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Government Announces Measures to Hold Down Budget Deficit

October 18, 1989

WARSAW, Poland (AP) _ Faced with a mounting budget deficit, the new Solidarity-led government Wednesday announced plans to cut military spending and reduce subsidies to the coal industry.

Deputy Finance Minister Wojciech Misiag said the government also planned to begin selling state treasury bonds which in the future could be converted into ownership shares of state-run industries that become private.

The government is considering shifting resources such as food and medicine currently allocated to the military and interior ministries to the civilian sector. Misiag said direct cuts would also be made in both ministries.

However, the deputy finance minster, speaking at a news conference, said he could not immediately specify the size of the military cutbacks. Last year, the Defense Ministry budget was about $365 million.

Misiag said the changes in coal subsidies alone, effective Nov. 1, could result in an annual savings to the government of up to $571 million. The sales of bonds could raise $380 million.

Because coal subsidies are to be reduced, Misiag said the price of energy, including hot water and central heating, will have to be increased for consumers.

The government has taken no final decisions yet, but Misiag said that the increases in energy prices would be in the range of 140 percent.

Without being specific, Misiag said the level of subsidies to the coal industry until the end of the year would be maintained at a level that covers the cost of coal extraction and allows ″a certain profitability.″

He said radical transformations in the organization of the coal mining sectors were planned in the future.

The budget deficit currently is $2.32 billion and the government said it would reach $4.38 billion by the end of the year if it did nothing to save money and meet the current level of obligations.

The goal of the cutbacks is to reduce the deficit to $2.2 billion by the end of the year.

The Solidarity government inherited the unbalanced budget Sept. 12 when it assumed responsibility as the first non-communist government in the East bloc. It has been seeking ways to control spending ever since.

The budget gap is considered one of the main engines fueling rocketing inflation, which was running at an annual rate of 600 percent in August.

On Monday, in an attempt to slow the flow of money, Parliament passed curbs on automatic wage increases.

The government said some limit on pay increases was needed to reign in soaring inflation.

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