Jan Cienski in Warsaw
March 18, 2013
The government of Polish Prime Minister Donald Tusk is shifting dramatically away from its free market liberal roots, adopting a hands-on industrial policy thanks to a new investment vehicle fuelled by the proceeds from the sale of state assets.
Polskie Inwestycje Rozwojowe (PIR – or Polish Development Investments) was proposed by Tusk last year and is being brought to life by Mikolaj Budzanowski, the treasury minister, and his deputy Pawel Tamborski, an investment banker who switched to government work last year.
The investment vehicle is already getting its first cash injections. Earlier this year the Polish government together with Bank Gospodarstwa Krajowego (BGK), a state-owned investment bank, sold about PLN5bn (€1.2bn) in shares of PKO BP, the country's largest and state-controlled bank. Part of those funds went towards meeting the treasury's goal of earning PLN5bn through the sale of state assets this year – money that goes towards reducing Poland's public debt. However, another portion went to the new investment scheme.
The money is supposed to be used the make PIR and BGK "the first or the final" investors in big infrastructure projects in order to reassure the private sector that the projects have high-level government backing, Tamborski said recently.
Budzanowski spelled out his philosophy to the Polish News Agency: "If interesting investment projects appear, then from our side there will certainly be a readiness to continue selling packets of shares from public companies and guaranteeing the capitalization of [BGK] and [PIR] even this year for subsequent sums of billions of zlotys."
The idea is to eventually give PIR a PLN10bn war chest, which could be leveraged into a much larger amount to support investments. When he sketched out the plan last year, Tusk said that the money would be used for, among other things, projects like building highways, hunting for shale gas and upgrading Poland's dilapidated power generation infrastructure.
The plan is supposed to get started quickly, making its first investments by the second quarter of this year, stepping in as funds from the current 2007-2013 EU budget wither and before the injection from the next budget starts to flow.
Poland is not the only country to try and combat a slowing economy by grabbing the economic tiller – France, the original etatist economy, set up a €10bn investment fund in 2009 to boost infrastructure projects. But Poland has until recently been much more of a devotee of free market doctrine than France, the result of its bruising experience with communism and of the success of its economic reforms in the 1990s, which turned it into one of the world's fastest growing economies.
When he first won power in 2007, Tusk, at least verbally, stayed fairly true to his liberal and free market origins. But the advent of the economic crisis has made the government sharply change direction.
In a recent conversation, Jan Krzystof Bielecki, a former prime minister and now one of Tusk's closest economic advisors, pointed out that over the last two decades, the private sector had failed to build any truly large multinational businesses. That means that the government, which still owns about PLN100bn in various companies ranging from banking to insurance, energy, refining and copper mining, has to take the lead rather than simply continuing to sell off its shares and using the money to repair public finances.
The idea dismays more orthodox liberals like Leszek Balcerowicz, the architect of the 1990 economic reforms that transformed Poland into a market economy. He told the Rzeczpospolita newspaper: "There are people who believe in partial socialism – that is called interventionism. I feel that even a small dose of socialism, in other words the politicisation of the economy, does not work… Public investments are often conducted in a populist way for the simple reason that the final deciders in these matters are politicians."
Budzanowski's manual approach was shown recently in his decision to push large state-controlled companies into financing the hugely expensive search for shale gas – a project that has caught the eye of the government because it could turn Poland into a gas exporter and ends its current uncomfortable dependence on Russian gas imports. The five companies included obvious ones like PGNiG, the former gas monopoly, as well as three power generators, but also KGHM, a copper miner with no obvious interest or experience in prospecting for gas.
The private sector is also dubious of whether the PIR will be able to function like, in Budzanowski's words, a "flywheel" which will stimulate large investments.
After meeting with Budzanowski, the Business Centre Club, a business lobby group, said that it was "as a rule opposed to state interventionism and the participation of the state in the economy," but allowed that there might be a role for the investment vehicle at a time of falling investments and a slowing economy, before ending in a caustic statement. "The BCC hopes that the project will not follow the fate of the Reconstruction Finance Corporation created by President Roosevelt during the times of crisis in 1933, which functioned until 1953 bringing marginal benefits to the private sector as it was the object of money grubbing and vote buying by politicians."