Area: 312,685 sq km, slightly smaller than New Mexico Population: 38,622,660 (2003 est.)
Annual Inflation: 1.9% (2002 est.)
Population Growth Rate: -0% (2002 est.)
Gross Domestic Product (GDP): $373.2 billion (purchasing power parity, 2002 est.)
Life Expectancy: male - 60.62 years; female - 71.96 years (2002 est.)
GDP Per Capita: $9,700 (purchasing power parity, 2002 est.)
Infant Mortality: 21.4 deaths/1,000 live births (2002 est.)
Real Annual GDP Growth: 1.4% (2002 est.)
U.S. STRATEGIC INTERESTS
Poland has been a staunch ally of the United States in the fight against terrorism, most notably by contributing both to the liberation and the reconstruction of Iraq. It is also a close working partner of the U.S. in NATO, and has provided important assistance in the Balkans and Afghanistan. Poland has served as a model of successful economic transformation since its transition from communism after 1989, creating a sound financial market. Most SEED Act money for economic and social programs will end in early FY 2004. It is in the U.S. interest to use the limited remaining assistance money to support training for the Polish military, continued public outreach programs, and the development of civil society through NGOs.
OVERVIEW OF U.S. GOVERNMENT ASSISTANCE
In FY 2003, the U.S. Government (USG) provided an estimated $32.64 million in assistance to Poland:
- $520,000 in democratic reform programs (International Visitors and Democracy Commission);
- $720,000 in economic and social-sector reform programs (DOL and PFS); and
- $31.4 million in security, regional stability, and law enforcement programs (IMET, FMF, EXBS and INL)
In FY 2003, a total of 52 Poles traveled to the United States on USG-funded exchange programs.
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: In FY 2003, the main priorities for U.S. democratic reform assistance were to build and maintain strong bilateral relations with Poland that can continue after its EU accession and to strengthen the operation of civil society. Poland has already instituted a fully functioning democratic society. Some legacies remain, however, from its recent transition from communism, most notably in the relatively underdeveloped state of civil society and NGO programs. The Embassy has used its Democracy Commission money ($200,000) to foster a more active NGO community. While supporting Poland's entry into the EU, the U.S. is also very concerned to maintain the historically close ties with Poland. USG-funded exchange programs ($320,000, primarily for International Visitors -- IVs) have been used to improve the understanding of Polish decision-makers of the U.S. perspective on EU-related issues.
Economic and Social Sector Reform Programs: In FY 2003, the U.S. provided $600,000 through the Department of Labor's program for worker retraining, which created an institutional structure to replicate several important models for local communities to follow to attack chronic high unemployment (17.5 percent in September 2003). The U.S. also extended technical assistance to the financial sector through USAID's Partners for Financial Stability (PFS) Program. While Poland has established one of Central Europe's leading financial sectors, it must be developed further to give companies and municipalities the flexibility they need to meet evolving financing requirements. PFS was also instrumental in improving the Polish Central Bank?s ability to offer advanced training in banking supervision to countries of the Former Soviet Union (FSU) and Southeastern Europe. USAID provided an estimated $120,000 in bilateral and regional technical assistance to Poland under PFS in FY 2003.
Security, Regional Stability, and Law Enforcement Programs: In FY 2003, U.S. security- related assistance focused on supporting military modernization to meet Poland's NATO commitments and on providing Polish military leaders with the needed training to integrate their armed forces better with U.S. forces in NATO and elsewhere internationally, such as cooperation in Iraq. Poland received $2 million in International Military Education and Training (IMET) and $27.9 million in Foreign Military Financing (FMF) funding. IMET supports continued professional military education. FMF funds are primarily intended to support the acquisition of critical elements for force modernization, specifically Humvees and C-130's. (Note: in addition, Poland received a $3.8 billion FMF loan in 2003 to support the purchase of 48 F-16's. End Note.) The U.S. also signed agreements to extend $512,000 in assistance to help Poland combat trafficking in persons (TIP), particularly along its border with Belarus and Ukraine. The U.S. made available $200,000 in EXBS assistance to improve the ability of Polish Customs Border Guards to detect nuclear and explosive material at border checkpoints and within the country. In FY 2002, a Letter of Agreement (LOA) with Poland was signed to provide $1.3 million in Bureau of International Narcotics and Law Enforcement Affairs (INL) funds over several years to help Poland combat cross-border drug smuggling, corruption and money laundering, and modernize its police force. In FY 2003, the Embassy developed five programs to implement this assistance.
Democratic Reform
In 2003, Poland experienced the trials and tribulations of a strong, multi-party parliamentary democracy. The Prime Minister enjoyed foreign policy successes, including completing negotiations for Poland to join the EU in May 2004, and a successful referendum on EU entry. He has also deepened a strong relationship with the U.S., capped by a visit by President Bush in May 2003. Continued high unemployment, however, and a string of scandals linked to corruption allegations dogged him at home.
