How to manage the economic reform in the accession process

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How to manage the economic reform in the
accession process

• Bid to join the EU - an opportunity for a new
  push of economic reforms
• Reforms necessary to sustainably increase ability
  to cope with competitive pressure of the EU
  internal market

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National Integration Strategy

• Prepared by government in early 1997, adopted by
  Parliament in May 1997, document reflecting the
  mainstream view that reforms should follow a
  three-pronged approach

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• A. Reforms where early implementation is
  beneficial in the context of EU accession,
  because it can support a robust economic growth
  
• deregulation of infrastructure - energy,
  telecoms, transport (attracts substantial new
  investment)
• increase of regulatory/supervisory capacity in
  financial sector (deeper integration with EU
  market, increased competition ? brings down cost
  of capital and encourages investment)

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• B. Reforms not directly related to EU acquis but
  essential to growth and stabilisation
• structural strengthening of public finance
• privatisation
• pension reform
• flexibilisation of labour market
• easing of entry, exit and operating conditions
  for business, especially SMEs

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• Expensive adjustments to EU acquis, which require
  a careful sequencing of investment
• EU environmental standards
• transport infrastructure
• preparation for CAP

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Key conditions for implementation of a huge
reform workload

• Planning-Organisation-Leadership-Control
• Needed strong government disciplined
  relationship between the cabinet and its
  supporting parliamentary majority strong
  executive second tier consisting of senior
  officials effcient interagency coordination
  proactive management of dialogue with interest
  groups and sectoral interests
• External constraints (Joint Assessment of
  Economic Policy Priorities since 1999,
  Preaccession Economic Programme since 2001)

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None of these conditions fully applied in Poland

• Effectiveness, speed and consistency seriously
  weakened by
• economic slowdown 1998-2002
• political infighting and insufficient resolve to
  withstand pressure from interest groups (in
  particular, large and politically powerful
  state-owned enterprises - coal, steel, chemicals,
  rural bank, savings bank, national insurance
  company - were able to avoid any major
  restructuring)
• inability to proceed in line with the adopted
  strategy

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Limited clout of bodies directly managing the
accession talks and adjustment to acquis

• Committee of European Integration due to initial
  delays it fully focused only on legal
  harmonisation, and its annual National Programme
  for the Preparation of Membership proved to be a
  rather unwieldy instrument, with no clear
  prioritisation of reforms
• Negotiation Team two of its working groups were
  responsible for budgetary and socio-economic
  impact assesment of draft negotiating positions
  scope of this work remained de facto limited to
  preparing arguments for transitional
  arrangements, no relationship to economic reforms

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By 2002, despite many achievements, it was still
work in progress and interim results were far
from optimal

• Some examples
• State budget
• success positive changes in structure of budget
  revenue, no financing of deficit through central
  bank
• failure no efficient controls of budgetary
  spending, no correlation between new legislation
  and budgets potential to finance it, excessive
  redistribution function of the central government
  budget, by 2001 a massive budget deficit

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Other key areas success anf failure

• Public sector
• Success new legislation on public finance
  (1998), pub-lic procurement (2001), state aid
  (2000)
• Failure no uniform reporting in the sector,
  large and growing volume of state aid going
  mainly into support of inefficient employment

• Taxation
• Success single modernised tax system
• Failure instability of the system, uncompleted
  reform in agriculture and real estate, too many
  tax breaks in personal and corporate income tax

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Other key areas success and failure

• Social spending and healthcare
• Success decentralisation of several social
  policy instruments, from 1999 partial
  privatisation of pen-sion system
• Failure no reform of agri-cultural pensions,
  expensi-ve and easily obtainable disability
  benefits, minimal and ineffective use of active
  labour market instruments

• Privatisation
• Success overall progress of privatisation
  irrespective of changes of government and
  completion of process in several branches of
  industry
• Failure delays and slowness in coal, steel,
  power generation, gas, heavy chemicals, sugar (by
  end 2002 private sector still generating only 76
  GDP)

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Role of public opinion

• In 1998-2002, public opinion grew increasingly
  critical of reforms, associating all the
  hardships with accession process. Policy makers
  remained unable to show that costs of transition
  and improved competitiveness would have to be
  borne irrespective of the EU membership bid
• In May 1997, 70 of people polled believed the
  systemic change was making sense and only 14
  held opposite view four years later, the
  respective figures were 56 and 30 percent

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Final comment

• Two years after accession, economic outlook for
  Poland is getting much brighter, but ...
• Many of the reforms started during the accession
  process remain incomplete and there is much still
  to be done
• restructuring in the sectors of power generation,
  coal, gas, RTD, real estate market
• easier, cheaper and ligher regulation for
  business
• further reform of public finance
• further changes in the pension system and
  healthcare financing