via so-called "privatisation" the government is exactly at square one, only the task is now much harder. It not only has to actually sacrifice control over these assets, but it also has to do it in a transparent way that will satisfy minority shareholders avoiding a major sell-off, legal actions, etc., in the process. That is a significantly tougher process than selling 5-10 percent stakes of Warsaw's blue chips to financial institutions.

There will also be political ramifications as investors with deep pockets from countries like Russia and China are not likely to win Prime Minister Donald Tusk many new votes. But given EU regulations and the free market element it will take a lot of his charm and flexibility to turn them down if they choose to offer the best price.

Sunday, March 13, 2011

Week in review…

The government finally passed its controversial pension change in the week past (here and here and here), making good on its pledge to rollback a reform once considered one of the best. Prime Minister Donald Tusk presented the step as a glorious victory for all those who care about future retirement pensions, though of course he left out the fact those pensions will likely be cut and a lot of once overt debt has now been hidden. The funny thing about covert debt is it has to be covered anyway one day, whether through increases in pension contributions (that is, higher taxes) or lower retirement payouts.

Tusk also continued his move to the dark populist side of the force political spectrum by saying the government's move was a clear defeat for evil financiers and investors and speculators who work for the privately managed pension funds who will see the pension transfers they get reduced sharply. Tusk and allies have consistently branded all critics of their plan as either stupid or venal. Attacking the credibility of your opponent is of course a widely used one, though the mastes of this in Polish politics is Law and Justice (PiS) leader Jaroslaw Kaczynski. What's that old adage about turning into the thing you hate most?

One should never use talk of the dark force lightly. And I don't. But if you were  to cast Star Wars right now, Donald Tusk would clearly be Darth Vader, a once noble leader turned to the dark side. Jan Krzysztof Bielecki could be the Emperor. Finance Minister Jacek Rostowski and Labour Minister Jolanta Fedak would be Generals of the Stormtroopers. I guess this would mean Leszek Balcerowicz is Obi-Wan Kenobi. The time of this new film would be before Star Wars, meaning Luke and Leia would not yet have been revealed. Fittingly, Tusk has two kids. Will Kasia and Michal Tusk lead the rebellion? Time will tell.

Time is something in short supply for the government. The pension plan was approved on March 8 and is to be signed by the president by the end of March, so that the government can be ready to give a needed legal adjustment period of 1 month (which is seen as the minimum). This means the bill has to see a first reading in the lower house, committee work, a second reading, more committee work, and then finally lower house will vote on the third, and final, reading. The Senate then gets a crack. If it makes any amendments, the lower house must vote again. Assuming it is passed, only then does the bill go to President Bronislaw Komorowski for his signature. The sheer number of hurdles to clear was clearly designed to make legislating a thoughtful process. Having to fast-track such an important change through parliament is a bit pathetic.

That's not all. Tusk's Civic Platform (PO), which controls the Senate and from which hails the president, is fully behind the changes. But the Polish People's Party (PSL), the junior ruling coalition partner, does support them, but also pays lip service to making the privately managed part of the pension system fully voluntary. This would give people the choice of having all their retirement pension savings in the state part of the system or in the privately managed part. This seems fair on the surface, but would probably undermine the entire pension system. The fact all future pension money is what is called notional -- meaning it does not exist, it is only a promise by the state to pay a certain amount; all pension contributions are paid out to current pensioners at present -- makes the entire exercise a little like playing with other people's money, as in Monopoly.

One man is not taking things lying down. Krzysztof Rybinski, a former deputy governor of the central banks, chief economist for several banks, prominent economic commentator in Poland and blogger, plans to create some form of class action suit to sue the government. Though he is close to an opposition party (PJN), some 45% of respondents told one poll they'd be willing to sign.

In the end, the only really good news for the PO and Tusk is the situation is so complicated few voters really grasp what is going one. The opposition is so moribund few other options exist. The sad reality of the political scene at present.

To close, I'll lighten the mood a bit and instead give you with the chance of a lifetime. Few people will have been so privileged to avoid paying hundreds of whatever depreciating currency they currently use to bear witness to an asset so depreciated they can only call him classic. Click here to see what I'm talking about.

Friday, March 11, 2011

Prime Minister Michal Boni?

