Authorities
in Poland last week announced the confiscation of bonds held in private
pension funds without compensation, implausibly claiming that the move
did not amount to a nationalization of the assets. While Polish
officials engaged in rhetorical games and semantics to conceal the
severity of the “transfer” of privately owned assets to a “state pension
vehicle” known as ZUS, the controversial move is still fueling
confusion and fierce criticism from analysts and economists. Some
experts fear other governments may follow suit.
The private
pension funds, many managed by prominent foreign firms, declared the
scheme unconstitutional because private property was being seized
without compensation. Some even suggested the private pension system may
shut down entirely. While authorities have not yet confiscated equities
from the private pensions — to which Polish workers have been obligated
to contribute — officials defended the bond confiscations by arguing
that they helped avoid even more radical options, such as seizing
everything outright, including company stocks held by the funds.
Prime
Minister Donald Tusk announced that future enrollees in the mandatory
pension scheme would no longer be required to pay into the private
element, known as OFE, of the hybrid government-private system. Analysts
said that could result in even fewer resources held in the private
funds, which currently hold assets worth about 20 percent of GDP and
represent the largest investors in the Polish stock market.
Tusk,
however, tried to paint the confiscation as a positive development. “The
system has turned out to be built in part on rising public debt and
turned out to be a very costly system," he said at a press conference,
drawing swift criticism. “We believe that, apart from the positive
consequence of this decision for public debt, pensions will also be
safer.” Of course, seizing private wealth may reduce government debt for
the time being, but it was not clear how “safety” was being improved.
Critics
lambasted Tusk’s statement from all angles, pointing out that
confiscating private assets does not make them any safer and that, in
essence, the government simply had too much outstanding debt to be able
to issue even more debt. Some analysts also suggested the move was
actually a half-baked ploy to build political support with voters by
increasing its ability to borrow and spend more money on government
programs.
Indeed, among the primary official justifications for
the scheme was a bid to reduce government debt by about eight percent of
the country’s GDP, according to estimates cited by Polish Finance
Minister Jacek Rostowski. With the national government already
officially owing more than 50 percent of GDP, above a threshold that
makes it more difficult to borrow, the transfer of assets to government
balance sheets will allow authorities to continue creating more debt and
borrowing more money — a move celebrated, unsurprisingly, by Poland’s
central bankers.
"Changes to the pension system are positive and
create a chance for an impulse, for a growth engine, in the form of
investments that are so important,” Polish central bank policymaker Anna
Zielinska-Glebocka
claimed
in a statement to Reuters, alleging that the post-announcement decline
in the value of its fiat currency, the zloty (shown), was only
temporary. “This will be helping the economy in 2014, although mostly in
2015…. Investments and consumption demand are key for the Polish
economy. A healthy economy must be based on domestic demand, not just
exports. From this perspective changes to pensions are a good move.”
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Polish central banker says pension changes can boost economy
By Karolina Slowikowska and Pawel Florkiewicz
WARSAW |
Sat Sep 7, 2013 3:10am EDT
(Reuters)
- A Polish central bank policymaker has defended the government's
decision to transfer more than half of private pension fund assets to
the state, saying the move would give the economy a vital investment
boost.
Anna Zielinska-Glebocka told Reuters Poland would not be
able to reach potential growth levels of 3.0-4.0 percent, up from 0.8
percent, unless domestic demand reinforced the current main driver,
exports.
"Changes to the pension system are positive and create a
chance for an impulse, for a growth engine, in the form of investments
that are so important. This will be helping the economy in 2014,
although mostly in 2015," Zielinska-Glebocka said in comments made on
Thursday and authorized for release on Saturday.
"Investments and
consumption demand are key for the Polish economy. A healthy economy
must be based on domestic demand, not just exports. From this
perspective changes to pensions are a good move," she said.
Poland,
the largest of central Europe's emerging economies, said on Wednesday
it would transfer many of the assets held by private pension funds,
including treasury bonds, to a state vehicle. This means the government
can book those assets on the state balance sheet to offset public debt,
giving it more scope to borrow and spend.
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breakingtheset
