Balcerowicz Plan - The Plan

The Plan

In September 1989 a commission of experts was formed under the presidency of Leszek Balcerowicz, Poland's leading economist, Minister of Finance and deputy Premier of Poland. Among the members of the commission were George Soros-backed 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 October 6 the program was presented on public television and in December the Sejm passed a packet of 11 acts, all of which were signed by the president on December 31, 1989. These were:

1. Act on Financial Economy Within State-owned Companies, which allowed for state-owned businesses to declare bankruptcy and ended the fiction by which companies were able to exist even if their effectiveness and accountability was close to none.
2. Act on Banking Law, which forbade financing the state budget deficit by the national central bank and forbade the issue of new currency.
3. Act on Credits, which abolished the preferential laws on credits for state-owned companies and tied interest rates to inflation.
4. Act on Taxation of Excessive Wage Rise, introducing the so-called popiwek tax limiting the wage increase in state-owned companies in order to limit hyperinflation.
5. Act on New Rules of Taxation, introducing common taxation for all companies and abolishing special taxes that could previously have been applied to private companies through means of administrative decision.
6. Act on Economic Activity of Foreign Investors, allowing foreign companies and private people to invest in Poland and export their profits abroad.
7. Act on Foreign Currencies, introducing internal exchangeability of the złoty and abolishing the state monopoly in international trade.
8. Act on Customs Law, creating a uniform customs rate for all companies.
9. Act on Employment, regulating the duties of unemployment agencies.
10. Act on Special Circumstances Under Which a Worker Could be Laid Off, protecting the workers of state firms from being fired in large numbers and guaranteeing unemployment grants and severance pay.

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 with 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).