Who better to be prime minister than a man widely called the government's brain? What better man to give the reins of power to than one with immense government experience who has the reputation of being a troubleshooter extraordinaire and who has dealt with all the most intractable recent government problems? Why not give ultimate control to the man with a long-term vision of a Poland that would truly soar like the eagle it likes to style itself as? Ladies and gentlemen, meet Mr. Michal Boni, the prime minister if I had a choice.

Boni, 56, is currently a minister without brief and the head of the government's Standing Committee, which runs point on government legislation. He has long been considered one of Prime Minister Donald Tusk's top advisers and has negotiated breakthroughs on prickly issues like limiting early retirement eligibility, teacher wage hikes, and even providing help for families that lost loved ones in the Smolensk plane crash. He is also at the forefront of government efforts to limit early retirement eligibility for uniformed personnel.

Boni, who helped write the Civic Platform's (PO) program, has also presented the ambition "Poland 2030" report charting out how Poland can institute reforms to improve the education and health-care systems, activate the many unemployed, deal with other social problems and put the economy on sound footing to help catch up to the old EU and deal with the looming ageing problem.

But even as I call for Boni's elevation, his star has fallen. Rather than moving closer to more responsibility, he is arguably further away than ever. PM Tusk prefers the point of view of the always proud Finance Minister Jacek Rostowski, who is Boni's true nemesis in the government, and Jan Krzysztof Bielecki, Tusk's grey eminence if there ever was one.

Rostowski, Bielecki and the maddening Labour Minister Jolanta Fedak have seemingly teamed up to stop any sort of radical reform or deep-seated changes and instead focused on the politically desirable. As we have noted, that had made the PO less like the pro-reform group it was once to a party implementing capitalism with Chinese characteristics (with the emphasis on the latter).


The Rostowski-Bieliecki-Fedak were the trio behind getting Tusk to back the now government-approved rollback of a previous pension reform. Boni had opposed such a move.

The 'anti-reform' triumvirate also just beat Boni on how much future transfers to the privately managed pillar of the pension system will be. After a reportedly stormy Tuesday government sitting at which the pension changes were approved, Boni refused to go in front of the cameras to present the plan. "I won't make a fool of myself," he said.

Will Boni quit? For now, the reports are he won't because he remains too loyal to Tusk. But this begs the question: how loyal has Tusk been to those that serve him and the liberal ideals both he and they once professed.

Don't buy and drive

Of course you cannot drink and drive in Poland, but Polish senators believe that is not enough. Now they don't want you to buy and drive, that is, buy alcohol at petrol stations to be exact. I am no expert on this issue, but I have never seen anybody popping open a vodka or beer bottle at a petrol station and getting into the car. I have on other hand bought beer to drink it later on at home.

The justification for the new regulation is not very original: the senators in favour cite the high number of drunk drivers in Poland.

Their reasoning suffers from at least one loophole. Why only petrol stations? Why not all stores that have a road nearby. After all, people can drive there too. Did the lawmakers forget that all these drunks will have to drive further in search of booze, posing more risk, rather than to the nearest gas station? Or how many of them could have just walked to the station but will instead drive somewhere else?

It is no secret that liquor sales are a gold mine for petrol station owners. The latter have already announced that any losses from the ban would be added to fuel prices as companies seek to make up for lost earnings.

I don't know whether higher fuel costs and the mentioned risks offset the expected benefit of fewer drunk drivers. As I said, I am not an expert. But I know this: certainly this country has bigger problems at the moment than banning liquor sales at petrol stations, ffs.

Thursday, March 10, 2011

Dear Bronek...

Imagine a guy walks into the BBC's headquarters, demands a meeting with the editor in chief and says "I am buddies with Prince Charles and he thinks I am perfect to run a new talk show." Ridiculous? Not in Poland.

According to the daily Rzeczpospolita and the TVN news channel, a certain 25-year old faked an email from President Bronislaw Komorowski's chancellery chief to public television TVP's authorities saying the president wanted a new talk show to be made and that he even knew a perfect candidate for the job. Did TVP call the chancellery to verify the email? Hell, no. They replied to the guy and offered him a job!

