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Balcerowicz Plan
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Balcerowicz Plan
The Balcerowicz Plan (Polish: plan Balcerowicza), also termed "Shock Therapy", was a method for rapidly transitioning from an economy based on state ownership and central planning, to a capitalist market economy. Named after the Polish minister and economist Leszek Balcerowicz, the free-market economic reforms were adopted in Poland in 1989.
A group of experts, which they formed together with Balcerowicz, including Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg, in September 1989 created a reform plan based on an earlier idea of Jeffrey Sachs, and on 6 October, an outline of this plan was presented to the public by Balcerowicz at a press conference broadcast by TVP. There was a 3 year drop in output. Similar reforms were made in a number of countries. The plan has resulted in reduced inflation and budget deficit, while simultaneously increasing unemployment and worsening the financial situation of the poorest members of society.
The unofficial talks (Negotiations at Magdalenka) at Magdalenka and then the Polish Round Table talks of 1989 allowed for a peaceful transition of power to the democratically elected government. Initially, it was agreed that the government would be formed by Tadeusz Mazowiecki and the opposition, while the seat of the president of Poland would be given to former Polish United Workers' Party leader Gen. Wojciech Jaruzelski.
The state of Poland's economy as of 1989 was dire. After failed social and economic reforms of 1970s the communist government had secretly declared its insolvency to Western creditors in 1981. Food price increases introduced first in 1970s to preserve the basic cash flow led to social unrest and formation of mass Solidarity social change movement which, by early 1980s had over 10 million members. Desperate attempts to maintain the Marxian-style economy and internal opposition in the Party to any economic reforms that would break this status quo led to the introduction of martial law (1981-83) which further hindered economic growth and resulted in international sanctions. In 1982 the government imposed further large (up to 100%) price increases and significantly extended rationing of food and other basic goods.
In the late 1980s, after 45 years of communist rule, Poland's economy was ineffective, paralyzed by central planning and discontent of poorly paid workers. The inflation rate had reached 639.6% and was constantly rising. Foreign debt reached $42 billion. The majority of state-owned monopolies and holdings were largely ineffective and completely obsolete in terms of technology. Although there was practically no unemployment in Poland, wages were low and the shortage economy led to lack of even the most basic foodstuffs in the shops.
In September 1989, a commission of experts was formed under the presidency of Leszek Balcerowicz, Poland's leading economist,[citation needed] Minister of Finance and deputy Premier of Poland. Among the members of the commission were Jeffrey Sachs, Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg. The commission prepared a plan of extensive reforms that were to enable fast transformation of Poland's economy from "obsolete and ineffective central planning" to capitalism, as adopted by the states of Western Europe and America.
On 6 October, the program was presented on public television and in December the Sejm passed a packet of 10 acts, all of which were signed by the president on 31 December 1989. These were:[citation needed]
In late December the plan was approved by the International Monetary Fund. The IMF's support was especially important because the national debt in various foreign banks and governments reached an amount of US$42.3 billion (64,8% of GDP) in 1989. The IMF granted Poland a stabilization fund of US$1 billion and an additional stand-by credit of US$720 million. Following this, the World Bank granted Poland additional credits for modernization of exports of Polish goods and food products. Many governments followed and paid off some of the former Communist debt (about 50% of the sum of debt capital and all cumulated interest rates to 2001).
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Balcerowicz Plan
The Balcerowicz Plan (Polish: plan Balcerowicza), also termed "Shock Therapy", was a method for rapidly transitioning from an economy based on state ownership and central planning, to a capitalist market economy. Named after the Polish minister and economist Leszek Balcerowicz, the free-market economic reforms were adopted in Poland in 1989.
A group of experts, which they formed together with Balcerowicz, including Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg, in September 1989 created a reform plan based on an earlier idea of Jeffrey Sachs, and on 6 October, an outline of this plan was presented to the public by Balcerowicz at a press conference broadcast by TVP. There was a 3 year drop in output. Similar reforms were made in a number of countries. The plan has resulted in reduced inflation and budget deficit, while simultaneously increasing unemployment and worsening the financial situation of the poorest members of society.
The unofficial talks (Negotiations at Magdalenka) at Magdalenka and then the Polish Round Table talks of 1989 allowed for a peaceful transition of power to the democratically elected government. Initially, it was agreed that the government would be formed by Tadeusz Mazowiecki and the opposition, while the seat of the president of Poland would be given to former Polish United Workers' Party leader Gen. Wojciech Jaruzelski.
The state of Poland's economy as of 1989 was dire. After failed social and economic reforms of 1970s the communist government had secretly declared its insolvency to Western creditors in 1981. Food price increases introduced first in 1970s to preserve the basic cash flow led to social unrest and formation of mass Solidarity social change movement which, by early 1980s had over 10 million members. Desperate attempts to maintain the Marxian-style economy and internal opposition in the Party to any economic reforms that would break this status quo led to the introduction of martial law (1981-83) which further hindered economic growth and resulted in international sanctions. In 1982 the government imposed further large (up to 100%) price increases and significantly extended rationing of food and other basic goods.
In the late 1980s, after 45 years of communist rule, Poland's economy was ineffective, paralyzed by central planning and discontent of poorly paid workers. The inflation rate had reached 639.6% and was constantly rising. Foreign debt reached $42 billion. The majority of state-owned monopolies and holdings were largely ineffective and completely obsolete in terms of technology. Although there was practically no unemployment in Poland, wages were low and the shortage economy led to lack of even the most basic foodstuffs in the shops.
In September 1989, a commission of experts was formed under the presidency of Leszek Balcerowicz, Poland's leading economist,[citation needed] Minister of Finance and deputy Premier of Poland. Among the members of the commission were Jeffrey Sachs, Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg. The commission prepared a plan of extensive reforms that were to enable fast transformation of Poland's economy from "obsolete and ineffective central planning" to capitalism, as adopted by the states of Western Europe and America.
On 6 October, the program was presented on public television and in December the Sejm passed a packet of 10 acts, all of which were signed by the president on 31 December 1989. These were:[citation needed]
In late December the plan was approved by the International Monetary Fund. The IMF's support was especially important because the national debt in various foreign banks and governments reached an amount of US$42.3 billion (64,8% of GDP) in 1989. The IMF granted Poland a stabilization fund of US$1 billion and an additional stand-by credit of US$720 million. Following this, the World Bank granted Poland additional credits for modernization of exports of Polish goods and food products. Many governments followed and paid off some of the former Communist debt (about 50% of the sum of debt capital and all cumulated interest rates to 2001).