Transcript Shanghai Poverty Conference Scaling Up Poverty Reduction

Shanghai Poverty Conference
Scaling Up Poverty Reduction
Poland
Reform, Economic Performance and
Poverty Developments (1994 – 2002)
Case Study
GDLN session, March 11, 2004
1
A growth-poverty story
Economic growth helps alleviate poverty...
...but how to make growth work for the poor?
Poland’s case

Story 1: 1990-1993
how did Poland kick-start growth after 50 years of communist repression

Story 2: 1994-1998
how did growth became a powerful poverty reduction tool

Story 3: 1999-2002
recent deterioration and its causes

What do we learn from that?
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Poland, 1989

Fall of communism
– first country in the “socialist” block to hold free elections
and introduce democracy

Heritage
– suppressed and devastated economy
– serious microeconomic and macroeconomic imbalances
3
Reform strategy

Crisis

Enthusiasm

A ‘big bang’ strategy
–
–
–
–
political window
of opportunity
Liberalization (prices, interest rates, economic activity)
Stabilization
Hard budget constraints
Institutional reform
4
Results
Inflation in Poland, % y/y
Poland, GDP level, 1989=100
140
70
130
120
60
50
110
40
100
30
90
20
10
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
0
80
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Impact on poverty, inequality and welfare
after an initial increase...
poverty rates decreased spectacularly
from almost 18% in 1994 to almost 12% in 1998
Poland, employment,
Poland, poverty rate,
16.0
mn people
% of population
19
18
0.30
Inequality in Poland,
0.29
Gini coefficient, 1994-1998
0.28
17
15.8
16
15.6
0.26
15
15.4
0.25
14
0.27
0.24
15.2
13
0.23
15.0
12
0.22
14.8
11
10
0.21
14.6
1992
1993
1994
1995
1996
1997
1998
0.20
1992
1993
1994
1995
1996
1997
1998
1994
1995
1996
1997
1998
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Growth
poverty reduction
Key success factors:

employment growth
– Favorable investment climate
– growth of small and medium enterprises
– successful privatization

effective social safety nets
– helped to maintain reform momentum (preventing social protests)
– kept poverty rates in check

social cohesion
– kept the inequality (growth) at a very moderate level
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Recent deterioration 1999 - 2002
...after 1998...


reform effort slows,
investment climate deteriorates:
–

lax fiscal discipline
–

adverse loose-fiscal-tight-money policy mix
Russian crisis
–

no necessary public finance reform
macroeconomic instability
–

bureaucracy burdens economic activity
only initiated a second round of restructuring => lay-offs
problems with the labor market
–
supply side
• badly targeted and abused system of social benefits distorts incentives for work
• skill mismatch produces structural unemployment
–
demand side
• high payroll taxes discourage hiring
8
Macro instability
GDP grow th 1997-2002, %y/y
7
16
(1998-2002)
Inflation 1997-2002, %y/y
14
12
6
5
10
8
4
3
6
4
2
1
0
1997 1998 1999 2000 2001 2002
2
0
1997
1998
1999
2000
2001
2002
Fiscal deficit, % of GDP, 1997-2002
11
Real interest rate 1997-2002, %y/y
0
10
-1
9
-2
-3
8
-4
7
-5
6
-6
5
1997
-7
1998
1999
2000
2001
2002
1997 1998 1999 2000 2001 2002
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Result: Poverty increases
15.0
14.5
17
16
Poverty rate, %
15.5
Employment, mn.
16.0
Employment, mn
Poverty rate, %
14.0
15
14
13
12
1994 1995 1996 1997 1998 1999 2000 2001 2002
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Lessons learned 1: Poland
Catalysts of reform’s success

crisis necessitating comprehensive reforms
– creates political window of opportunity


ownership and commitment to reform, government’s credibility
consistency of the reform framework
– proper policy instruments and sequencing
– adequate incentives on micro side
• competition, freedom of economic activity, contract enforcement, etc.
– stable macroeconomic environment

effective social safety nets
– holding social protests of disadvantaged groups

external catalysts
– “anchors” such as EU accession providing a long-time direction
– other
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Lessons learned 2: Poland
Making growth – poverty link work

employment (preventing a jobless growth)
– labor friendly environment (low payroll taxes, (re)training of
workers, education system reform)

effective social safety nets (again!)
– how to protect those who really need assistance...
– ...while not distorting incentives for work

social cohesion (to keep inequality/poverty in check)
– private safety nets, family ties, civil society, etc.
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