It took 3 months for public TV to discover the fraud. The show was cancelled and now the guy faces fraud charges. All is well then? Not really. The whole episode shows that in the end the Civic Platform (PO) is just like its populist predecessors: a phone call from the top political brass is enough to get somebody hired. A phone call to the Polish state news agency PAP was enough to stop a journalist from asking Prime Minister Donald Tusk tough questions at a news conference. And a phone call was likely enough to get the finance minister's daughter a job as Foreign Ministry official...because she speaks English well. 

This is all but an introduction to the upcoming election campaign. It will be bloody.

PS. Think this will work:

Dear Bronek,
I stumbled upon this awesome, informative and opinionated blog called Poland X. It is a blast and I recommend we give these guys a medal or something in addition to a good amount of money.

Ciao,
Donald

PO: The worst of all parties

Civic Platform (PO) top dog Donald Tusk, the prime minister, has been giving the message that if the "elite" doesn't like the PO and its current fiscal and economic policies, there's much worse out there. 'If you think we're bad on reform, just wait till you see Law and Justice (PiS) or the Democratic Left Alliance (SLD),' he seems to be saying. Tusk adds that if the elites and heretofore PO backers don't be careful, the PO will so weak for the October general elections, it could actually lose.

PiS did not directly destroy the economy or public finances when it held the reins in 2005-07, but surely its decisions -- helped by the PO sometimes -- did precisely weaken public finances to the state in which the pension reform had to be rolled back, as it will be soon. PiS cut taxes relatively radically but did nothing to lower spending to adapt the budget to the new reality. Nay, it added spending obligations. Would it really deal with the matter any better these days? I doubt it, particularly since most of its prescriptions for the recent crisis were to jack up spending.

The SLD's reign in 2001-05 was sleazy, but on public finances the party's government with the Polish Peasants' Party (PSL) (for most of that period) wasn't bad. However, most of the former pragmatic leftist economists like Marek Belka and Dariusz Rosati and Jerzy Hausner have left. SLD skipper Grzegorz Napieralski is more leftist and would likely take his party well to the left of where the PO is today. Symbolic taxes for the rich, anyone?

The PSL, the PO's current junior ruling coalition partner, has been flexing its leftist/populist muscles of late as well. Its policy ideals seem closer to the SLD's than to the PO's. Thankfully, it will never be able to broaden its support from the 3-8% range and with luck the party will disappear.

PJN, aka 'PiS light,' did publish some good ideas regarding the economy, but to some degree they seemed too good to be true. Do these former PiS members really support what was a very liberal reform agenda? I have my doubts. Ex-PO leading member Janusz Palikot, the jester of Polish politics, has not said much on the economy. But he seems to be having trouble making the transition from clown to serious politician. Both parties will have to strain just to make the next parliament, let alone affect policy.

Thus, if democracy is the worst form of government, except for all the others, and capitalism is the worst way to organise economically, except for all the others, the PO is clearly the worst Polish political party, except for all the others.

Tuesday, March 08, 2011

Crossing the streams

The Civic Platform (PO)-led government could learn from that classic Ghostbusters interdiction: don't cross the streams. Given that we live in a media-intermediated world, having tons of high-ranking government officials say whatever they want doesn't suggest open debate. It bespeaks of chaos. It suggests division. It signals trouble.

The PO-PSL government has been guilty of crossing its streams over a raft of issues of late, none of which suggests a smoothly running machine ready to kick butt in the October elections.

Debate of the government's plans to rollback a previous pension reform provides a plethora of examples of a government that looks divided and undecided rather than open. Minister Michal Boni, on one side, and Finance Minister Jacek Rostowski and Labour Minister Jolanta Fedak, on the other, have been clashing publicly over the details of the plan to cut pension contribution transfers to privately managed pension funds.

I'm all for transparent government, but the debate between one faction in the government, another faction in that same government, and outside observers has created more confusion than cleared up potential opacity. The arguments of both government sides are also given in zero-sum terms that if one side is wrong, it would appear the other side is incompetent and should be fired. In the event, the government backed Rostowski-Fedak.

The government was also hit by another example of crossed streams earlier  Tuesday when its own Government Legislative Centre said the pension plans could contain an unconstitutionally short vacatio legis, the adjustment period between a bill being passed and going into effect. The centre noted that for such a big change, there needed to be a bigger than 14-day transition period, as planned by the government. Some say the vacatio legis should be a month or even up to 3 months or more.

