Triple Bee Plus, Outlook Negative

Friday evening. Negative news, as the one from August 2011 on US sovereign rating downgrade, are issued at the end of the working week after markets close, to let market participants “get over” the news and avoid turmoil when trading is resumed on Monday.

Standard and Poor's, one of three main rating agencies downgraded Poland’s sovereign rating from A+/stable to BBB-/negative. The move was par for the course; it was likely to happen, yet not now, but when effects of PiS government’s fiscal and (affected by them) monetary policies would impinge on creditworthiness of Poland. The most astounding aspect of the whole matter was not only the change in rating, but also the outlook. The blow was dealt without warning (i.e. changing rating outlook to negative while upholding the A- grade). On the same day Fitch upheld its A- grade, while Moody’s is bound to review the rating of Poland this year. The saddest aspect of the whole story is that we are witnessing the first downward move in the rating in the history of Poland (it was last upgraded in February 2007 when PiS was in power and upheld throughout eight-year rule of PO-PSL).

The justification (thank you Michael for sharing) of the rating chance indicates at sound macroeconomic foundations of the Polish economy and points at unsettling political moves which disrupt the system of checks and balances, i.e. calling into question independence or empowerment of institutions whose role is also to hinder reckless policies of the government. The impaired constitutional tribunal, paralysed by the new law, with 3 judges elected by the previous parliament and not sworn in, is, according to the recently binding law, not authorised to hand down rulings. Politicians of PiS have openly admitted support for monetary loosening was one of the criteria in choosing among candidates to Monetary Policy Council. Not a scenario creditors of Poland would wish on themselves.

Ministry of Finance in its press release dubbed the Standard and Poor's decision “incomprehensible” (worth reading, as the content of the release holds water, if you turn a blind eye on their command of English). PiS politicians and befriended economists argue rating agencies should focus on performance of economy only. In practice, every sensible lender, to the extent permitted by law, evaluates conduct of their borrower. If you lend money to a private individual you should assess not only their sources of income and spending needs, but also their lifestyle (in practice often prohibited by law), because paradoxically a poor granny who lives off a tiny pension, but dutifully repays her loan might be more creditworthy than a lad in this twenties who has no family and earns well, but leads a lavish lifestyle, goes on a bender every weekend and throws about money. If you lend money to an enterprise you should assess not only numbers in its financial statements, but also its corporate governance rules, strategy and its viability, management and its credibility.

Your opinion of Standard and Poor's assessment might be low. The rating agency has discredited itself many times, yet the grades it issues are respected around the world and affect perception of Poland’s credibility. You might agree with the downgrade or not, but higher yields on Polish bonds will be a fact, also the Polish currency might stay weaker for a while. At the end of the day the taxpayer will pay the bill. I bet on (blue) Monday the WIG20 index opens 3.8% down from Friday’s close (partly driven by dire trading in the US and falling prices of oil and copper) and closes 1.7% down from Friday’s close. I also expect a slight strengthening of PLN, though in mid-term it is likely to be under pressure of general negative sentiment around the world, except for impact of local policies.

You can also ask who pays Standard and Poor's. In general those are potential or existing holders of Polish debt, i.e. in practice financial institutions who (at least partly) rely on the rating agencies’ evaluation in their assessment of Polish bonds’ credit quality. Theoretically, Standard and Poor's should attempt to deliver the best service to their clients, because its role it to attempt to protect their interests as creditors of Poland. The truth might be different, as the example of worthless AAA+ ratings assigned to junk mortgage-backed CDOs best showed.

Finally, is it the revenge of “banksters” for introducing the financialinstitutions tax (president signed the law on Friday) or for the draft of currency mortgage law presented also on Friday? The exact timing is in my view coincidental, but indeed the downgrade might be a form of warning (get your hands off the financial sector) combined with punishment. But on the other hand, if you want to borrow money from somebody, you actually must agree on some conditions and constraints set by lenders and if they perceive you as more risky, your cost of debt will be higher. The principle is simple, if you want to mess with lenders, do not ask them for more money, but reduce your debts. PiS government wants to have a cake and eat it – they will need to borrow more (I do not believe the turnover tax, the financial institutions tax and improving VAT collection will be sufficient to fund 500plus programme, especially in the current macroeconomic environment), and simultaneously ask bankers in and tell them to kneel. I know many can’t wait to finally see bankers on their knees, but such sight is too beautiful to be true!

