WORLD

A PAINFUL MEDICINE

AUSTERITY MEASURES HAVE PUSHED ORDINARY POLES INTO THE FRONT LINES OF AN ECONOMIC WAR

ANDREW PHILLIPS February 12 1990
WORLD

A PAINFUL MEDICINE

AUSTERITY MEASURES HAVE PUSHED ORDINARY POLES INTO THE FRONT LINES OF AN ECONOMIC WAR

ANDREW PHILLIPS February 12 1990

A PAINFUL MEDICINE

AUSTERITY MEASURES HAVE PUSHED ORDINARY POLES INTO THE FRONT LINES OF AN ECONOMIC WAR

WORLD

Inside the dingy Golden Hen Milk Bar on Constitution Square in central Warsaw, elderly men and women in lumpy overcoats filed silently past a counter. Sweating restaurant workers plunked bowls of stew and mugs of tea on their battered tin trays. But instead of handing over money, most of the customers produced a book of tickets issued by the Polish Red Cross entitling them to a free meal. When the Golden Hen began serving free food last September, only 15 or 20 people came each day. But by last week, about 500 a day were being served, and manager Henryka Aftanska said that the demand keeps growing. “We have to keep going 12 or 14 hours a day to keep up,” she said. “The need is so great.” The elderly customers at the Golden Hen were driven to accept handouts by raging inflation that raised prices by an average 50 per cent in January alone, virtually wiping out their savings and reducing the value of their pensions to the equivalent of just a few dollars a month. The sharp price hikes, which took effect on Jan. 1, were part of the Solidarity-led government’s bold program to transform Poland’s creaking socialist system into a free-market economy in one giant leap. The government freed almost all prices from controls, cut most subsidies to enterprises and sharply devalued the Polish currency, the zloty.

At the same time, the parliament passed two dozen laws that set a timetable for privatizing many state enterprises, established a system of unemployment insurance and provided a framework for taking failing businesses into bankruptcy. The program, worked out in negotiations with the Washington-based International Monetary Fund, will also release about $3.2 billion worth of Western grants and credits for Poland. It is by far the most ambitious economic program in the once Communist-dominated countries of Eastern Europe—and, depending on its success, may be a signpost or a warning for the others.

Jeffrey Sachs, a Harvard University professor who advised Poland’s gov-

ernment on the plan, has labelled it “shock therapy.”

For many Poles, the first effects of the program were indeed a shock. After their New Year’s celebrations, they woke up to find that the prices of dozens of basic goods had skyrocketed overnight. Bus and tram tickets doubled in price, electricity went up by 300 per cent, coal

jumped by 600 per cent, and bread prices quadrupled.

Lineups at food shops, for many years the country’s most notorious economic cliché, virtually disappeared as many consumers cut back their purchases. Even Warsaw’s streets became less crowded, and its acrid air somewhat less polluted: sharply higher gasoline prices prompted motorists to use their cars less. Thousands of others, no longer able to afford insurance or auto registration fees, simply gave up driving.

For the Solidarity-led government of Prime Minister Tadeusz Mazowiecki, which took office last August, implementing such a harsh program presented obvious ironies. As a trade union movement in the early 1980s, Solidarity was formed first of all to protect its members’ living standards. But the austerity plan drawn up by Finance Minister Leszek Balcerowicz pushed ordinary Poles into the front lines of their government’s economic war. Balcerowicz himself acknowledged that the plan will cut real wages by at least 20 per cent this year and throw about 400,000 out of work as unprofitable companies go bankrupt.

Such action would almost certainly have sparked massive labor unrest if it had been taken by the previous Communist government.

But one month into the new austerity plan, Poles remain massively behind the Mazowiecki government. Despite some unrest among miners and farmers, opinion surveys show that about 70 per cent of voters back the program—even though they acknowledge that it will probably hurt them. “Frankly, I am surprised that the support remains so strong,” said Piotr Nowina-Konopka, a former Solidarity union leader who is now a minister of state in the president’s office. He added: “Poles understand very well that this will cost them a lot. There is simply no one else to pay for the past 40 years of mistakes and waste.”

