Review IMF in E. Europe
International financiers in Eastern Europe are forcing political and economic decisions that people and politicians can't bear
DEMOCRACY, which has not had an easy time anywhere in Eastern Europe, is losing its footing in Poland. And the West is a part of the problem. The first freely-elected Polish parliament in 50 years swept into office last October on the strength of a popular outcry against the austerity plan known as "shock therapy," designed by former Finance Minister Leszek Balcerowicz. But the new Polish government, like the two previous ones replaced by disillusioned voters, is turning a deaf ear to its own campaign rh etoric and taking cues from the International Monetary Fund (IMF), which has conditioned aid and debt relief on Poland's continued adherence to the shock therapy program.
According to polls commissioned by the US Information Agency, 56 percent of Poles supported Mr. Balcerowicz's economic policy in early 1990. By late 1990, only 30 percent favored his radical reforms. That number fell to 17 percent last summer. Poland's newly-appointed prime minister, Jan Olszewski, campaigned on a promise to ease austerity. With gross domestic product in Poland down by 10 percent, unemployment up to 11.4 percent (from zero two years ago) and inflation still running at 70 percent, Poles approved. Eighty percent of the members of the new parliament ran against shock therapy.
International financial institutions such as the IMF, the World Bank, and the London Club hold out the promise of $1.7 billion in stabilization loans and almost $20 billion in debt relief in return for compliance with their strict fiscal and monetary guidelines. The IMF's 1991 guidelines ignored political and economic realities; when Poland's cash-poor government overshot the agreed-to budget deficit limit of $400 million, the IMF suspended payments on its $2.5 billion loan.
Reality is that Poles have already suspended payments of their own. About 20 percent of the country does not pay its rent, electricity, or tax bills because it can't afford to, says Maciej Janowski, chairman of Solidarity's Warsaw region. The average factory worker earns $100 a month; the average rent is $85 a month. The infant mortality rate, a good indicator of a nation's health, rose sharply in 1991 and hospitals are closing due to lack of funding. Protest strikes in the transport, aviation, and energ y industries have continued unabated in recent months. A surge of violent street crimes and several major financial scandals have also plagued the country.
Poland's new finance minister, Andrej Olechowski, flew to Washington in March to plead for a resumption of IMF payments, proposing an enlarged deficit limit of $4.5 billion, 5 percent of Poland's GDP. The IMF indicated that it accepts this figure, provided that parliament approves it and the government sticks to it in 1992.
This figure pays lip service to reality but still puts members of the Sejm, the lower house of the Polish parliament, in an impossible position: pass a budget which begs to be busted later in the year as politicians capitulate to pressure from the 9 million Poles near or under the poverty line - or reject the budget, losing billions of dollars in Western aid forcing yet another Polish government to resign, as Mr. Olszewski has promised to do if the budget is not approved. On March 5, the Sejm voted to re ject Olszewski's first budget, which would have eased the tight monetary policy of the Balcerowicz plan, 173 to 134. If the Sejm rejects the austere IMF-approved budget submitted last week, expect President Lech Walesa to pick up his ax, assume the office of prime minister without a vote, and form his own government, bypassing or dissolving the fragmented, dysfunctional Parliament - and leaving Polish democracy in limbo.
Until now, the terms and conditions applied by the IMF have been accepted virtually without question by Latin American, African, and Eastern European countries eager for assistance. But there is no precedent or benchmark for the wholesale economic reform being attempted in Poland, Russia, and across Eastern Europe. How appropriate are the IMF's terms? Against what costs in political instability and social unrest should they be weighed? The historical circumstances and the dimension of the stakes in Polan d and elsewhere in the region require a new calculus and standards - greater latitude and a longer time horizon, since democracies are not built in a day.
Indeed, the cords of democracy are rapidly fraying as Poland relentlessly continues its steep technical climb, leaving many Poles behind. Polish politicians, new to democratic give and take, have failed to persuade the public that the gains accomplished by shock therapy are worth the price. "In all democratic countries, politicians know they have to obtain political support, that it's not enough simply to be right," says Bronislaw Geremek, senior member of the Democratic Union, the largest party in parli ament.
The IMF should heed this lesson as well. Its conditions defeat the ultimate purposes of IMF shareholders - the development of a stable democracy in Poland. If democracy fails for these reasons, the implications are grave for other debt-laden emerging democracies, such as Hungary, Bulgaria, and the republics of the former Soviet Union. The stakes are too great for Western governments to remain passive: A review of IMF policy is in order because at present it is aggravating the very problem it seeks to res olve.