It’s the economy, stupid

Thorough economic debate is a phenomenon so seldom witnessed in the public discourse in Poland that any reason seems justified to spark it off. Recently the widespread discussion has been triggered by Mrs Beata Szydło, candidate for the prime minister if PiS wins the autumn parliamentary election, who unfolded key points of her party’s economic agenda. As it often happens ahead of the election, politicians tend to be open-handed in their promises, but this time the generosity might have gone too far, since both politicians and economic pundits have taken the trouble to quantify the promises and check whether the figures hold water…

Politicians of PiS claim their ideas are absolutely feasible and the spending spree they propose will be matched by new sources of budget revenues. Their opponents from the Civic Platform and most experts point out the calculations of PiS are flawed and reckless inclination to throw about money would head Poland towards where Greece is now. Let’s have a look then on how much happiness the Lawful and the Just wish to give Poles if they get hold of power.

1)      Raising tax allowance to PLN 8,000 from current PLN 3,091.

- Truth be told, tax allowance in Poland is one of the lowest in Europe and well below the poverty line, plus it has not been increased along with inflation since 2009. But if are to compare ourselves against other European countries, we also need to take notice of the fact tax rates are higher there than in Poland.

- My proposal is then to simplify the tax system and bring in more effective progression by introducing an even higher tax allowance, let’s say PLN 16,000 and introduce a flat personal income tax rate of 32% (the current highest rate). Thus we would achieve effective tax progression, since the tax rate for an individual would be somewhere between 0% and 32% and increase linearly along with earnings.

- Cost of the proposal estimated by me: 24,400,000 * 18% * (PLN 8,000 – PLN 3,091) = PLN 21,560,328,000

- assumptions: 1) number of personal income tax payers: 24,400,000, 2) marginal tax rate: 18%,

- shortcomings of my assumptions: 1) multiplier effects from higher tax income and GDP growth on account of higher consumption are not taken into account, 2) other tax credits, e.g. child allowance also have been neglected.

2) Giving a child benefit for every second and next child of PLN 500 per month.

- My only question here is how to define the second and next children. Calculations are impeded by unclear definition of a child (until what age your offspring is a child and whether this depends on whether they learn or earn?, on the basis of what criteria the children would be counted – what if a woman has three children with three different men, or the other way round, i.e. a man has children with three different women?)

- I find the very concept ludicrous and see nothing else in it but pure giving away money from the public purse rather than encouraging people to have children.

- Cost of the proposal estimated by me: 10,879,729 * 40% * PLN 500 * 12 months = PLN 26,111,349,600

- assumptions: 1) a child is person aged less than 18 (if students are taken into account the cost would shoot up well above 30 billion PLN), 2) population of Poland is 38,580,600, 28.2% of which are not adults, 3) 40% of children would be eligible for the benefit – this is only an educated guess,

- shortcomings of my assumptions: 1) it is not clear, whether parents of students would also be entitled to benefits, 2) it is not clear when a child is “second and next”, 3) it is very hard to determine how many children would be “co-financed” with this benefit, 4) potential taxation of the benefit (or lack of it, of effects of tax deductions associated with it) is unknown, 5) multiplier effects have been neglected as well.

According to my estimations, only the two proposals would cost the budget around 48 billion  PLN yearly (vs. 29 billion PLN yearly according to calculations by PiS). If you look at the number of assumptions I have made and number of shortcomings I have listed, no wonder figures given by experts vary so much. To be fair, unless you reveal your (simplifying) assumptions and maths behind your calculations, you cannot hope to sound credible to me in the public discourse.

I do not dare to come up with a ballpark figure for the shortfall caused by reversing the pension age increase. The deficit in the government budget (which subsidises the social security system) by 2020 would probably not be substantial, yet thereafter (bear in mind in 2019 Poles either kick PiS out of the politics or it will be as entrenched as Mr Orban’s party in Hungary) outcomes of tampering with the pension age would be disastrous (also because tap with EU money will run dry in 2020).

