Mazowiecki was the first post-communist leader of Poland, who after one month of his appointment presented a plan for economic transformation. The reason why he presented his strategy so fast was the bad economic condition of the nation and the negative experience of the previous economic reforms. After some necessary preparations the reform plan was introduced on January 1, 1990 and included five components: Reduction in money supply together with high interest rates.a) Elimination of the subsidies to food products and intermediate inputs (budget surplus achieved in1990), b) Liberalization of prices (90% of prices controlled by market), c) Convertibility of polish currency, with constant exchange rate (stabilization in 9,500 zloty per U. S.
dollar), d) Introduction of income policy, with taxation penalties on wage excesses. The objectives of this reform were mainly to balance inflation, increase competition for the economy, introduce free market of prices, and break down wage policy and stabilization of state budget.Apart from macroeconomic issues, the plan also included microeconomic reforms such as common tax policy for all organizations, reorganization of banking sector and update of banking law, expansion of the strength of National Bank of Poland, privatization of organizations.
During the 10 years of Polish transition, the macroeconomic results were not the expected ones. Despite the fact that Poland managed to stabilize its economy, therefore having a high GDP (comparing to other transition countries) and experienced output recovery (1991 and onwards), it failed to have high figures in disinflation.So even though inflation decreased constantly year after year, the result in the end did not correspond the fast growth. Hungary during Transition Hungary embarked transition in 1990, with a relative liberalized economy and with the smallest economic contraction than other countries. Therefore someone would believe that the economy would perform well, but the opposite was proved. Hungary faced the worst growth performance, at the start of transition, than any other country in the region.The reason behind this is mainly the refuse of rescheduling the external debts it had and the gradualistic approach of the economy.
So Hungary in the beginning of transition had high inflation, large government budget deficit and declining growth. Hungary until 1995 was applying microeconomic reforms but its macroeconomic position was deteriorating so it could not get the benefits from these reforms. Privatization was moving slowly, and only the opening to foreign ownership brought benefits, since new technology and capital was introduced.In 1995 the government changed policy and introduced a macroeconomic stabilization programme.
This plan was going to deal with the reduction of budget expenditures, so that the market could financially support the deficit. The next two years the Hungarian economy started to grow. Microeconomic efforts came to a hand due to the macroeconomic balance. Moreover privatization started to increase and strategies were taken for increase in revenue and reduction in government spending.
Comparison of Poland and Hungary before and during transition.Looking at the reforms, both countries pursue before transition, we make the following conclusions: Poland’s reforms were less successful than Hungary’s. Hungary managed to liberalize more its economy by opening up the economy to the west and bringing new technology and capital, improving production figures, whereas Poland with imbalances in investment and production of consumer goods, increased inflation and deteriorate growth.
During transition, though, the situation is different.Hungary started weak the transition with very poor figures in all economic aspects, whereas Poland had very large figures in Real GDP. Inflation was high for both countries but with a tendency of decreasing. Comparing now the reforms undertaken before transition and during transition we could say that reforms during transition were much more successful.The reason is the change of the political system, from Communism to Democracy that liberated the market and helped the transition Nations to recover. Moreover during transition these countries managed to get assistance from foreign banks such as the World Bank and cover their deficits.
REFFERENCESBlaszczyk, Barbara, and Marek Dabrowski. 1993. The privatization process in Poland 1989-1992: Expectations, results and remaining dilemmas. Working Paper, Center for research into Post-Communist Economics (CRCE), London Marie Lavigne, 2nd Edition, The Economics of Transition: From Social Economy to Market Economy 1 Adam, 1989, page 87