Debt Control Polish Style

Poland, the only EU country not suffering a down year during the economic crisis cut its public debt on Monday from 58% to below 50% of gross domestic product  by initiating a controversial change to its pension system that saw a transfer of sovereign bonds from private companies to the state.

The Polish government pushed for pension reform last year. It argued that the system introduced in 1999, in which private companies receive taxpayer money and invest it in stocks and bonds, was too expensive to maintain amid the global economic turmoil and has led to excessive buildup of public debt, although Poland's debt is half as much as the U.S. or EU countries as a percentage of GDP.

Earlier, Hungary, Slovakia and other Central EU countries have scaled back contributions feeding the private element of their pension systems.

The decision to strip the Polish pension funds of more than a half of their assets has been criticized by economists working for many of the fund companies owned by international financial institutions.

The private pension funds introduction in 1999 were supposed to complement the pay-as-you-go system, but are now seen as unsustainable in the long term due to an aging society.

Sending government money to the privately managed funds, Poland would have had to issue tons new debt.