On the other side of the budget, authors of PiS’ economic agenda point at three core funding sources for the merry expenditure programme.

1) The bank tax, to be levied on banks’ assets.

- My comment (disclaimer: I am a banking sector employee and my financial well-being might be jeopardised by the bank tax): such tax should penalise banks and other financial institutions for being involved in operations that do not contribute to well-being of a society, predominantly those which stray from the concept of traditional commercial banking (taking deposits and granting loans). I also wonder what the tax base would be: would those be total assets (including cash, treasury bonds, PPE, etc.), only financial assets, or maybe the tax base would be limited to the loan portfolio and whether there would be any risk weights on assets. Since the banking sector does not enjoy good publicity in Poland (banks have given ample reasons for being held in disregard), the idea of cutting back their mammoth profits with yet another tax should take fancy of many voters. On the other hands, most banks in Poland are controlled by foreign financial groups which have come to terms with the fact banking in Poland is no longer such great gold mine as it used to be. They will pass on the tax onto customers and since they will in unison have to bear the new burden, in unison they will raise fees and commissions for their customers, so in this very particular situation the arguments of PiS that free market and forces of competition will not let banks’ clients feel the impact of the new tax, are a daydream.

- Revenues from the proposal estimated by me: 1,500,000,000,000 * 0.39% = 5,850,000,000 PLN

- Assumptions: 1) total assets of the Polish banking sector: 1.5 trillion PLN (total financial sector’s assets in 2013 of PLN 2.1 trillion * 68% share of banks * 1.05 growth dynamics), 2) tax rate of 0.39% yearly, most often mentioned.

- shortcomings of my assumptions: 1) tax base and scope of entities subject to taxation have not been defined, 2) lower tax rates have been already mentioned by politicians of PiS since they slowly being to realise the bank tax proposal, compounded with relief for CHF-mortgage borrowers, could knock down some of the banks and necessitate a state-funded bail-out for depositors if their foreign owners decide to wash their hands clean of the Polish businesses.

2) Supermarket tax, being a turnover tax levied on retail chains with yearly sales above PLN 1 billion.

- My comments: the big chains of hyper-, supermarkets and discount shops, omnipresent in Poland and by dint of their economies of scale, offering less wealthy Poles an opportunity to buy stuff cheaply, also have become a scapegoat. A frequent argument in the debate on those shops is that taxes they pay are miniscule in relation to their revenues. Indeed, this is true, since most of those chains operate on very thin margins, yet their earnings are high due to scale of activity. For some of those chains, net margin is 1%, i.e. net profit of a company makes up 1% of total sales. Shareholders of such retail chains will have a choice either to increase prices of goods and pass on the tax to clients (more probable) or to wind down their businesses (impracticable). The former option is even more likely to materialise for the same reason as with banks – all big chains will be affected in the same way and therefore will react in the same way.

- Revenues from the proposal estimated by me: 150,000,000,000 * 1% = 1,500,000,000

- Assumptions: 1) total sales revenues of all big retail chains in Poland: 150 billion PLN, 2) tax rate of 1%

- Shortcomings of my assumptions: 1) publicly available data I cite are outdated (and thus biased downward) and may not cover all stores, since many companies decide not to disclose how much they earn (also resulting in downward bias), 2) the tax rate is unknown, but might vary from 0.5% to 2.0% according to some proposals.

3) The third and the broadest proposal is to increase the efficiency of tax collection system, curb tax evasion, crack down on illegitimate VAT reclaims. All the ideas are commendable and I wish well anyone who would take up doing so, yet I am sceptical about the effect and also would not dare to estimate the resultant additional budget revenues, nevertheless the figure of 50 billion PLN seems over-optimistic.

