Pension Watch

 The Polish government’s plan to modify the retirement system has set off a bitter fight, largely among people who would otherwise be backing the center-right administration. 

Finance minister Jacek Rostowski has been attacking Leszek Balcerowicz, the capitalist architect of Poland's post-communist economic reforms, while relations between Prime Minister Donald Tusk and Jerzy Buzek, a former premier and now European MP, have gone south. 

The reason is that Tusk is planning on undoing some of the pension system reforms instituted in 1999. Under that scheme, part of workers' obligatory social security deductions were funneled into funds managed by private firms – the so-called second pillar called OFE. But starting next year the funds will have to hand over their holdings of government bonds – just over half of the assets they manage. 

Workers will be forced to decide whether to keep part of the pensions with the funds or to switch completely to the state-run system called ZUS. The government insists that pensioners will not be harmed in the shift from having their assets in state bonds to relying on government promises to pay their pensions. 

If  implemented the plan will see Poland's public debt drop by 8% to about 47% of GDP – crucial as public debt was brushing against a legal threshold of 55% of GDP. The government also gains some much-needed fiscal space that could see a boost in investments and subsequently faster growth. 

However, many analysts foresee funds shriveling and dying over the next few years, and equity investors are upset because the Warsaw Stock Exchange will lose the so-called “pension premium” that had boosted stock prices on the WSE so handsomely in the past decade.


 Moody's Investors Service, the rating agency said, "Although these changes will hurt domestic capital market liquidity and increase the government’s pension-related contingent liabilities, government finances will benefit in the short-term.”

 
James Roaf, the International Monetary Fund's (IMF) representative for Central and Eastern Europe, told Reuters: “We are not taking a position whether this [OFE reform] is the right thing to do or not. But we certainly do not see a concern.”

Leszek Miller, leader of the ex-communist Democratic Left Alliance, several of whose members helped create the OFE system, now calls it a “devilish scheme”, siding with center-right Tusk. 

That has left a group of commentators and economists, largely gathered around Balcerowicz, to take the lead in attacking the government for gutting the OFE system.

Balcerowicz, never a man to shy away from a fight, has led the charge. He accuses Rostowski of “an attack on the savings of Poles. I've known him for so many years, but I never thought he'd be capable of that.” He has said that this move is storing up long-term trouble for Poland's public finances, comparing Poland's prospects to those of Greece.

Balcerowicz has received support from an unexpected quarter. Buzek, a member of Tusk's own Civic Platform party as well as one of the country's most popular politicians, has denounced the changes to the OFE system, one of the signature achievements of his 1997-2001 term as prime minister. “The government's OFE proposal does not guarantee a long-term improvement in public finances nor the economic security of the insured. It is a proposal that is harmful to the Polish economy,” he wrote in a public appeal.




Tusk responded by saying that Buzek and Balcerowicz were being swayed by their emotional attachment to the OFE system as they were in part its creators.


Meanwhile, emotional Polish workers attach Tusk's face to a drum head and beat him silly. I guess in a Catholic country folks believe only God Giveth and Taketh away.