Poland’s Stalwart Pension Pandering

Polish stocks were unchanged in 2013 as the $50 billion government bonds half of private pension assets were transferred to the state social security fund although the enabling law will be reviewed by the constitutional court. The switch was condemned by its post-communist sponsor former Finance Minister Balcerowicz, who runs a free-market think tank, as “expropriation” although ratings agencies and the IMF in its January extension of the flexible credit line hail resulting fiscal improvement. The opposition party currently ahead in opinion surveys hailed the move against “foreign-owned oligarchs” as half the population was ambivalent about reforms which will slash official debt 10 percent from the current 55 percent of GDP statutory ceiling. The pools have appealed to Brussels citing EU rules against property confiscation and exchange privatization offerings have been revised pending institutional allocation and central bank monetary policy clarity. Interest rates are on hold with inflation on target and economic recovery after a “cyclical slowdown,” in the Fund’s view. Unemployment is almost single-digits and the trade surplus was “unprecedented” with Eurozone stabilization, but capital outflows pared overseas ownership of local Treasuries to under 35 percent with 10-year yields up 100 basis points. Bank earnings and capital are solid with the tier 1 ratio at 15 percent of risk-adjusted assets, and bad loans at 8 percent of the total although small business impairment is twice that measure. Foreign currency mortgages are no longer offered under strict prudential rules and zloty liquidity is “ample” and aided both by the Fund facility and Swiss National Bank swap agreement. The 2014 fiscal deficit should drop to 3.5 percent of GDP on better tax collection and “sound management” should allow early external financing. Credit unions are now subject to single regulatory oversight and the resolution regime will be modernized to conform to the evolving pan-European vision.  Under pension changes the foreign securities indicative cap will go from 5 percent to 30 percent of portfolios in 2016, but the consolidated defined contribution system will still be vulnerable to shrinking worker replacement rates. The criteria apply for keeping the Fund’s backstop in place until next year, when authorities plan to exit should outside conditions warrant.

The endorsement was in juxtaposition with Hungary, where program talks were indefinitely shelved as central bank head Matolcsy was unperturbed that half of foreign banks could pull out under the burden of heavy taxes and forint conversion mortgage relief. Heading into elections, the state’s 49 percent stake in Raiffeisen’s local unit may soon be increased to a majority as Fitch Ratings predicted “complete Austrian withdrawal.” To help with funding the 35 percent share in the savings network Takerekbank will go on the block with other officially-controlled lenders FHB and OTP set to bid. Italian groups also contemplated escape as they continue to rely on ECB operations and are due to receive balance sheet inflexible criticism in its annual exercise.