Interestingly, none of the critics of the PiS-designed giving-away scheme has noticed a crucial causation, namely the more money citizens have in their pockets, the higher the money supply. Growth in money supply, if not accompanied by proportionate growth in output, results in increased inflation. This in turn, assuming the central bank is independent, leads to higher interest rates with all consequences…

And interestingly, hypocrites from PiS, who allegedly care so much about the poorest, do little to redistribute wealth from those well-off. The proposal to reinstate the third tax bracket has been declined, probably to appease Mr Gowin (who has finally fallen into place and does not bring discredit on PO), yet this decision does not matter much, since those who potentially could be affected by signing the third tax bracket into law do not pay the personal income tax at all. 32% marginal tax rate affects in Poland the upper-middle class, around 2% of all personal income tax payers, those are usually senior managers at corporations, whose positions are too low to make them eligible for a managerial contract. Most of the people who really earn a lot (above 300,000 PLN before tax per year) are not employed under regular job contracts, but are sole proprietors who perform a contract for their employer. Outcomes for the state budget – marginal tax rate is 19% rather than 32%, social security contributions they pay are miniscule (in return they will receive a tiny pension benefit, but with such earnings would who cares?), same as health service system contributions. Taxes might be low for actual entrepreneurs, but the practice of paying corporate income taxes by corporate executives who are not entrepreneurs and do not risk their own money to develop their business ought to be finally put to an end!

My grandfather’s neighbour gives him outdated issues of Fakt, the leading Polish tabloid. Yesterday, while at my grandpa’s I grabbed one such paper and found this article… Maybe what Mr Sienkiewicz (cynically) says is the key to the door:

Przeciętny Kowalski patrzy na te autostrady, estakady, na ten dworzec, na cokolwiek innego… Jego podstawowe pytanie jest: a co ja z tego kurwa mam?! Gdzie jest ten pieniądz u mnie w portfelu? A nie że ma wypierdolonego orlika przed oknami, bo on ma w dupie tego orlika, podobnie ma tę autostradę w dupie! Bo dla niego jest pytanie o efekt rozbudzonych aspiracji, jak się rozbudziło aspiracje, to są pewne konsekwencje. Najpierw są takie aspiracje, aby państwo było bardziej umyte i bardziej przypominało to, co ma na Zachodzie albo co sobie wyobraża. A potem się aspiracje przesuwają do własnego portfela. I jest pytanie, co ja z tego mam.

Yes, Poland has remarkably moved ahead in terms of infrastructure. I travel a lot around the country these days and appreciate the possibility to get to Gdansk or Krakow by train within 3 hours, enjoy driving new motorways and expressways, but the progress has little impact on the standard of living of an average Pole. I follow the “Decrepit Poland” page on facebook. Authors of the page publish several photos a day to give lie to the propaganda story Poland has been ruined and needs to be rebuilt from scratch. Photos show progress, but are selective; round the corner beautiful market square gives way to dilapidated houses and inhabitants of provincial towns now care more how much they can buy in a shop for money they earn than whether the centre of the town has been refurbished.

Recent travels make me also wonder whether I also live in an ivory tower, how much I have in common with ordinary people living in Zgierz where I was on Friday. How much do I have in common with inhabitants of Wałbrzych where I’m heading tomorrow. Origins of PiS recent surge in support and PO’s waning popularity is the former’s ability to at least pretend they are close to ordinary people.

Polish mining industry on the edge

If you believe a more appropriate subject for this week’s posting would be the decision of the Swiss National Bank to effectively float the CHF, I advise you revisit this post, especially in the light of some politicians’ proposals to help out over half a million mortgage borrowers (and also currency speculators who have shorted the CHF) thumped by skyrocketing Swiss currency.

If not, I suggest we go back in time by 30 years, to bring back backdrop of miners’ strike in the UK in 1984 – 1985 which led to closures of several unprofitable mines. The atmosphere in the UK those days was in some aspects similar to what is happening in the Polish mining industry. Some commentators have attempted to equate Polish prime minister, Mrs Kopacz, to Mrs Thatcher, a comparison for many out of place. Needless to say, just as British mining industry was in deep need of turnaround, the Polish one also calls for it, while the treatment it receives might be named overhaul at best.