Poland's most significant remaining democratization challenges include raising the efficiency of the judicial system, improving education, and fostering a more active civil society. In 2003, USG democratization assistance aimed to improve the ability of Polish NGOs to establish themselves and raise funds. Polish NGOs still need help in developing techniques to raise independent revenue -- the Government of Poland (GOP) provides 30 percent of funding, foreign donors 18 percent, and the Polish private sector 25 percent. Revenue raising is particularly important to meet the necessary capital requirements to be able to register as an NGO. An estimated 100,000 Poles work fulltime in NGO's, and up to one quarter of Poles volunteer in some fashion for the 50,000 foundations and associations. Strong grassroots civil organizations are crucial to enable Poland to overcome the legacy of decades of central planning. In FY 2003, the Embassy Democracy Commission approved $200,000 in grants for 33 projects with local NGO's.
The Polish public is increasingly concerned about corruption. Transparency International and other international organizations have consistently described problems in Poland, often stemming from the country?s overburdened, inefficient judicial system and government red tape. The Deputy Prime Minister in charge of the economy has proposed a package of reforms to cut the red tape involved in registering a business, which he hopes will be passed in the first quarter of 2004. The Prime Minister has also announced a number of investigations into officials alleged to be involved in corruption. Through the Democracy Commission, the Embassy supported the work of several small NGO's to address this issue.
Given the close, long-standing ties to the U.S. rooted in past Polish immigration (there are at least 10 million Americans of Polish ancestry), Polish public opinion generally supports USG policies and American ideas about democracy and free markets. Maintaining these close links after Poland joints the EU has a high priority for the U.S. In FY 2003, the Embassy maintained an active International Visitor (IV) program, spending $320,000 to send 46 of tomorrow's decision-makers to the U.S. for in-depth exchanges with U.S. counterparts on a wide range of issues, from human rights to economic policy and the arts. The Embassy also sponsored six Voluntary Visitor programs. (Note: the U.S. Fulbright Commission is also active in Poland, spending $1.5 million in 2003 to support educational exchanges. End Note)
Economic and Social Sector Reform
Poland was one of the leaders of the economic transformation of Central and Eastern Europe (CEE) in the 1990s, reflecting its early adoption of an aggressive program of market-oriented reforms ("shock therapy") following the fall of communism in 1989. Economic growth averaged over five percent per year from 1996 through 2000, driven by double-digit rates of investment growth, as well as a substantial rise in private consumption. After two years of virtual stagnation (1.2 percent growth in 2002), the economy began to recover in 2003 (expected growth of 3.5 percent by year end) and is forecast to expand by 4.5 percent in 2004. Exports have been an important economic driver, growing 12 percent in 2003, compared to 2002. As a result, the current account deficit has fallen from 4.6 percent at the end of 2002, to 1.9 percent at the end of 2003. Remarkably, growth has resumed with low inflation (under 2 percent in 2003, and forecast at 2.5 percent in 2004). Much of this growth has come as companies have started to invest again, largely in preparation for entry into the EU.
Poland will undergo a second important transformation when it joins the EU, on May 1, 2004. To complete the EU accession process (and pay its costs), Poland will have to implement a number of much-needed reforms. Most notably, Poland must reform its public finance system to reduce overall spending and find ways to reduce unemployment. This will be difficult because nearly 70 percent of the national budget is already obligated to fund social transfers and debt servicing. The public sector fiscal deficit in 2003 was 4.8 percent of GDP, and it is forecast to increase to 5.6 percent in 2004, despite higher economic growth.
While the economy is improving, important challenges remain. Unemployment has stayed constant. Wages are low by Western European standards, with average gross monthly earnings of only $500. Despite new legislation which somewhat liberalized the labor market in 2002, companies complain that high labor taxes and the rigid labor code make it hard to increase employment. Worker mobility is limited, in part for social reasons, including the lack of affordable housing in larger cities and in part because of the general absence of effective worker retraining programs. The GOP hopes to stimulate the economy over the next two years, partly by cutting business taxes and reducing red tape. Poland will have to develop its agricultural sector, which accounts for about 25 percent of the working population, but less than 4 percent of GDP. Most farms are a fraction of the size of their EU counterparts and would not likely survive without the generous subsidies that have become a major budget burden for the GOP. As Poland develops, the GOP expects an influx of rural residents to the cities to increase unemployment.
Poland has not attracted the investment needed to create more jobs. Partly because of the slowdown in the GOP's privatization program, foreign direct investment (FDI) has also slowed from its record inflow of $8 billion in 2000 to an estimated $3 billion in 2003. Privatization revenues have been very disappointing since 2001, with the GOP realizing only 3 billion Zloty ($750 million) in sales in 2003 (well below its $2.2 billion target). The GOP has had difficulties designing programs to bring the unemployed back into the labor market and to retrain workers from older industries. These programs are often left to the cash-strapped local governments to develop. The majority of U.S. economic assistance in FY 2003 was spent through a $600,000 Department of Labor (DOL) program to address these issues. Under this program, DOL funded the replication of several model programs in many parts of Poland, drawing on the success of an earlier pilot project promoting locally based job-creation programs.