No, no, this issue should not have been dealt with at an earlier phase and just before the government plans to expedite the changes through parliament.

Another recent schism occurred at the very top. Finance Minister Jacek Rostowski sent a letter to the European Commission saying Poland would be able to cut its fiscal deficit to below 3% of GDP in 2012 from 8% at present, as demanded by the commission. Two days later, Prime Minister Donald Tusk said he did not think the 2012 goal was realistic and rather the deficit would be cut to below 3% in 2013.

This is a dumb example of miscommunication. Either it suggests Rostowski basically lied to the European Commission or the prime minister has no idea what he's talking about. Rostowski subsequently told a radio station Tusk's comments were misinterpreted and amounted only to a conservative view. But considering Tusk's forecasts actually looked realistic, the entire matter rather suggests Rostowski is trying to blow hot air up the EC's collective a**.

The PO wants a second crack at government, hoping to win the October elections. It is going to have to get its message straight to earn the right to a second turn. If not, when voters are asked "who you gonna call," they're going to say "anyone else".*

* (sorry for that;)

Monday, March 07, 2011

Some have it better than others


In capitalism it would seem obvious that some people have it better than others. After all greed is good (to an extent of course) and the whole system in principle is based on a reward-penalty mechanism.

Thus, when you stumble upon such an article in Rzeczpospolita daily (translation here) it should not raise many eyebrows. After all wage negotiations are something natural. But not in the case of Polish utilities. Not by a long shot.

Utilities' employees already enjoy 8-10 year job guarantees until something like 2017. They get various non-salary benefits...and bonuses...and it is estimated that there is some 30 percent over-employment in the sector, where just the major state-owned companies employ some 90,000 people (job data for Polish utilities is surprisingly hard to find on the web).

It is clear that the word "efficiency" for these people has no meaning when it comes to jobs. Example. The Belchatow power plant employs over 4,000 people whereas a similar sized British power plant would employ 670. Even if you take into account differences in technologies the gap is stunning.

To add insult to injury, the industry believes that competition will not lead to lower power prices because these are dependent on technology and fuel costs. Yeah, right. So, a 30 percent overhang in employment as compared to peers in other countries costs nothing?!

The bottom line? There are a few. First, we do not have pure capitalism in Poland. The trend would be absolutely the opposite if that were the case. Second, the wage demands are just a plain robbery of taxes...I mean energy users, mainly businesses.

Third, it is no surprise therefore that labour unions in utilties hate the word "privatisation" since obviously to their ears it sounds very much like "job cuts" or "margins" or "efficiency."

Unless, of course, it is KGHM-style privatisation: sell over 50 percent of the company to a large number of financial investors, have the state maintain a 30 percent stake and let the unions run the firm.

It seems like the perfect solution, but unfortunately the utilities sector is a tad harder to operate in at the moment than copper mining, which with copper prices in some wonderland of nearly $10,000 per tonne, let's be frank, makes it a pretty darn simple money machine.

Saturday, March 05, 2011

Week in review…

The week contained one main event for Polish economy watchers: an interest rate hold (here and here and here and here and here). The central bank's rate-setting Monetary Policy Council decided to hold rates at its monthly policy sitting this past Wednesday. The decision was expected by the majority of analysts, though there was a sizeable minority who predicted an interest rate increase. The MPC chalked up its decision to the fact the big rise in inflation in January was attributed to factors outside its control and the economic recovery was not yet generating undue inflationary pressure. Risks to growth also loomed, the council warned.

So far, so good. As I have previously noted here, the council's first year was marked by the philosophy of "chillin'" as it did not change interest rates and whether it was the "worst council ever," a question one blogger posed, would be tested this year and next. Communication will play a huge role. That is, is the council getting its message across in a way understood by close observers and players in Poland's various markets?

The early answer is "no." If the communication process were smoother, then such a big minority expecting a hike could not have been existed. Analysts would already have seen the comments from those of the 10 MPC members that spoke, watched the data for potential triggers already given by council members and then made the appropriate call. Many did, but not all.