The current situation has deep historical roots. Back in PRL the mining industry, one of focal points of heavily industrialised socialist economy, was pampered. Miners, the pride and joy of comrades were granted numerous privileges then. Mines were developed regardless of economic legitimacy, actually in the same manner as all companies in the socialist economy were managed. In the wake of the shift into free-market economy rules of the game have changed, but not for everyone. Most mines have remained a stronghold of the PRL. In late 1990s one programme of winding down unprofitable mines was launched. Later on no comprehensive strategy for the Polish mining has been pursued. In the meantime, miners excelled at defending their fulsome privileges (at the expense of Polish taxpayers), thus decreasing competitiveness of Polish mines. Fluctuating coal prices for some time allowed the government to sweep the problem under the carpet. Coal market slumped severely in 2009, but quickly bottomed up and mines had enough capital and cash reserves to ride out the short crisis. Coal prices rebounded in early 2010 and despite well-blown-out costs Polish mines remained profitable until late 2012. Since mid-2012 coal prices gradually declined and according to market forecasts, are unlikely to substantially recover in the foreseeable future…

To examine the distress of Polish mining industry, let’s have a glance at some facts:

1. Mining is a commodity business, thus above-average volatile and exposed to price fluctuations. Each mine, with quite rigid costs (little flexibility on technological and human resources sides) is a price-taker. It means when good times roll in, a mine swims in cash, but faced with a downturn, it can go under quickly. A prudent financial manager should run a company in such way that effects of price movements are smoothed out.

2. Environmental policies, including those imposed by the EU, hit the coal industry. Preferences for low-CO2 emission energy sources bring down global demand for coal.

3. Despite EU regulations, Polish energy sector is doomed to use coal and key fossil fuel, given scarcity and prices of other resources. Therefore, power and heating plants will remain the key off-takers of Polish coal mines.

4. Mining is one of most heavily unionised industries in Poland. Trade unions in some of the mines have sprawled into pathological size. Their power must not be under-appreciated, since they are capable of bringing most of the mines into standstill. Their bargaining power in negotiations is amazing, given track record of consecutive governments of giving in and subsequently maintaining status quo in the industry.

One could reasonably ask why some mines are profitable, some not and why mining companies are profitable and others incur sizeable losses. All companies in the industry are affected by falling coal prices, but for some market environment means much lower profits, for others barely breaking even and for the worst, threat of going bust. I have taken the trouble to unravel the puzzle of why some companies fare much better than others, found several factors, but no comprehensive answer. Just to name a few reasons for varying incomes between companies:

1. poor corporate governance in state-owned companies; this includes incompetent, too quickly turning over management, lack of clear-cut strategy, strategic decisions made on the basis of political influences rather than business analyses,

2. different technology-related cost of coal extraction (in some mines drilling and extracting is much more costly than in others) and different calorie-count of extracted coal which impinges on its price – for this reason the same number of people may produce fewer tonnes of coal of worse energetic quality,

3. low work efficiency and overmanning, both underground as well as in overground administration,

4. one-side linkage between profitability of mines and remuneration of miners. Personnel costs account for about 50% of mines’ operating expenses, therefore the item has crucial impact on break-even point for mining companies. While miners demanded to quickly privatise profits of companies when coal prices were running high (bonuses, profit-sharing schemes), when market went down, they reach out for the state aid and refuse to give up on their privileges,

5. miners’ privileges which appear excessive in comparison to what other workers enjoy. Most hard-working people in this country of course do not have to work underground in heavy conditions, but also do not enjoy guaranteed 13th and 14th pay and several allowances and fringe benefits.

The current slump on coal market has forced the government to take steps to bail out the ailing industry. The restructuring programme is much belated and therefore has to be implemented in haste. A long-sighted manager (a rarity in the public sector) would gently launch such programmes when coal prices were high and industry was capable of absorbing restructuring costs from cash surpluses. For obvious reasons, such move would have been inconvenient for everyone… It must be underlined, the originally proposed restructuring programme treated the distressed industry really mildly.

After several attempts to defer insolvency of 100% state-owned Kompania Weglowa, the biggest mining company in Poland, running 14 mines and employing almost 50,000 people, the government was driven up against the wall. Either they had throw a lifeboat to it, or let it go under, with all consequences. The determination of the government to avert the bankruptcy of KW served as water to the mill of protesting miners… The insolvency of Kompania Węglowa would actually benefit nobody. In the scenario of mine liquidation the Polish energy sector would lose the biggest supplier, more than 100,000 people would be affected by redundancies. Economic consequences would include lower proceeds for the government from personal income taxes and social security contributions and higher social security spending. It could actually benefit predator investors who would buy single mines after asset-stripping and turn them around (maybe not the worst scenario)…