In part, Mazowiecki’s government has benefited from the absence of serious rivals for political support. That was underlined last week

when the Polish United Workers’ Party (PUWP), the old Communist party that ruled for four decades, voted itself out of existence. During a special congress in Warsaw’s Palace of Culture, a Stalin-era edifice that for many Poles symbolizes the worst aspects of a past they are trying to escape, the overwhelming majority of the 1,600 delegates voted to dissolve the PUWP after their leaders told them that the party had been responsible for political crimes and economic mismanagement. The delegates then promptly split into two new parties—a majority group calling itself the Social Democracy of the Republic of Poland, and the smaller Social Democratic Union.

It was the second time that an Eastern European Communist party had dissolved itself. Last October, Hungarian Communists renamed themselves the Hungarian Socialist Party in a similar attempt to put the sins of the past behind them. That has not brought them much new support, and it appeared that their Polish counterparts also faced an uphill battle. In recent weeks, angry demonstrators have broken into party offices around the country, demanding that buildings and other assets, which the Communists have acquired illegally since the late 1940s, be turned over to public use. After members of the majority Social Democracy of the Republic of Poland group voted to keep control of the old Communist party’s assets pending a government review of

what to do with them, Solidarity leader Lech Walesa accused them of “political arrogance.” The deep public anger against the Communists and their old regime has given the Solidarity government an opportunity to introduce tough measures that would amount to political suicide in most countries. But in Poland, where the annual inflation rate topped 600 per cent by the end of 1989, most voters were desperate for a solution to the crisis.

Wealthier Poles, especially those with hardcurrency bank accounts, could protect themselves from the worst effects. But those whose economic position was already precarious, including the elderly pensioners at the Golden Hen Milk Bar, found that the little security they enjoyed under the old system was swept away. A typical pension in Poland is 200,000 zlotys (barely $25) a month—and many people receive less than that. “We get all types of people, including retired professors from the university,” said Aftanska, the restaurant manager. “Some of them worked for 40 years and are left with literally nothing. They are very ashamed to be in this situation, and they are very bitter as well. They don’t even know where to unload their bitterness.”

Those in charge of handing out social aid say that they have never experienced such demand for help. The Red Cross set up its first soup kitchen in Warsaw last September. It now operates 477 kitchens around the country,

serving 25,000 free meals a day. Alicja Lison, who runs Red Cross social assistance programs in Warsaw, said that many sources of help have been withdrawn. State-owned enterprises, forced under the government’s economic plan to be profitable or face bankruptcy, have stopped donating money to social funds. And the government has halted the practice of using hard-currency reserves to send sick children to foreign countries for operations that they could not get in Poland. “We are facing a much harsher social climate,” said Lison.

“For now, people just clench their teeth and endure it. But I fear the time will come soon when they will not take it anymore.”

It is not only those who have been forced to seek social assistance who are feeling the pinch. For many mid| dle-class Poles, too, things have selo dom been worse. In her four-room £ apartment in a high-rise building in u southeastern Warsaw, Jadwiga Senko, a 42-year-old university librarian, told how she has had to cut her family’s spending to get through the past two months. On Christmas Eve, instead of eating the traditional Polish meal of carp, they made do with a cheaper dinner of herring. And instead of inviting a dozen friends to share their food, they ate alone and limited themselves to what she called “symbolic” Christmas gifts. Still, Senko proudly displayed receipts for her donations of 200,000 zlotys, or about $25, to funds set up by the government to help ease the impact of the economic plan. Others have donated jewelry, antiques and even fur coats. “The most important thing is that it is our government,” said Senko. “We never felt that before.”

Many Solidarity leaders maintain that they

can count on that kind of trust only until spring. “The most dangerous point will come by May,” said Andrzej Stelmachowski, the speaker of Poland’s Senate and a veteran Solidarity figure. “Poles still have their roots in the countryside where the tradition is that the winter is hard. But in the spring, they will be demanding something new, and we must have concrete results to show or face trouble.” Under the government’s economic plan, those early results will come in the fight against hyperinflation. Officials predict that inflation will be running at a relatively modest five per cent a month by April, when Solidarity must face its first public test in nationwide local elections.

But by then, the officials admit, many enter-

prises will have been forced to lay off workers. The Mazowiecki government has vowed not to rescue state-owned companies that cannot survive in the free market. If it sticks to that pledge, say World Bank economists, as many as one million Poles could be unemployed by the end of 1990. The government’s bet is that private entrepreneurs will step in to start new firms and hire many of those who lose their jobs. If that does not happen fast enough, the onetime Solidarity activists now running Poland may get a taste of the type of unrest that doomed earlier attempts at overhauling the economy.

ANDREW PHILLIPS in Warsaw