Poland's President Must Dance A Nimble Polka

As he nears the end of his first year in office, Polish President Aleksander Kwasniewski has proved himself an agile diplomat. And it's not just because of his travels to Western capitals, where he has lobbied for Poland's admission to NATO and the European Union. Just as important, he has eased the rancor that split Poland's urban and rural populations and put him at odds with Roman Catholic Church leaders, who saw him as a communist leftover.

Kwasniewski's deftest move by far has been to avoid policies associated with the communist era. Even though Kwasniewski led the ex-communists' Democratic Left Alliance until he was elected last November, as President he has favored shock therapies that the Solidarity-backed government launched in the early 1990s. These include strict limits on state spending to keep inflation in check.

But now that Kwasniewski has shown he can mend fences and keep Poland's economic miracle on track, his biggest challenges lie ahead. He must oversee a second wave of reform that may prove tougher than the first. To do this, Kwasniewski may need to adjust his low-key style. He prefers working behind the scenes on controversial issues while playing the role of statesman in public. But Kwasniewski's success may now count on his ability to be a salesman.

TAX DODGERS. Kwasniewski must attack the most entrenched holdovers of the old system. For example, there are some 4,000 enterprises still on state books, eating up resources the private sector could use better. Industries such as copper mining desperately need restructuring. And privatization should be sped up in industries such as telecommunications, which could help Poland's overall competitiveness.

The country's legal system must also be improved. Poland still has no way of tracking assets pledged for collateral on loans. With 30% of the economy working underground to avoid taxes, Poland needs to lower the 45% top tax rate and bolster enforcement.

But the biggest task of all will be overhauling the state-funded pension scheme. Some 9 million pensioners receive 75% of their former wages, swallowing up 30% of all state spending. The pension system has acted as a shock absorber, allowing workers to retire early rather than be laid off. To ease the burden on its budget, Poland is slowing the growth rate of payouts. The next step is to push private pensions. But with one-third of Poland's 26 million voters on pension, reform will take all the political will Kwasniewski can muster.

Adding to the President's challenges is a slowdown in Poland's go-go growth, which has cushioned the country's transition. Its economy was the first in the region to take off after the Soviet Union's collapse in 1991. It grew 7% last year, thanks to a boom in private enterprise. This year, growth will be 5% to 6%.

So, with parliamentary elections just a year away, Kwasniewski is under pressure to make difficult decisions. This time around, he can't count on the opposition to self-destruct. His party, in alliance with the Polish Peasant Party, took power in 1993 because some Solidarity-backed parties failed to get the minimum votes to enter Parliament. Now, breakaway parties are regrouping under the banner of Election Movement Solidarity (AWS). With 20% support in the polls, it is neck and neck with the Democratic Left Alliance.

Opposition implosion or not, Kwasniewski can't lie low. Soon, he'll have to balance the competing wishes of economic reformers with those of pensioners, without eroding his coalition's majority or discouraging investment. It's testing time for his skills as diplomat and salesman.

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