In some media reports I read some 70% of Poles support miners fighting to save their jobs and blame the government for collapse of mining industry. In contrast, when I look at comments under articles on the issue in the Internet, I notice growing anger and discontent towards privileges miners enjoy, blackmailing methods they resort to and meekness of the government. No wonder ordinary people feel disgruntled. If their employer had to be downsized, they could not count on generous severance packages. Most of them would get what they must be paid (salary for their notice period plus severance pay in the equivalent of one or two monthly salaries) and could not dream of two-year salary. Most of them would not boast about above-average earnings and for most of them, bankruptcy of their employer would be their, not government’s problem… In the market economy if your employer goes bust or downsizes and you are laid off, you have to go it alone! It seems miners are totally detached from the market economy. For them it does not matter whether anyone wants to buy the coal they extract, regardless of what invisible hand of free market shows, their jobs must be saved… Who is going to pay for it is beyond their interest.

Here comes the question about the dissimilarity between Poland today and Great Britain in mid 1980s. Mrs Thatcher had social support for her crackdown on unprofitable mines. But does Mrs Kopacz have support of Poles for closure of loss-making mines?

Yesterday the government and representatives of trade unions nailed down an agreement on mining recovery. The government succumbed to trade unionists and amended some of the provisions of restructuring plan:

1. there would be significant reshuffles in the ownership structure: merges, purchases, buyout, all designed to inject the cash to mines from wherever cash surpluses can be found,

2. instead of 4,000 job cuts, no one will be made redundant, however some salary cuts will have to be accepted,

3. severance packages for those employees who will voluntarily come forward to quit have been raised.

If somebody’s impression is that the government has just buggered it up, well… some things sound better left unsaid.

During a long discussion on how to turn around the Polish mines one modest proposal stood out. It was mentioned by former prime minister, Mr Marcinkiewicz, who put forward to hand over the unprofitable mines to trade unions and let them take charge of the business. Representatives of the trade unions quickly agreed to accept such gift, provided on top of mines they receive 3.2 billion PLN the government intends to spend on restructuring of the taken over mines! Some things sound better left unsaid…

Time will tell whether government’s turnaround strategy for the Polish mining proves successful. For the time being even the weather seems to be against the industry. For more than a week temperatures have not dropped below zero and a few times nudged to +10C.

Government reshuffle

The expected course of events after former prime minister’s Tusk appointment to the office of the President of the European Council was his resignation from the position he had held for almost 2,500 days (the longest tenure in the history of Poland after 1989). A quite natural and in my humble opinion, most suitable candidate for his successor was Elzbieta Bienkowska, until recently deputy prime minister, in charge of ministry of infrastructure and development. Fortunately and unfortunately for Poland, Mrs Bienkowska will continue her career within EU structures as European Commissioner what precludes her from taking over as prime minister, a function she would definitely be eligible for (she’s got balls!).

Instead, Ewa Kopacz, former minister of health and speaker of parliament hitherto, was nominated as the new prime minister and entrusted the mission to form a new government. As my former boss told me, each new leader in an organisation, to justify they are the right person in the right place, needs to turn something upside down within the first months since taking up the new job. In the corporate world one needs a few months to get familiar with how an organisation functions before one initiates bringing about a change. In politics, before setting out to do the job, a new leader must elect members of its team. The mere change of a prime minister was hence out of question and Mrs Kopacz, to reinforce her position and independence in personal choices, had to do a reshuffle.

I dare to argue some of the nominations have been at least puzzling. Radoslaw Sikorski, despite my reservations regarding his (feigned) impeccable manners, was generally a decent foreign minister and especially well capable of representing Poland abroad. I doubt given his traits he has all makings of a good speaker of the parliament (what a demotion for him!) and I particularly have doubts how his successor, Mr Schetyna, will rise to the challenge… Nevertheless, Mr Schetyna, designated for one of the most prominent functions, is rising like phoenix from ashes. For years, as an informal opponent of Mr Tusk’s headship in the civic platform, he was on the sidelines of the Polish politics, for many bound to stay in the background until eventual withdrawal from politics. His sudden comeback is a great chance for him, but also, to put it mildly, an enormous challenge.

