Poland -- A solid partner for Indonesia

Poland -- A solid partner for Indonesia

Poland was the first country in Central and Eastern Europe to
embark upon the breakthrough transition from a planned economy to
a market system.

This transition began under the extremely difficult conditions
of high inflation, a scarcity of consumer goods and highly
concentrated production. The Polish economy entered the 1990s as
the weakest in Central Europe. It emerged in the new millennium
as one of the strongest. Although the first couple of years of
the millennium have brought an economic slowdown, in 2003
economic growth was back to 3.7 percent and reached 6.5 percent,
6.1 percent and 5 percent in first three quarters of 2004,
respectively.

The present transformation of the Polish economy is aimed at
strengthening market mechanisms and institutions. The nation's
economy has been opened to all forms of economic cooperation with
foreign partners. As a result, Polish companies are becoming
increasingly profitable and foreign trade is booming.

These factors, together with the steady appreciation of the
Polish currency (zloty) against the euro and the US dollar, have
led to the creation of many attractive investment opportunities
for foreign capital. The end of the first and most important
stage in the process of transition -- begun in 1989 -- was marked
by entrance to the European Union on May 1, 2004.

The most important fact concerning Poland's accession to the
EU is the unification of the conditions for business activities
in the European market. This means that any product granted
permission to be sold in one EU market can also be sold in any of
the other 24 markets.

Poland's domestic market has now taken on the system of EU
regulations, and due to this fact Poland's terms of trade with
the rest of the world have changed. According to EU regulations,
Polish manufacturers and exporters can launch antidumping and
antisubsidy investigations involving the entire EU market
against countries outside the EU.

Poland's GDP per capita in 2002 was US$4,940 -- or about
$10,600 with adjustments for purchasing power parity. Total value
of GDP in 2003 amounted to $216 billion. Inflation in 2003 was
brought down to about 1 percent, and although EU accession has
created higher demand it remains under control at about 4
percent.

The strong condition of the Polish economy is evidenced by
rapidly growing levels of trade exchange. Joining the common EU
market has also increased the share of trade with the EU, as all
limitations on access to goods, including administrative barriers
and customs duties on agricultural goods, have been removed.

Compared to the first six months of 2003, exports have grown
by 38.4 percent to $34.5 billion, while imports have increased by
32.3 percent to $41.8 billion. Of all exports, 87.4 percent are
directed to developed countries (82.1 percent to the EU) and 77.4
percent of imports come from these countries (70.0 percent from
the EU).

An important trend in Poland's foreign trade is the steady
decrease of the trade deficit, which has fallen for six year in a
row. The largest deficit in the first half of 2004 was recorded
in trade with developing countries -- $4 billion.

Poland's main export markets are: Germany, France, Italy,
Great Britain, the Czech Republic, Russia and the Netherlands,
while imports mainly come from Germany, Italy, Russia,
Netherlands, France and China.

The commodity structure of Polish exports have undergone
profound changes in recent years, marked by the shift from
agricultural and primary exports to labor-intensive manufactured
goods.

Poland now sends abroad not only steadily increasing
quantities of various engineering products, such as cars, ships,
boats, civil engineering machines and electrical equipment, but
also textiles, furniture (the second largest exporter in Europe),
footwear, packaging machines and, especially, a rich variety of
food products.

One of the reasons for the success of the Polish economy
during the transition period has been the rapid growth of the
private sector. Its share in the country's economy is constantly
rising, owing both to the privatization of state-owned
enterprises and to the creation of new private companies. Since
1990, more than 10,000 state enterprises have been transferred
into private hands. In 2002, the private sector accounted for
77.6 percent of industrial output and it is estimated that by
2005 this share will increase to 85 percent.

The number of companies participating in the international
market has dramatically risen from less than 100 foreign trade
operators in the late '80s to over 100,000 business entities
today. It is estimated that 92.3 percent of total imports and
88.7 percent of exports are already being handled by the private
sector. Furthermore, nearly all of the agriculture, retail,
wholesale (94.1 percent) and construction (98 percent) sectors
are in private hands.

Creating favorable conditions for attracting foreign direct
investment (FDI) to Poland has been of paramount importance to
the Polish government. In 2003, the inflow of FDI to Poland
amounted to $6.42 billion. Since the beginning of the economic
transformation the accumulated value of FDI has reached $72.71
billion. France is the leading cumulative foreign investor in
Poland with US$13.857 billion, followed by the Netherlands
($9.863 billion), the United States ($8.689 billion) and Germany
($8.415 billion).

A growing number of investors with headquarters in the United
States and Asia (mainly Japan and South Korea) invest through
their European subsidiaries. The Netherlands plays an important
role in this process, acting as an intermediary for a number of
American as well as Japanese investments.

The majority of the investment has been placed in the
manufacturing sector, particularly in the automotive industry,
food and food-processing, the production of non-metal goods,
chemicals, electrical and optical appliances and furniture.
Financial services, retail trade, telecommunications services and
construction have also attracted significant amounts of foreign
capital.

The inflow of foreign capital has helped to accelerate the
transformation of the economy, speed up the privatization
process, stimulate economic growth and the modernization of
economic structures, especially in industry and trade, inspire
the development of new technologies, increase productivity and
develop modern management as well as better production
organization.

Seen from another perspective, foreign capital is willingly
flowing into Poland because of its reputation as a booming and
stable market, with a good record of macroeconomic management, a
highly educated workforce, good industrial infrastructure,
dynamic demand and a comparative advantage in relative labor
costs. In view of these factors, Poland is likely to remain for
some time the regional leader in attracting FDI transfers.

The well-deserved sense of accomplishment should not prevent
us from recognizing many challenges that Poland must still face.
These include foreign trade imbalance and a relatively high level
of unemployment.

The only way to meet the former challenge is by increasing the
export capacity of the economy by securing more investment,
better technology and higher productivity.

The latter is a natural effect of transformation from large,
ineffective state-owned enterprises to an economy run by more
efficient private companies, and should be resolved eventually
when the workforce undergoes the necessary retraining and becomes
absorbed by the fast-developing private sector.

However, the social implications of even temporary
unemployment cannot be overlooked. As can already be seen,
accession to the European Union is contributing to the expansion
of the Polish economy and to Poland becoming an even more
attractive partner on the international market.