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Leszek Balcerowicz in Ukraine – new hope and old politics

Comment

Balcerowicz openly criticizing new social and slightly populist policy of the new government in Poland jumped into Ukrainian politics. Apparently first attempts to get him to Kyiv were taken already in 2015 when the pro-reform atmosphere was better. Currently, populist moods raised also in Ukraine and parliament-President relations has weakened. This may not allow to implement Balcerowicz-style reforms by Kyiv even with support of the best national and foreign experts.

Crucial will be political will to implement all necessary decisions also at the legislative level by the parliament, which in the present situation is not as united as it was a year ago. Some politically unpopular decisions have to be made, predominantly in the sphere of economics (such as increasing gas prices to the market level) for which after change at the PM post also President will bare political responsibility. There is a threat that Balcerowicz might be used by Poroshenko in a way that some blame from the society will be shifted from the President to his foreign advisors, who might be presented as faces of socially unpopular decisions. Respectively the raise of populism is expected in Rada, which additionally will decrease parliament’s efficiency and stability.

 

Pavlo Sheremeta’s comment: „Knowing current dynamics in Polish politics I understand why Balcerowicz has both an interest and a time to help with reforms in Ukraine. I really appreciate this. I hope that this experienced and persistent “fox” has enough intuition not to become just a façade of this government. The government, which, unfortunately, does not have neither talent nor political will to implement Balcerowicz-style reforms”.

 

Factual background

Leszek Balcerowicz has been appointed Petro Poroshenko’s envoy to Government. According to the available information Balcerowicz will be responsible for the privatisation process.

Balcerowicz is a world-wide known economist and recognised father of Polish economic transformation at the beginning of 1990s. So called “shock therapy” started by Balcerowicz allowed Warsaw to stabilise economy after collapse of the soviet system and to start negotiations with the foreign partners on support for further reforms. Wide range privatisation of state-owned enterprises, decreasing budgetary expenses on social funds and cutting subsidies made Balcerowicz unpopular in certain circles. However, his reforms formed a solid ground for further transformation of the country.

An overview of data provided by the World Bank[1] shows us two completely different paths of economic development of Poland and Ukraine after collapse of the Soviet Union. Apparently one of the main reasons, why Ukraine scores so bad in comparison to Poland is lack of deep reforms, which were not implemented by Kyiv during the 1990s.

While in 1990 GDP per capita in two countries was at the similar level, while already in 1995 GDP per capita in Poland was twice higher than in Ukraine (graph 1). After almost 25 years, in 2014, GDP per capita in Poland was almost five times higher than in Ukraine.

 

1

Graph 1: GDP per capita in Poland and in Ukraine since 1990 to 2014 (current US$)

 

According to the Wold Bank data in 1990 Polish GDP was lower than Ukrainian. Both countries started the decade with negative growth of GDP. Transformation process in Poland launched at the beginning of 1990s in a longer run gave an expected results letting the country to create a concrete ground for development of a free market and solid middle class. Furthermore, positive outcome of the reform process allowed Poland to present itself as a reliable and predictable partner and ensured Warsaw to start (and successfully finish) membership negotiations with the EU and NATO.

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Graph 2: GDP growth in Poland and in Ukraine since 1991 to 2014 (%)

During the past 25 years Poland built economy less vulnerable to external variables and shocks. GDP in Poland was raising, slowly but constantly during relatively long period of time. Stable Polish economy suffered less during the crisis in 2008 and in 2010 even in comparison to other EU member states.

Leszek Balcerowicz is one of the authors of Polish tuff, but successful transformation from the soviet-style into market economy. His current involvement into Ukrainian politics may bring positive results if current decision-makers in Kyiv will be ready to listen to his advice.

[1] World Bank’s database was selected as it presents unified methodology, which allows comparison of the two states. The aim is not to provide the exact figures (which may slightly differ is used national data) but to present the long lasting trend –http://data.worldbank.org/indicator.

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