Mr Grabarczyk in charge of the ministry of justice… sounds ludicruous… I particularly dislike the chap (as I not tend to like people who hold their head up high) and if there is a person in the Civic Platform that could embody hubris and arrogance the party has recently stood for, Mr Grabarczyk can serve as an excellent example.

Another would-be minister who in my subjective opinion might not be the most qualified candidate, is Maria Wasiak, the new head of ministry of infrastructure and development. The very ministry, by dint of intricacy of issues it deals with, needs to be run by a person who is not only competent, but also, as Mrs Bienkowska, have balls. She was the CEO of Polish State Railways since 2011 (acting since 2010) and I do not see a significant turnaround in the workings of the Polish Rail Transport, although things could have been far worse and choice could have been far worse, given media speculation of Mr Nowak’s comeback…

I wish the new ministers all the best in their new roles, bearing in mind for some the tenures will be short. When I look at the make-up of the newly formed government, I hold the view it has been brought together to last out until the next election. And because most likely it will be less efficient then the one headed be seasoned prime minister Tusk and with fewer competent experts, odds of PiS winning the 2015 parliamentary election have just risen. Mr Tusk and Mrs Bienkowska have already made their leaps forward and jumped into EU-marked lifeboats. I am pretty sure they will foster our interests there (keeping in mind their mandate is to primary represent interests of all EU members), but Civic Platform’s strength in the Polish politics is bound to wane without them on board…

The new finance minister

At times I come to think the more I work overtime, the more hollow my life gets. It is not about doing nothing except working and focusing on mundane daily duties – over the last fortnight I easily found time to eat out (not confuse for ‘date’) with a friend, attend a conference, visit a theatre, but to offset this, I totally lost track of what was going on in the world. Just imagine yesterday, with a three-day delay, I learnt about a considerable reshuffle in the Polish government The recent pace of my work has become so dreadful (my thanks to several colleagues who have taken sick leaves, not their fault, but me is who is bearing the brunt of their infections) that I could not even find time to take a break and spend a few minutes surfing the web to check the daily news and back home, after eleven hours of toiling away, I did not feel like watching TV or reading news online. Over the working week I lost track of everything and had to catch up…

Yesterday I read the list of 7 ministers that have been replaced and their successors. Cross my heart, I cannot recall now most of them and what has left in my memory is a portrait of Elżbieta Bieńkowska, who will serve as deputy prime minister (she’s got balls) and the new finance minister.

The departing (appointment of the new minister becomes effective on 27 November 2013) finance minister, Mr Rostowski, has held his position over six years and in the recent months has gone increasing unpopular with voters, in the wake of plans of dismantling the private-run part of pension system and the budget amendments resulting in higher deficit and suspending safety debt/GDP ceilings. Having observed him over his term in office more or less cautiously, I am in two minds about Mr. Rostowski’s performance during his tenure. To make an unbiased judgement, I would need a comparison and because of the long period of time when he was irreplaceable, I cannot find a proper benchmark. When he was taking the office, Poland was in the last months of riding the waves of pre-crisis boom. In late 2008 it became evident economic reality had been turned upside down, economic growth decelerated swiftly and running a sensible fiscal policy became a much more challenging task. In 2009 he managed to strike a fair balance between using fiscal stimulus to bolster economy and keeping debt/GDP ratio on moderate levels, without jeopardising Poland’s creditworthiness. In later years he could not boast about actual accomplishments in bringing forth structural reforms that could heal Poland’s public finances in long run. In the second wave of economic slowdown, due to excessive budgetary deficit Poland ran since 2010, he ran out of tools to rouse up economy, therefore Polish economy recorded sluggish growth of mere 0.5% in 1Q2013. His plans of detracting from the pension funds were not driven by straightforward conviction of inherent drawbacks of the pension system, but by pressure to relieve the tensions in the state budget. By many Mr Rostowski is deemed to be a seasoned liar. I do not wish to examine how many times he was departing from the truth, although such summary at the end of his term could come in useful. As his positive attribute, I will memorise his power of calmness in public discussions over the pension system. He managed to clearly and substantively explain the workings of the pension system and purpose of the proposed changes. Despite being quite selective in his justifications, his way of speaking and argumentation were assessed impressive not only by me. For too many PO supporters he was intolerable, so potential positive impact of ousting him from the government has probably urged Mr Tusk to look for someone to replace him.

