OECD, Paris, 20 November 2009

1. „20 years after” Challenges and Opportunities Reflections on the Economic Transformation of the Czech Republic, Hungary, Polandand the Slovak Republic dr Paweł Wojciechowski Deputy Foreign Minister Ministry of Foreign Affairs of the Republic of Poland OECD, Paris, 20 November 2009

2. Perception of transformation in Visegrad countries is positive Source: „Return to Europe” report by Institute of Public Affairs, in cooperation with Policy Association for an Open Society. Financed by the European Commission and the Visegrad Fund, October 2009

3. Content I. Measuring the success of transformation II. The economic crisis – whatnext? III. Challenges and opportunities

4. I. Measuring the success of transformation

5. How to measure the success of economic transformation? Poland: • Averagesalary: $20 in 1989, $100 in 1990, $1000 in 2009 • GDP increased eight-foldinyears 1989 - 2008 • GDP growth rate about 2 times EU average probablythe only EU member country to experience GDPgrowth in 2009, estimated at 1.2%

6. GDP per capita in 2008 (PPP) as % of EU27 average Source: Eurostat, July 2009

7. Convergence of CEE to WE in GDP per capita Western Europe = 100 * Includes: Albania, Bulgaria, Czech Republic, Slovakia, Poland, Romania, Hungary, former Yugoslavia Source: A. Maddison (2003), „The World Economy: Historical Statistics, Development Centre Studies, OECD, Paris; after: „The Coming Golden Age of New Europe”, M. Piatkowski, Center for European Policy Analysis, October 2009; and Eurostat

8. II. The economic crisis– what next?

9. Reasons for outstanding performance of Polish economy during crisis Relatively small openness of the Polish economy Size of the internal market and strong domestic demand Solid and stable banking sector Floating exchange rate and zloty’s depreciation Counter-crisis measures to mitigate economic slowdown and maintain macroeconomic stability

10. PL: low openness of the economy Source: National Bank of Poland, June 2009

11. PL: high % GDP share of private consumption Source: National Bank of Poland, June 2009

12. PL: stable banking sector Loans and deposits1) in 2006-2009 (PLN bn) • Risk-based capital ratio: 11.2% (Q1 2009) • ROE – net earnings to average core capital: 16.7%, ROA - 1.2% (Q1 2009) • Loans-to-GDP ratio: 48% (2008; total loans to non-financial customers) • Housing loans accounting for 33%of total loans - 16% of GDP (vs. EU average above 50% and ratios in UK, Denmark or Netherlands at ca. 100%) • Loans - claims on non-financial and general government sector. Deposits - liabilities towards non-financial and general government sector Source: Ministry of Finance, Polish Financial Supervision Authority

13. Counter-crisis measures in Poland – as % in GDP 2008 - 2010 Source: OECD, June 2009

14. Volatility of Poland’s GDP growth projections in 2008 and 2009 EC World Bank MerrillLynch IMF OECD

15. III. Challenges and opportunities

16. Major achievements of Polish transformation • but new challenges arise • but awaiting fiscalconsolidation today Fiscal reform 1990-93: GGDeficit from 7.4% to GGSurplus 3.1 % Privatizationafter 1989: 5909 SOEsprivatized as of end of 2008 Lowering long-term implied debt by reforming pension system Decentralization of public finances throughadministrative system reform Succesful introduction of CIT, VAT, PIT • but 2544 companies still to be privatized • but need to continue working on a universal pension system and decrease fiscal burden resulting from early retirement • but still improvement of system’s transparency required • but still an overall reform simplifying the tax system needed

17. Post-crisis challenges for thePolish economy • Deterioration of government finances in 2009-11, with general government deficit forecast to rise • Delayed recovery in 2010 reflecting a lagged response to the effects of the economic downturn • Growing unemployment • EURO accession • Structural reforms: Health, Tax and Social Security

18. Political challenges in making reforms happen • No „easy” and „quick” solutions • Weaker external „accession related” motivation • Smaller „peer” pressure in the midst of the crisis • Political myth that reforms are „costly” Credibility political Authority government Stability administration/ institutions

19. Summary • Transformation accelerated theCEE convergence to West European/EU values and standards of living • Transformation was successful because CEE countries were politically more stable than other EMs (higher level of openness, freedoms and democracy, more homogenous population, higher level of external security) • Willingness to reform has decreased after EU-accession, but will probably increase in the post-crisis period of recovery, because crisis exposed fragilities of CEE, such as pro-cyclical structure of public finances and high reliance on external financing • Paradoxically, crisis may create momentum for reforms in CEE countries and faster real convergence with WE • Need to improve public communication/transparency, economic education and legislative sequencing

20. Thank you for your attention

21. „20 years after” Challenges and Opportunities Reflections on the Economic Transformation of the Czech Republic, Hungary, Polandand the Slovak Republic dr Paweł Wojciechowski Deputy Foreign Minister Ministry of Foreign Affairs of the Republic of Poland OECD, Paris, 20 November 2009