Poland’s Exceptional Case During Financial Crisis

August 19, 2011

Eastern European economies were significantly affected during the financial crisis due to their integration with rest of the world in term of Foreign Direct Investment (FDIs) and Exports. With the exception of Poland all the Eastern Europe(EE) economies recorded negative growth with some of the economies recorded double digit negative growth as well.Poland recorded 1.2 percent of growth in the year 2009.

Polish Financial Supervision Authority played an important role during the crisis period and guided the Polish banks’ in managing risk particularly risks related to investment in derivative contracts and foreign currency related transaction.

Poland did not experience the problem of toxic asset in the year 2008-09 due to Polish banks’ conservative credit policy and good quality of mortgage portfolio. Ludwik Kotecki, the Polish Vice-Minister of Finance reported that bad assets accounted for only 0.2 percent of the total financial sector assets in Poland.

However, it is important to note that the companies involved in foreign exports and transaction in foreign currency options did record losses due to international financial meltdown. Polish Financial Supervision Authority estimated that negative valuation of currency option recorded by businesses exceeded US$ 3.5 billion (PLN 9 billion).

Decrease in international demand also did not markedly impact the Polish economy as Polish exports were 34 percent of GDP in 2009 (compared with exports of rest of the EE economies which was more than 100 percent of GDP).  Central Statistical Office,Warsaw, reported a decline in exports from US$ 171,859.9 million in 2008 to US$ 136,641.3 million in 2009. Interestingly, the share of high-processed electric and machinery goods increased by 2 percent in 2009 to 44.8 percent.

The affect of decrease in exports ofPolandwas offset by performance of Small and Medium Enterprises (SMEs) sector that contributed 46.9 percent in the GDP growth in 2008. Polish Agency for Enterprise Development reported that in 2009 around 4 million businesses were registered, 94 percent of them were micro businesses (employing upto 8 persons), 4.4 percent are small enterprises and 0.8 percent are medium sized while large organisations (employing more than 249 person) accounted for only 0.17 percent. It also revealed that seven out of ten workers were employed in small businesses.

Positive growth of Polish economy during the financial crisis proves that if banks do not make speculative investments, do not investment in risky mortgages and invest in productive sector of the economy, the risk of future crisis could be avoided because investment in productive sectors leads to job creation, increase in purchasing power of households, increase in saving ratio and increase domestic demand and prevent the country from global financial vulnerabilities.