1. Reflections on the Economic Transformation of the Czech Republic, Hungary, Poland and the Slovak Republic dr Paweł Wojciechowski Deputy Foreign Minister Ministry of Foreign Affairs of the Republic of Poland OECD, Paris, 20 November 2009 20 years after Challenges and Opportunities

2. Perception of transformation in Visegrad countries is positive Source: Return to Europe report by Institute of Public Affairs, in cooperation with Policy Association for an Open Society. Financed by the European Commission and the Visegrad Fund, October 2009

3. Content I. Measuring the success of transformation II.The economic crisis – what next? III.Challenges and opportunities

4. I. Measuring the success of transformation

5. How to measure the success of economic transformation? Poland: Average salary: $20 in 1989, $100 in 1990, $1000 in 2009 GDP increased eight-fold in years 1989 - 2008 GDP growth rate about 2 times EU average probably the only EU member country to experience GDP growth in 2009, estimated at 1.2%

6. GDP per capita in 2008 (PPP) as % of EU27 average Source: Eurostat, July 2009

7. Convergence of CEE to WE in GDP per capita * Includes: Albania, Bulgaria, Czech Republic, Slovakia, Poland, Romania, Hungary, former Yugoslavia Source: A. Maddison (2003), The World Economy: Historical Statistics, Development Centre Studies, OECD, Paris; after: The Coming Golden Age of New Europe, M. Piatkowski, Center for European Policy Analysis, October 2009; and Eurostat Western Europe = 100

8. II.The economic crisis – what next?

9. Reasons for outstanding performance of Polish economy during crisis Relatively small openness of the Polish economy Size of the internal market and strong domestic demand Solid and stable banking sector Floating exchange rate and zlotys depreciation Counter-crisis measures to mitigate economic slowdown and maintain macroeconomic stability

10. PL: low openness of the economy Source: National Bank of Poland, June 2009

11. PL: high % GDP share of private consumption CountryYearPrivate consumptionPublic consumption Poland 200064%17% 200465%18% 200861%17% Czech Republic 200052%22% 200450%23% 200849%21% Hungary 200051%22% 200453%24% 200852%23% Slovakia 200055%21% 200456%20% 200856%18% Source: National Bank of Poland, June 2009

12. Risk-based capital ratio: 11.2% (Q1 2009) ROE – net earnings to average core capital: 16.7%, ROA - 1.2% (Q1 2009) Loans-to-GDP ratio: 48% (2008; total loans to non-financial customers) Housing loans accounting for 33% of total loans - 16% of GDP (vs. EU average above 50% and ratios in UK, Denmark or Netherlands at ca. 100%) PL: stable banking sector Loans and deposits 1) in 2006-2009 (PLN bn) Source: Ministry of Finance, Polish Financial Supervision Authority 1)Loans - claims on non-financial and general government sector. Deposits - liabilities towards non-financial and general government sector

13. Counter-crisis measures in Poland – as % in GDP 2008 - 2010 Source: OECD, June 2009

14. Merrill Lynch Volatility of Polands GDP growth projections in 2008 and 2009 IMF World Bank OECD EC

15. III. Challenges and opportunities

16. Major achievements of Polish transformation Fiscal reform 1990-93: GG Deficit from 7.4% to GG Surplus 3.1 % Privatization after 1989: 5909 SOEs privatized as of end of 2008 Lowering long-term implied debt by reforming pension system Decentralization of public finances through administrative system reform Succesful introduction of CIT, VAT, PIT but new challenges arise but awaiting fiscal consolidation today but 2544 companies still to be privatized but need to continue working on a universal pension system and decrease fiscal burden resulting from early retirement but still improvement of systems transparency required but still an overall reform simplifying the tax system needed

17. Post-crisis challenges for the Polish economy Deterioration of government finances in 2009-11, with general government deficit forecast to rise Delayed recovery in 2010 reflecting a lagged response to the effects of the economic downturn Growing unemployment EURO accession Structural reforms: Health, Tax and Social Security

18. Political challenges in making reforms happen No easy and quick solutions Weaker external accession related motivation Smaller peer pressure in the midst of the crisis Political myth that reforms are costly Credibility political Stability administration/ institutions Authority government

19. Summary Transformation accelerated the CEE convergence to West European/EU values and standards of living Transformation was successful because CEE countries were politically more stable than other EMs (higher level of openness, freedoms and democracy, more homogenous population, higher level of external security) Willingness to reform has decreased after EU-accession, but will probably increase in the post-crisis period of recovery, because crisis exposed fragilities of CEE, such as pro-cyclical structure of public finances and high reliance on external financing Paradoxically, crisis may create momentum for reforms in CEE countries and faster real convergence with WE Need to improve public communication/transparency, economic education and legislative sequencing

20. Thank you for your attention

21. Reflections on the Economic Transformation of the Czech Republic, Hungary, Poland and the Slovak Republic dr Paweł Wojciechowski Deputy Foreign Minister Ministry of Foreign Affairs of the Republic of Poland OECD, Paris, 20 November 2009 20 years after Challenges and Opportunities