My first association when I heard the name “Mateusz Szczurek” was… ING. And then my second thought was… ING pension fund…

Over the whole weekend I was wondering what the rationale behind this decision was and whose decision it actually was.

By all accounts, it should have been an independent decision of Mr Tusk. Quite probably, the prime minister, minding the impact of the reshuffle on the support for the government, shied away from swapping Mr Rostowski for a PO politician and preferred to nominate a person commonly labelled as an independent expert.

Beyond all doubt, given the gruelling state of Poland’s public finances, many potential candidates turned down offers of taking up the challenge of running the shop in which one has to bend over backwards to make ends meet. A rationally-thinking man could consider such offer either as a poison pill or… as a rewarding challenge.

Mindful of this, I find Mr Szczurek’s choice mind-boggling. He had pursued his career (started at the age of 22, just like mine) with one institution – ING and in 2011 was promoted to the position of chief economist for CEE region, the prestigious and certainly financially rewarding job. What drove this 38-year-old father of five children and cycling enthusiast to give up on the position, reputation of independent expert, credentials, esteem and earnings I could only dream of, to step into the murky world of politics?

For sure the motives were not pecuniary. I estimate his salary will shrink by at least 80%. My parents told me he had been asked by a TV journalist in one of interviews, how would he get used to earnings of 15,000 before tax a month after leaving a much better paid position and Mr Szczurek was more than perplexed. The after-tax salary of some 9,000 per month will allow him and his family to scrape along, but if they do not tap their savings, their standard of living is likely deteriorate…

If it was not about money, it must have been about power. Maybe the financial conglomerate he used to work for so long was too small for him to fulfil his potential. Maybe he craved for a profession that would make him far more recognisable, influential and, if his achievements were remarkable, remembered by generations. Maybe, after years of working for a Dutch corporation, patriotic feelings overwhelmed him and he made up his mind to sacrifice the lucrative position for a benefit of his country. I am reluctant to give credence to the last explanation which here serves the purpose of playing intellectual game with the readership. I hold the view, you may share it or not, that decent people tend to stay away from the politics, do their bit in a private sector, perform their jobs as good as they can and lead stable lives far away from the spotlight…

Revisiting my first impression. I sever from any conspiracy theories, but it has to be borne in mind ING manages a pension fund being a part of public pension system, whose assets account for 24% of total assets under management in Poland. ING is a meaningful stakeholder of the pension system in Poland and has a vested interest in retaining it in the current shape, guaranteeing pension fund managers a steady flow of fees and little responsibility for returns. It occurred to me the new minister, in the light of decreasing support for the pension reform, would take steps to unwind it. On second thoughts, I abandoned this theory. Having in mind the budget for 2014 would not be overrun without diminishing transfers to social security fund, aimed at replenishing deficiencies generated by moving contributions to pension funds, one of key criterions for sure was the candidate’s promise to take over the implementation of pension reform, in line with the government’s blueprint. After stepping down from his current position, Mr Szczurek will no longer owe the duty of loyalty to ING, but by getting involved in undermining the business of pension fund managers, he burns his bridges with his Dutch-based employer.

Most economists, asked about the competencies of the new minister, either could say little about him, or spoke highly about his characteristics. Unlike many economists, he is said to be a rational and equable expert who favours modest solutions, rather than ardent follower of a specific doctrine (see besotted neo-liberal, Mr Balcerowicz) – the stance I hold dear with economists and which bodes well on his future conduct.

I wish Mr Szczurek many successes on his new path and pin hopes in him – I hope his prudent decisions will contribute to sustainable improvement Poland’s creditworthiness and reduce the scale of indebtedness in the long run. Much indicates better times are coming. When the economy is expanding, expenditure cuts, accompanied by keeping tax rates intact, or even raising them, when appropriate, are the least painful to the economy and people. May he resist temptations to sit on laurels and cut off coupons from the booming economy and calls to add fuel to the fire by easing fiscal policies! May he not waste the chance to turn around the Poland’s public finances! May he not repeat the mistakes made by PiS government, when in 2007 the state budget, instead of reporting a surplus, ran a 22 billion PLN deficit!