Objectives, Scope, and Methodology

The objectives of this review were to (1) assess the status and progress of Poland’s economic restructuring in the key areas of macroeconomic stabilization, foreign trade and investment, privatization, and banking, (2) describe impediments to these restructuring efforts, (3) discuss the role donors have played in the transformation process, and (4) identify lessons learned that could be useful to other transition countries. Foreign investment is considered essential to Poland’s economic restructuring efforts. 3.2.) Privatization laws have set the framework for reducing the rest of the state sector, but the pace of privatization for larger state-owned enterprises has been slower than expected, and significant portions of the Polish economy remain in the hands of the government. The United States and other donors are actively supporting Poland’s efforts to restructure enterprises and implement the country’s Mass Privatization Program; however, persistent delays threaten continued donor support. 4.1.) Reforms in Poland’s Banking Sector

Over the last 5 years, Poland has fundamentally reformed its banking sector. Early problems with donor technical assistance have been resolved. The government has recapitalized the country’s state-owned banks and has made significant progress in restructuring their problem loan portfolios. Donors Provide Technical Assistance and Training

According to Polish government officials, some early technical assistance to Poland’s financial sector was of limited value, but many of these problems have been resolved and donors are now providing more useful assistance. Polish officials told us that donor technical assistance and training is now addressing some of the most important needs remaining in this area, such as bank supervision and credit analysis. While Poland continues to face a number of impediments to its restructuring efforts, the country has made significant progress toward economic restructuring in key areas such as macroeconomic stabilization, foreign trade and investment, privatization, and banking. After 5 years of reforms, Poland’s experience in transitioning to a market-oriented system offers some lessons that could be of interest to countries such as Russia, Ukraine, and others not as far along the reform path as Poland. The first is that Poland’s own efforts in coupling tough reform measures with consistent macroeconomic policy over several years were critical to the country’s current economic recovery. Some of the most important factors for improvement in these areas require Polish or donor government actions beyond the confines of assistance. Poland has achieved dramatic increases in its exports to the West, and a number of U.S. and other foreign companies have recently made significant investments in the country. However, Poland continues to run a large trade deficit, trade barriers hamper its exports of certain products to the EU, and a number of obstacles continue to impede foreign investment. Poland’s experience suggests that the ultimate success or failure of reform efforts is far more dependent upon the actions of the transition country than it is upon those of outside participants.
Why GAO Did This Study

GAO reviewed economic restructuring and donor assistance in Poland, focusing on: (1) the status of Poland's economic restructuring efforts in the areas of macroeconomic stabilization, foreign trade and investment, privatization, and banking; (2) impediments to these restructuring efforts; (3) the role donors have played in the transformation process; and (4) lessons learned that could be useful to other transition countries.

What GAO Found

GAO found that: (1) Poland has made major progress in stabilizing and restructuring its economy and has one of Europe's fastest growing economies but is still struggling to overcome relatively high rates of inflation and unemployment; (2) the International Monetary Fund and other major donors played an important role in the early stages of the reform process by requiring Poland to adopt tough macroeconomic reforms in return for receiving substantial donor assistance, but Poland's efforts to implement tough reform measures and apply consistent macroeconomic policy have been critical factors in the country's economic recovery; (3) Poland has achieved significant increases in its exports to the West, a number of foreign companies have made significant investments there; (4) trade barriers hamper Poland's exports of certain products to the European Union, internal obstacles continue to impede foreign investment; (5) donor assistance has had only a marginal impact in facilitating trade and investment, some of the most essential improvements require Polish government or donor actions beyond the confines of assistance programs, such as removing bureaucratic and tax obstacles to foreign investment and making markets more accessible to Polish exports; (6) progress toward privatizing Poland's economy has been mixed, economic reforms have resulted in a rapidly growing private sector, but significant portions of the economy remain in the hands of the government; (7) the United States and other donors are actively supporting Poland's efforts to restructure enterprises and implement its Mass Privatization Program but persistent delays threaten continued donor support; (8) Poland has fundamentally reformed its banking sector, but several major problems remain, including delays in bank privatizations, unclear policies regarding the licensing of foreign banks, and inadequate banking expertise and bank supervision skills; (9) donors provided key financial support for recapitalizing the state-owned banks and restructuring their problem loan portfolios; (10) some problems with donor technical assistance were encountered but have been resolved, donors are now addressing some of the sector's more important remaining needs, such as the need for improved banker training and enhanced bank supervision; (11) while the situations of other transition countries vary greatly, Poland's experience offers lessons that merit consideration by countries such as Russia, Ukraine, and others not as far along the reform path; and (12) the lessons suggest that, while donor assistance can be important in supporting economic restructuring efforts in certain key areas, the ultimate success or failure is more dependent on the actions of the transition country than those of outside participants.