Those that did expect a hike seem to have downplayed MPC members' comments and focused on the data. Inflation jumped to 3.8 percent in January against the same month of 2010, hitting a 21-month high. This could increase people's expectations of future inflation, making them demand higher wages. That increases demand, which boosts inflation and so on in a wage-inflation spiral.

The hike believers also noted that global commodity prices are surging and the zloty has been weak, meaning imported prices rise even faster. Considering the MPC hiked in January citing risks of high CPI inflation and the impact on inflation expectations, those expecting a hike might be forgiven for asking what changed. From their standpoint, the communication, or reasoning, behind the January hike remained true and thus the overall communication policy is faulty.

Monetary policy making is not just about the data of course. It is also about voting strategy. To pass, a motion requires 6 of the 10 MPC members to back it. Or there can just be 5 as long as one of them is NBP Governor and MPC head Marek Belka, who has a tie-breaking vote.

Belka, one must remember, was a little stung in early January on precisely the issue of communication. The NBP governor gave an interview in early January to Reuters dropping his previously dovish tone and taking a hawkish one. Instantly, everyone expected a hike in January. But just before the January 19 sitting at which the hike came through, a previously given interview in December for a tabloid made him seem dovish, making a bit of a mockery of Belka's communication strategy.

Since then, Belka -- and I'm sure the other 9 members as well -- have been adamant to give one or two talking points in their interviews and by and large to be fairly straight on which way they will vote. Because the council appears fairly evenly divided, Belka's vote is most important. He is also the most prestigious, having reams of domestic and international experience. So if Belka decides to support a hike, it is likely to happen. From this end, if the council did not leave rates unchanged, the council's communication strategy would have looked faulty to the core.

So, either way the communication strategy would have been questioned. Clearly, more work needs to be done on this.

Thursday, March 03, 2011

Fat Thursday, fatter Poland

Poles have now gorged themselves on an estimated 100 million paczki as another Fat Thursday has come and gone and Lent is less than a week away. But the joy of chowing down on the sinfully sweet deep-fried stuff of dietician nightmares hides a darker underbelly: increasing obesity rates.

Fat Thursday and McDonald's and kebabs and chips of all varieties and chocolate chip cookies and chocolate bars have not replaced traditional Polish desserts and snacks. They have merely added to the overall fat available. Gluttony is helped by the fact Poland's economy continues to grow and more disposable income is available for a little treat every now and then and then and then and . . . you get the point.

Some 50.7% of males aged over 15 in Poland are now overweight or obese, according to estimates from the World Health Organisation for 2010. This is stil well below the United Kingdom's 67.8%. Though often styled as the "fatman" of Europe, the UK isn't actually the worst. Greece, the recent "sickman" of Europe, takes the, er, cake with some 77.5% of its males classified as overweight or obese.

As any good dietician will tell you, the antidote to this Polish plumpness pandemic is diet and exercise. But as the obesity issue is becoming something of a marker of a developed country and noting 66.9% of my fellow Canadians are overweight or obese, all I'll say is, welcome to the fat club.

Wednesday, March 02, 2011

TVP - What public mission?

A rank political stench is emanating from public TV broadcaster TVP these days as the broader political war is being fought out in the hallways and production booths of the broadcaster's swank new HQ in Warsaw. Like any good film that might be aired by TVP itself, we have a triangle of interests, reversals of fortune, possible betrayals and assignations, but with a decidedly down ending.

The opening scene came Monday when TVP's supervisory board decided to stop the suspension of Romuald Orzel as TVP president and Przemyslaw Tejkowski as deputy president. Both are minions of the conservative Law and Justice (PiS). The pair returned to their posts on Tuesday, replacing acting heads Boguslaw Piwowar and Pawel Paluch, both tied to the Democratic Left Alliance (SLD).

The deciding vote to unfreeze the PiS-related execs was reportedly taken by Grzegorz Borowiec, who is the representative of the Treasury and so of the Civic Platform (PO). Why would the PO help PiS regain control of public TV? Because it appears the PO wants to put pressure on the SLD to get a new supervisory board of TVP named by the National Broadcasting Council (KRRiT). The SLD has two of 5 votes and the council has been deadlocked on the issue since mid-December. If the KRRiT doesn't decide on a new board by end-March, it will be disbanded itself.

