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New Government Outlines Economic Moves

September 28, 1989

WARSAW, Poland (AP) _ Prime Minister Tadeusz Mazowiecki’s 16-day-old government has outlined its economic battle plan, focusing on out-of-control state finances that have unleashed an inflation rate of 50 percent a month.

The government’s plan, however, envisions quickly raising prices even higher in order to cut state subsidies on food and thereby reduce the government budget deficit.

An adviser to Mazowiecki, Waldemar Kuczynski, went on television Wednesday night to appeal for public patience, likening the premier to a driver who has taken over the steering wheel in the middle of a skid.

″Every driver knows that leading a vehicle out of a skid requires a very delicate and difficult maneuver,″ he said.

The government’s top economic officials outlined the plan Wednesday in Washington to the International Monetary Fund. They plan to submit a final economic program by Nov. 1 that would let Poland get a standby credit agreement from the IMF by early 1990.

An IMF standby agreement - in which Poland would agree to a strict reform program in exchange for new credits - is considered a prerequisite to any significant new loans from other lenders or rescheduling of its crushing $39 billion foreign debt.

″I hope that soon we will receive a standby credit,″ said Wladyslaw Baka, head of the National Bank of Poland, in an interview with the state PAP news agency. ″Within two or three weeks an IMF mission will arrive in Poland to conclude the talks.″

Deputy Prime Minister Leszek Balcerowicz met with experts from the Group of Seven most industrialized nations and requested a $1 billion loan to support the zloty while Poland introduces a realistic exchange rate between the dollar and the zloty.

He also sought an emergency loan of $500 million for imports of food, medicine and fuel.

According to the outline of the ″stabilization plan″ announced by Balcerowicz and reported in the Polish press Thursday, the government plans in the coming months include:

- Cutting the state budget deficit, now estimated at $3.4 billion.

- Limiting borrowing by creating market-based interest rates.

- Stopping or lowering most subsidies for production and lifting most state price controls.

- Raising domestic prices for raw materials, such as coal and lumber, to bring them into line with world prices.

- Limiting the growth of wages in excess of what the economy can afford.

In addition, under the heading of ″structural adjustments,″ the government plans:

- Eliminating administrative and fiscal barriers to privatizing state- enterprises, which account for 93 percent of the non-agricultural economy.

- Privatizing a great number of state-owned institutions.

- Tightening fiscal discipline of state-owned enterprises through reduced credit, lower state subsidies and other means.

Inflation has climbed alarmingly since the outgoing Communist government of Prime Minister Mieczyslaw F. Rakowski released controls of food prices Aug. 1.

Meat prices alone were up 680 percent in August, according to one Western economic specialist, and the respected economic newspaper Zycie Gospardarcze estimated inflation at 50 percent in August.

Inflation at 50 percent a month is considered the threshhold of ″hyperinflation,″ and would translate into an annual inflation rate of more than 600 percent.

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