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Belka plays up Poland's 'green island' status

PR dla Zagranicy
Jo Harper 22.07.2015 14:16
Central bank governor Marek Belka told MPs on Wednesday that the złoty is in "good shape", with inflation low and "a strong banking system".
Central bank chief Marek Belka delivers his annual round up to the Sejm on 22 July. Photo: PAP/Tomasz GzellCentral bank chief Marek Belka delivers his annual round up to the Sejm on 22 July. Photo: PAP/Tomasz Gzell

In his annual update to the Sejm, the lower house of parliament, Belka said that Poland is still "a green island" of growth in Europe.

Growth this year is projected at 3.6 percent of GDP, with Poland the only EU member to note uninterrupted growth throughout the financial crisis of 2008 and its aftermath.

"I know 'green island' is a concept that can be ridiculed. I do not ridicule it. It is a great success," Belka said.

He added that ongoing political disputes over holders of mortgages denominated in Swiss francs was “not a macroeconomic headache, but a political controversy raised ahead of elections in October.”

In the run-up to parliamentary elections to be held on 25 October, the ruling Civic Platform (PO) trails opposition Law and Justice (PiS) by about 10 percentage points in opinion polls.

PiS has said it will impose higher taxes on banks and increase spending. Poland has seen falling prices for the last few months, with interest rates at record lows.

"The fact that Poland did not fall into recession has allowed the National Bank of Poland to avoid a departure from conventional policies [...] It seems to me that the interest rate policy has been very successful. Very successful," Belka added.

“Inflation is at a level that is, one can say, surprisingly low, while faith in the złoty
is high and [we have] a banking system that would be a shame to damage,” Belka said.

A currency issue

About half a million Poles took out Swiss franc-denominated mortgages to benefit from lower interest rates, and later their loans became much more expensive after the franc appreciated earlier this year.

PiS said in June it wants to introduce special taxes on banks and supermarkets if it comes to power. The party wants to introduce a 0.39 percent tax on bank assets to bring in PLN 5 billion a year. The flat levy would hit the smallest and least profitable banks hardest.

Two-thirds of banks in Poland and most of its large retail networks are foreign-owned. All companies pay a flat income tax rate of 19 percent. Banks also pay a levy for a banking guarantee fund.

A proposal made earlier in July by PO on partial conversion of mortgages denominated in Swiss francs could see Polish banks lose USD 2.5 billion, Fitch Ratings said. PO has proposed legislation that would allow 20 percent of holders of Swiss franc mortgages to convert them into złoty at the current rate. Lenders would pay half the conversion cost.

PiS has proposed an alternative plan with full conversion of foreign currency loans at historical exchange rates, with the financial regulator KNF saying last week its cost could exceed PLN 40 billion and require three banks to raise capital to avoid insolvency.

In June 2014, the weekly magazine Wprost published transcripts of secret recordings of Belka discussing with interior minister Bartłomiej Sienkiewicz a monetary-fiscal trade off that would be beneficial for PO in the run-up to the 2015 elections.

Belka’s six-year term is due to end in June 2016. (jh)

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