Next comes the blame game. Both the PO and the SLD accuse each other of conspiring with PiS to take control of public TV. PiS and the SLD had in fact run the broadcaster till the middle of last year when the loose PO-SLD coalition took control by suspending the PiS execs. PiS says the return of its subordinates is due to the result of a dispute between the PO and SLD.

Whatever the cause, PiS is back at the helm of public TV and is widely expected to begin re-asserting control. After the two execs were suspended, the head of TVP1 was swapped, rightist largely pro-PiS journalists (in some cases "journalists" since the bias was so clear) were fired, and certain pro-PiS shows were cancelled.

PiS leader Jaroslaw Kaczynski is reported to want one of the most controversial shows led by the "journalist" Jan Pospieszalski to return and to start airing next week even. Kaczynski sent his trusted confidante and dirty jobs man Adam Lipinski to TVP's HQ to take care of this business on Tuesday.

The PO's plan is obviously to take a short-term defeat in the hope of a bigger long-term victory. PiS will accept its surprise gain with open arms and get that pro-PiS propaganda machine working again. This entire mess shows just how empty are Kaczynski's allegations that media is overly anti-PiS. The SLD will try to get as much influence as possible. To some degree, this shows clearly just what the SLD would do if in a rulign coalition with the PO (place its people in as many positions as possible).

The message: screw public broadcasting. Political control of public TV is far more important ahead of the October general elections.

Voluntary pensions, involuntary coalition crisis

A ruling coalition clash over a key element of the proposed cut of pension contributions could imperil the coalition itself, triggering snap elections this spring. As ever, the political calculations of the Civic Platform (PO)-Polish People's Party (PSL) coalition will be critical. But the junior PSL will have the bigger say. Will it decide that pulling away from the senior PO and sparking early elections is the right path? Or will the PSL opt to stick it out with the PO and carry on to the October elections?

The bone of contention is a measure supported by Labour Minister Jolanta Fedak (PSL) to give individuals the choice to have all their retirement pension contributions transferred to the state system or to have them (or some of them) sent to the privately managed pension funds. The proposal being worked on by the government does not currently include any voluntary aspect.

Leaving aside the economic impact, the political issues are clear. The opposition Law and Justice (PiS), Democratic Left Alliance (SLD) and PJN all support the voluntary aspect and want to amend any government project to reflect this. The three parties can muster 209 votes, putting them short of the 231 that would guarantee the amendment could be passed. But if the PSL's 31 MPs are added, then the resulting 240 would be unassailable.

The PO's desire not to make participation in the so-called second pillar (the privately managed part) voluntary is clear. Could it then accept extreme insubordination from the PSL? It shouldn't. It should say "good riddance to bad rubbish." By choosing to go with the opposition, the PSL would make clear it has no intention of backing up the PO.

The PO could then blame the PSL for destroying the coalition and submit a parliamentary dissolution vote that would pass easily were the PO, PSL, PiS and SLD to support it. That would set the stage for early elections sometime this spring.

Yet, my political calculations suggest this threat is probably small. First, the PSL would not necessarily gain much by distancing itself from the PO, which remains the most popular party despite some weakness in support of late. The PO's polling lead means it is likely to win the parliamentary elections that must be held by end-October. Assuming it does not win outright (as I do), the PO will have to form a coalition. Potential PSL treachery now would be a stark warning for the PO to avoid any future coalition with the Peasants.

Second, neither the PO nor the PSL wants elections this spring. The one-year anniversary of the April 10 Smolensk crash that killed President Lech Kaczynski and scores more will give PiS a big boost as the nation turns to mourn its dead. PiS voters will be electrified by the event, and Jaroslaw Kaczynski's party is likely to do everything to up the pressure on the government during this period, including trying to pin blame, whether direct or indirect, on the PO. PiS also targets the PSL's electorate directly.

The ruling coalition is also planning to capitalise on hanging out with European leaders in the second half of the year when Poland holds the six-month rotating EU presidency. Early elections would remove this option. The economy and wages are expected to grow further this year and unemployment should fall, giving more incentive for autumn rather than spring elections.

The political fight or PSL brinksmanship could lead to an early coalition explosion, but for now this seems unlikely. Rather, the PSL will likely attempt to extract some concession or another, and the PO-PSL coalition will carry on, or stumble on, to the autumn.