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Can 36 Parties Plus One Union Actually Govern Poland?

International Outlook


Solidarity's surprise win in Poland's Sept. 21 general elections may prove to be the easy part. Marian Krzaklewski forged Solidarity Election Action (AWS) from a grab bag of 36 small center-right political parties and the Solidarity labor union and then led it to victory by obtaining 34% of the votes. But now, he faces the daunting task of building a viable coalition government.

Having trounced the ruling party, the ex-communist Democratic Left Alliance (SLD), which garnered 27% of votes, AWS has first shot at forming a government. But financial markets and foreign investors fear that, without a steadying influence, the inexperienced AWS may cause political instability that in turn might spark a debilitating run on the zloty.

That's why the bankers are rooting for AWS to ally with the third-place, pro-market Freedom Union party led by Leszek Balcerowicz. The fear is that absent Balcerowicz, Krzaklewski could find it hard to resist pressure from within the AWS to roll back painful reforms, put up roadblocks against further privatization, and send budget deficits soaring with indulgent social spending.

Poland is still growing at a robust 5.5% clip. But it is already struggling to stem a yawning current account deficit approaching 5% of gross domestic product, a gap nearly as big as those that sparked recent runs against the currencies in the Czech Republic and in Southeast Asia.

ODD COUPLE. The nagging worry, raised publicly by debt-rating agency Moody's Investors Service, is that union members favoring giveaways might gain the upper hand over the pragmatists in the AWS. A partnership with the Freedom Union may avert that. "Balcerowicz gives people a lot of confidence at a time when Poland faces important economic decisions," says Barbara Lundberg, executive vice-president of Enterprise Investors, a Warsaw venture capital firm.

Unfortunately, little love is lost between the two leaders. Balcerowicz, once a dry-as-dust economist who learned to smile during the campaign, is still unpopular outside the worlds of business and finance. As Finance Minister in an early Solidarity-backed government, he was the architect of shock therapy. Among measures he embraced was 1990's draconian wage freeze. It successfully brought inflation under control after it had soared to monthly rates of up to 800%.

Krzaklewski, by contrast, is a charismatic labor leader who replaced Lech Walesa in 1991. He bound the disparate currents in the AWS together under a vague reform banner. But he has little taste for Balcerowicz' staunch free-market views. And like Walesa, he is a devout Catholic. During the campaign, he toned down his pro-Church rhetoric, but he still apparently favors applying what he calls "Catholic values" to policy. Investors fear this could distract Poland from core economic issues such as pension reform.

EARLY TEST. One clear lesson from the campaign is that pushing narrow sectorial interests is electoral anathema in Poland. The Polish Peasants Party, for example, was an inveterate lobbyist for farm subsidies and protection. But the former coalition partners of the SLD saw their votes cut in half.

Poland's new government, which may take several weeks to form, will have to bear that in mind. And it will quickly face a severe test. Immediately after the Sejm, or parliament, opens on Oct. 20, the coalition that emerges must draw a draft 1998 budget. "This first trial of cohesiveness is very important for the tone of Poland's economic policy," says Edmund Wnuk-Lipinski, chairman of the Institute of Political Studies at the Polish Academy of Sciences. What's at stake is Poland's starring role as Central European Tiger economy.EDITED BY JOHN TEMPLEMAN By Karen Lowry Miller in FrankfurtReturn to top


-- After getting battered on currency markets, Southeast Asia is now facing a costly environmental disaster. Vast forest fires raging on the Indonesian island of Sumatra are choking lucrative tourism in much of the region. Singapore, which generates 11% of national income from tourism, most of Malaysia, and northern Indonesia are all affected by smoke and soot that are driving vacationers away.

Malaysian travel agency Reliance Shipping & Travel says it has lost more than 30% of its business. Occupancy rates at some hotels in Kuala Lumpur and on Borneo have halved. Indonesian airports are losing landing fees from canceled flights, and Singapore Airlines is forecasting a drop in revenues.EDITED BY JOHN TEMPLEMANReturn to top

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