Cablegate: Poland Cautiously Optimistic Ecofin Will Loosen

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A
SUBJECT: Poland Cautiously Optimistic EcoFin Will Loosen
Rules on Pension Fund Accounting at Next Meeting

REFS: A) Warsaw 1095 B) Warsaw 1057

(U) This cable is sensitive, but unclassified, and NOT for
Internet distribution.

1. (U) Polish papers widely reported that EU Finance
Ministers came to no final conclusions at their March 8
EcoFin meeting on loosening the Stability and Growth Pact
procedures for calculating deficits. For Poland, this means
that EcoFin has yet to make a final decision on how to
classify the current surplus in Poland's Open Pension Fund
(OFE's). Poland has been pressing EcoFin hard to include
these surpluses, which the Finance Ministry believes will
allow it to lower its deficit-GDP ratio to 2.2% by 2007.
Polish papers reported that Finance Ministers hope to make a
final decision on March 20. Finance Minister Gronicki and
his deputies have suggested to Polish papers over the last
several days that there is some hope EcoFin will accept an
effective compromise under which countries would still have
to meet the 3% debt-GDP ratio without including OFE
surpluses. However, the excessive deficit procedure would
not be applied if an extra deficit was caused by pension
system reform. Just in case, the Polish Ministry of Finance
announced on March 9 that it will release this week the
expected "plan B" (ref a) to implement fiscal reforms to
reduce spending.

2. (U) Financial markets reacted calmly to the news from
Brussels (as they did to the announcement last week that
elections could be held on June 16, and speculation on March
7-8 that Deputy PM Hausner might resign). The bond market
remained focused on the March 9 twenty-year bond auction
(expected to offer yields of 3.4%). Currency markets
remained very strong, with the Zloty strengthening against
the dollar. Analysts believe that any EU announcement on
March 20 of a compromise would strengthen both Polish bonds
and the Zloty. The Ministry of Finance also announced March
8 that it plans to repay most of its 12.3 billion Euro in
outstanding Paris Club debt by March 31. Finance stated it
already has 9.5 billion Euro in financing in place to fund
this repayment (3 billion from a new Euro bond issue, 500
million from a private placement and 6 billion in bridge
financing). Finance indicated that the remaining repayment
amount could come from the budget (cash reserves are up
significantly in the first two months of the year).

3. (SBU) Comment: The Polish Finance Ministry will continue
to push its case as long as it can. The Government still
very much wants to stay on track to adopt the Euro by 2009,
which would require Poland to meet the Maastricht criteria
in 2007. Finance officials are pleasantly surprised that
markets have largely ignored both comments about the lack of
good news from Brussels on OFE's and the potential for
earlier elections. However, given the sensitivity of their
ongoing financing needs on both international and domestic
markets, they will want to avoid any step which markets
could interpret as backing away from early adoption of the



2005WARSAW01320 - Classification: UNCLASSIFIED

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