The New American

Wednesday, 11 September 2013 13:14

Polish Government Seizes Private Pension Assets

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Authorities in Poland last week announced the confiscation of bonds held in private pension funds without compensation, implausibly claiming that the move did not amount to a nationalization of the assets. While Polish officials engaged in rhetorical games and semantics to conceal the severity of the “transfer” of privately owned assets to a “state pension vehicle” known as ZUS, the controversial move is still fueling confusion and fierce criticism from analysts and economists. Some experts fear other governments may follow suit.

The private pension funds, many managed by prominent foreign firms, declared the scheme unconstitutional because private property was being seized without compensation. Some even suggested the private pension system may shut down entirely. While authorities have not yet confiscated equities from the private pensions — to which Polish workers have been obligated to contribute — officials defended the bond confiscations by arguing that they helped avoid even more radical options, such as seizing everything outright, including company stocks held by the funds.

Prime Minister Donald Tusk announced that future enrollees in the mandatory pension scheme would no longer be required to pay into the private element, known as OFE, of the hybrid government-private system. Analysts said that could result in even fewer resources held in the private funds, which currently hold assets worth about 20 percent of GDP and represent the largest investors in the Polish stock market.

Tusk, however, tried to paint the confiscation as a positive development. “The system has turned out to be built in part on rising public debt and turned out to be a very costly system,” he said at a press conference, drawing swift criticism. “We believe that, apart from the positive consequence of this decision for public debt, pensions will also be safer.” Of course, seizing private wealth may reduce government debt for the time being, but it was not clear how “safety” was being improved.

Critics lambasted Tusk’s statement from all angles, pointing out that confiscating private assets does not make them any safer and that, in essence, the government simply had too much outstanding debt to be able to issue even more debt. Some analysts also suggested the move was actually a half-baked ploy to build political support with voters by increasing its ability to borrow and spend more money on government programs.

Indeed, among the primary official justifications for the scheme was a bid to reduce government debt by about eight percent of the country’s GDP, according to estimates cited by Polish Finance Minister Jacek Rostowski. With the national government already officially owing more than 50 percent of GDP, above a threshold that makes it more difficult to borrow, the transfer of assets to government balance sheets will allow authorities to continue creating more debt and borrowing more money — a move celebrated, unsurprisingly, by Poland’s central bankers.

“Changes to the pension system are positive and create a chance for an impulse, for a growth engine, in the form of investments that are so important,” Polish central bank policymaker Anna Zielinska-Glebocka claimed in a statement to Reuters, alleging that the post-announcement decline in the value of its fiat currency, the zloty (shown), was only temporary. “This will be helping the economy in 2014, although mostly in 2015…. Investments and consumption demand are key for the Polish economy. A healthy economy must be based on domestic demand, not just exports. From this perspective changes to pensions are a good move.”

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Polish central banker says pension changes can boost economy

New members of the Polish Monetary Policy Council meet at the National Bank of Poland headquarters in Warsaw February 23, 2010. Jan Winiecki (L-R), Andrzej Bratkowski, Anna Zielinska-Glebocka, Zyta Gilowska, Adam Glapinski, Slawomir Skrzypek, Elzbieta Chojna-Duch, Andrzej Kazmierczak, Andrzej Rzonca, Jerzy Hausner. REUTERS/Kacper Pempel

WARSAW | Sat Sep 7, 2013 3:10am EDT

(Reuters) – A Polish central bank policymaker has defended the government’s decision to transfer more than half of private pension fund assets to the state, saying the move would give the economy a vital investment boost.

Anna Zielinska-Glebocka told Reuters Poland would not be able to reach potential growth levels of 3.0-4.0 percent, up from 0.8 percent, unless domestic demand reinforced the current main driver, exports.

“Changes to the pension system are positive and create a chance for an impulse, for a growth engine, in the form of investments that are so important. This will be helping the economy in 2014, although mostly in 2015,” Zielinska-Glebocka said in comments made on Thursday and authorized for release on Saturday.

“Investments and consumption demand are key for the Polish economy. A healthy economy must be based on domestic demand, not just exports. From this perspective changes to pensions are a good move,” she said.

Poland, the largest of central Europe’s emerging economies, said on Wednesday it would transfer many of the assets held by private pension funds, including treasury bonds, to a state vehicle. This means the government can book those assets on the state balance sheet to offset public debt, giving it more scope to borrow and spend.

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