The present crisis on financial markets has no one single cause. Certainly, it is not evidence that capitalism generally does no longer prove its worth. Socialism will not come back. I say this because I notice such – to my mind - wrong- interpretations. It is worth noting that to some degree the present turbulences have been brought about as a result of the improver activities of public and not only private organizations. I belong to those economists who believe that in 2003, the FED (US central bank) lowered the interest rates too much. That contributed to a disproportionate expansion of credit which was seeking easy- and - as it turned out –too risky investment opportunities.

We know from history that from time to time financial markets in the capitalist system fall into trouble – this has been happening since the 18th century. Not every crisis was bound to happen. Probably the present one, for instance, must not have taken place. But although attempts may be made to lessen any such probability, there is no guarantee that crises will never occur. I think that one of the lessons to be learned from the present crisis is to avoid an excessively easy monetary policy which leads, for instance, to an excessive increase of real property prices. It has become clear that certain modern financial techniques went too far, that some private institutions ignored the risk management system. Presently, these are all subjects of debate and appropriate conclusions will have to be drawn.

What can be done in Poland to make our system more secure? It must be said first that the financial system in Poland is entirely different from that in the United States. Dominating in our country are classic commercial banks. Fortunately, the share on the market of those institutions and those instruments which turned out be burdened with excessive risk has not been great, so I don’t see any reasons for anxiety. Moreover- it follows from available information that our banks and other institutions have not invested in the United States, have not made bad investments. It is very important for the particular banks to have efficient risk management systems and that an efficient bank supervision authority is in place to diagnose the situation in time. I’ll give an example – three years ago our bank supervision authority introduced the so-called ”S regulation” to fend of an excessive increase of housing loans. That decision met with criticism at the time but it is now considered as a right move.

What happened to the average Polish man-in-the-street who does not hold any shares and does not play on the stock exchange? Directly - nothing so far. We would be affected in some way if our biggest trade partners – the EU countries, and in particular Germany, recorded a decline in their economic growth. That is but possible. In such an event, our economic development conditions would become more difficult. What is our best response to that? Deeper reforms of our country, healing public finances etc.

Does the state of the economy allow for peace of mind? Even in the United States, where most is being spoken about recession, there is no recession yet. In Q2 this year, the US economy registered a growth of more than 3%. In case of Poland, our prospects will be the better the more reforms will be carried out. In part, these prospects depend on how fast the euro zone will be developing and here we have to watch the economy of the biggest countries. But we have no influence on that.

But we do have an influence on what is happening in our country. I think that the draft budget for next year is a good project for development considering the limitations within which the government is operating, because we have a lower deficit – we are living less on credit , we have smaller taxes – which means that expenditures had to be reduced. That augurs a good beginning for the reform of public finances.



(Based on an interview with Professor Balcerowicz broadcast by TVN24 in ‘Fakty po faktach’ on September 29, 2008.)

* The Civil Development Forum Foundation (Forum Obywatelskiego Rozwoju) reported that Professor Leszek Balcerowicz has been appointed the new vice-president of the International Atlantic Economic Society (IAES). Professor Balcerowicz began his term of office on 12 October 2008. The IAES was set up in 1973 to facilitate communication among economists globally and to disseminate results of research carried out throughout the world.