The financial sector situation is brighter, where Poland has created one of Central Europe's most advanced financial markets. However, Poland would benefit from further financial market liberalization, allowing the creation of securitized instruments, expanding pension fund investments, and supporting the creation of a secondary mortgage market. In FY 2003, the Embassy helped coordinate $120,000 in technical assistance on capital market development provided under USAID's Partners for Financial Stability (PFS) program. The flagship program was assistance to the National Bank of Poland's Training Initiative on Banking Supervision (TIBS), which has created a training institution for banking supervisors in the FSU and CEE. TIBS held five training programs in 2003 for supervisors from more than 30 countries, teaching them advanced techniques for dealing with a number of issues, including currency risks and cross-border flows. PFS programs also provided assistance to the Polish bond market, explained U.S. views on International Accounting Standards and helped develop a credit database to support a secondary mortgage market. PFS will end in early FY 2004.
The Overseas Private Investment Corporation, U.S. Export-Import Bank, and U.S. Trade and Development Agency all are active in Poland, supporting the development of U.S. trade and investment projects.
Security, Regional Stability, and Law Enforcement
Poland has significantly improved its ability to counter threats to security, regional stability, and the rule of law since 1989. Since joining NATO in March 1999, Poland has supported a number of top U.S. security priorities, including NATO enlargement and USG efforts to find a workable compromise on a European Security and Defense Policy (ESDP). At the end of 2002, Poland signaled its desire to maintain close defense ties over the long term by deciding to buy 48 F-16 fighters. In March, the GOP signed a letter of offer and acceptance worth $3.5 billion for the F-16 sale. In 2003, Poland contributed to allied operations in the former Yugoslavia and Afghanistan. The highlight of U.S. security cooperation with Poland, however, is Poland's strong contribution to both the liberation and the reconstruction of Iraq. Poland contributed troops to the liberation and has taken a leadership role in providing security for the reconstruction. The U.S. provided $27.9 million in FMF assistance in 2003 to help the GOP meet NATO force modernization obligations while also contributing equipment to Iraq. The Embassy also coordinated $2 million in IMET to improve the professional education of Polish military officers.
Poland still faces a security threat from organized crime, elements of which are involved in cross-border activities, including narcotics and trafficking in persons. Domestic drug use is also a growing problem. The domestic drug trade is controlled by three organized crime groups linked to international traffickers. In FY 2002, the U.S. signed an agreement with Poland to provide $1.3 million in INL funds over several years to help it combat cross-border drug smuggling and money laundering, address the corruption issue, and modernize the police force. In FY 2003, the U.S. developed five programs to implement this assistance, including providing significant support to the Polish Police in improving training for officers. The U.S. also supported a drug abuse awareness program, and worked with Poland's Financial Intelligence Unit to support the development of an analytical database to improve its ability to investigate money laundering cases (money for the latter will be spent in FY 2004). DEA officers based in Germany provided significant training and operational assistance to Polish counterparts. In FY 2003, the Embassy continued its effective program of providing $200,000 in assistance under the State Department?s Export Control and Related Border Security (EXBS)program to the Polish border guards to improve their ability to detect and interdict nuclear or chemical items being smuggled across the border. Poland also faces challenges from groups trafficking in persons. Up to 20,000 people are estimated to leave or transit via Poland annually through these organized criminal rings. The GOP has become more active over the last year in combating this scourge, improving inter-ministerial cooperation and dedicating greater resources to it. At the end of FY 2003, the Embassy signed agreements with five entities to provide $512,000 in assistance, funds that should be disbursed beginning in FY 2004.
The GOP has also acted as a regional leader in the fight against terrorism. In September 2001, President Kwasniewski organized a Central European counterterrorism conference to engage regional governments. Poland has established a very sophisticated Financial Intelligence Unit (FIU) within the Ministry of Finance to combat money laundering and terrorism finance. Poland's FIU also works closely with other CEE FIU's and provides assistance to Ukraine and the Balkans.
In terms of physical security, Poland has one research nuclear reactor (Swierk), which was built in the 1970's with Russian assistance and is supplied by Russian fuel. A team of Department of Energy (DOE) experts has been working under an IAEA contract to help Poland improve physical security at its small fuel storage site. At the end of 2003, a DOE team also began talks with the Ministry of Economy about including Poland in a program to improve physical security for civilian institutions storing nuclear isotopes (e.g., hospitals). No assistance had been provided under this program by the conclusion of FY 2003.
COUNTRY PERFORMANCE MEASURES
Economic Policy Reforms and Democratic Freedoms in Poland, 1991-2002
Ratings based on a 1 to 5 scale, with 5 representing the most advanced.
Sources: EBRD, Transition Report 2003 (November 2003); Freedom House, Freedom in the World 2003 (2003); and (various years).
Economic Structure and Human Development in Poland, 1991-2002
The Human Development Index (HDI) is based on three indicators: longevity, as measured by life expectancy; educational attainment, as measured by a combination of adult literacy and combined primary, secondary, and tertiary enrollment ratios; and standard of living, as measured by real per capita GDP ($PPP). The HDI ranges from 0 to 1, with higher values representing greater human development. UNDP, Human Development Report 2003 (July 2003), and previous editions; EBRD, Transition Report 2003 (November 2003), and previous editions.
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