In the reform programs of the early 1990s, major restructuring of Poland's financial infrastructure was a top priority in order to achieve more efficient movement of money through the domestic economy and to provide a secure environment for the foreign investment that was expected to carry Poland through its postcommunist economic slump.

The State Banking System

A highly concentrated state banking monopoly was a typical feature of East European economies in the communist period. In Poland the monopoly was composed of the National Bank of Poland (Narodowy Bank Polski--NBP), which had replaced the prewar Western-style Bank of Poland in 1945; the Commercial Bank (Bank Handlowy--BH), which had a monopoly in financing foreign trade; the Polish Savings Office, which controlled transactions with private international transfers; and about 1,600 small regional and specialized cooperative banks that jointly formed the Bank of Food Economy. To encourage private savings, a specialized savings bank, the General Savings Office, was established in 1987 by detaching designated departments from the NBP. In 1988 nine state-owned commercial banks were formed from regional branches of the NBP, and a state Export Development Bank was established.

Legislation was introduced in 1989 to allow private individuals, both Poles and foreigners, to form banks as limited stock companies. Between 1989 and 1991, a total of seventy licenses was issued to private banks, including seven banks funded by foreign capital, two cooperative banks, and three branches of foreign banks. In October 1991, privatization of the Export Development Bank began, and the nine state commercial banks (which until that time still operated as they had under the old NBP) were transformed into limited stock companies. The State Treasury owned and operated the banks for an intermediate period while they prepared for privatization.

Banking Reform, 1990-92

A fundamental reorganization of the banking sector took place between 1990 and 1992. The NBP lost all its central planning functions, including holding the accounts of state enterprises, making transfers among them, crediting their operations, and exercising financial control of their activities. The NBP thus became only a central bank, and state enterprises competed with other businesses for the scarce credits available from commercial banks. In its new form, the NBP exercised a considerable degree of autonomy in monetary policy and performed the same functions as the central banks in West European countries or the Federal Reserve System in the United States.

Nevertheless, the entire Polish banking system remained inefficient in the early 1990s because of backward banking technology and a very serious shortage of trained personnel in all branches. Considerable technical and financial aid from the World Bank, the IMF, and the central banks of Western countries was expected to improve the situation eventually.

Insurance and Securities Reform

In July 1990, the insurance system was reorganized. Abolished were the monopoly State Insurance Company, which had been responsible for all domestic insurance, and the Insurance and Reinsurance Company, which had been responsible for all foreign transactions. Domestic and foreign-owned private limited stock and mutual insurance companies were then allowed to begin operating. At the same time, procedures were introduced to maintain adequate financial reserves and legal protection for people and assets insured. At the end of 1991, twenty-two insurance companies were operating in Poland, six of which were foreign-owned.

In early 1991, important legislation was introduced to regulate securities transactions and establish a stock exchange in Warsaw. At the same time, a securities commission was formed for consumer protection. A year later, the shares of eleven Polish companies were being traded weekly on the new exchange. Restructuring the financial market not only was necessary for increasing the overall efficiency of the economy and accelerating privatization but also was a precondition for the rapid influx of Western capital critical to economic development.

New Financial Institutions

Several specialized financial institutions were established with direct or indirect help from the Polish government, international organizations, and foreign experts to facilitate economic restructuring. They include the Agency for Industrial Development, the Polish Development Bank, the Export Finance Insurance Corporation, the Enterprise Consulting Foundation, the Employment Fund, and a growing number of consulting firms. These institutions are expected to provide credit guarantees, help to establish new businesses, purchase a certain quantity of shares of the companies being converted to private enterprise, and facilitate leasing, financial restructuring, and bankruptcy processes. Some of the new institutions received designated funds from international financial organizations. The European Bank for Reconstruction and Development (EBRD) established a Joint Investment Fund in cooperation with the Polish Development Bank.

Foreign Loans and Money Supply

In April 1991, representatives of the seventeen major West European creditor governments collectively known as the Paris Club agreed to a two-phase, 50 percent reduction of Poland's debt on government loans. The United States made a similar reduction of 70 percent. Terms for servicing of the debt were rearranged, with payments to escalate gradually from US$0.5 billion in 1992-93 to US$1.5 billion later in the decade. Negotiations with Western commercial banks, the so-called London Club, continued in 1992. The hard currency debt was reduced from US$48.5 billion at the end of 1990 to US$44.3 billion in August 1991, partly because of the debt relief of US$1.6 billion effected by the United States and partly as the revaluation of the dollar against other Western currencies reduced the debt in those currencies.

In 1991 the total money supply in Poland, counting both zlotys and convertible currency, increased by 83.9 trillion zlotys. Of this amount, over 90 percent belonged to private individuals or private enterprises, and about 6 percent belonged to state enterprises. The increase in the money supply came mainly from higher bank debts owed by economic units and the government. A midyear alteration of the exchange rate between the zloty and the United States dollar also played a major role. Foreign currency held in Polish bank accounts increased by 13.2 percent in 1991 because more accounts were opened in 1991. Although money in personal savings accounts grew by 250 percent in 1991, money held by enterprises in bank accounts grew by only 12.4 percent in the same period. Estimated total foreign currency resources declined by over 3 percent in 1991 to US$5.3 billion.

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Source: U.S. Library of Congress