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Poland The Shock Strategy
The gravity of the economic crisis and the immediate
threat
of hyperinflation caused the Mazowiecki government to
choose a
"shock strategy." Called the Balcerowicz Plan after its
chief
architect, Minister of Finance Leszek Balcerowicz, the
program
received approval and financial support from the
International
Monetary Fund
(IMF--see Glossary).
On January 1, 1990, a
program
for marketization was introduced together with harsh
stabilization measures, a restructuring program, and a
social
program to protect the poorest members of the society. The
program included liberalizing controls on almost all
prices,
eliminating most subsidies, and abolishing administrative
allocation of resources in favor of trade, free
establishment of
private businesses, liberalization of the system of
international
economic relations, and introduction of internal currency
convertibility with a currency devaluation of 32 percent.
At the same time, a very strict income policy was
introduced.
Although prices were allowed to rise suddenly to equalize
supply
and demand, nominal wage increases were limited to a
fraction of
the overall price increase of the previous month. Very
heavy tax
penalties were imposed on state enterprises whose wages
exceeded
these ceilings. This policy reduced real incomes and the
real
value of accumulated balances that, combined with
inadequate
supplies of goods and services, had caused prolonged
inflationary
pressure. Together with the lifting of restrictions on
private
economic activity, import policy reform and internal
convertibility, the wage-and-price policy reestablished
market
equilibrium.
Data as of October 1992
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