Polish Ministry of Finance Reorganizes Debt

UNCLAS WARSAW 000966

SIPDIS


Sensitive

STATE FOR EUR/NCE TARA ERATH AND MICHAEL SESSUMS
STATE FOR EB/OMA TIM FORSYTH
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS AND MWILSON
TREASURY FOR OASIA MATTHEW GAERTNER
FRANKFURT FOR TREASURY JIM WALLAR

E.O. 12958: N/A
TAGS: EFIN ECON PREL PL
SUBJECT: Polish Ministry of Finance Reorganizes Debt
Department

Ref: Warsaw 742 and previous

(U) This cable is sensitive, but unclassified, and NOT for
Internet distribution.


1. (U) At the end of January, the Ministry of Finance
reorganized its debt department, creating a unified
department from two formerly separate units, one for foreign
debt and one for domestic debt. Pawel Kowalewski, the new
head of the unified department, explained to Econoffs that
this unification is the first step on the road to the
Ministry's ultimate goal of creating an independent agency
to manage Poland's official debt. In MOF's view, an
independent agency would be more immune to potential
political pressure regarding official debt, which in turn
could help lower the market's risk rating for Poland.


2. (SBU) Jacek Tomorowicz, the head of MOF's foreign
relations department, told Econoff that the merging of the
two offices also reflected a growing maturity in Poland's
debt management capacity. At one time, the primary purpose
of Poland's foreign borrowing was to repay foreign loans.
As Poland moves to repay the last of the old communist-era
debts (through an offer to repay outstanding Paris Club debt
early, reftel),this strategy has come to an end. For the
last three years, Poland has increasingly turned to foreign
markets to take advantage of opportunities to finance budget
operations on better terms than those offered in the
domestic debt market. Tomorowicz also noted that it makes
less sense for Poland to maintain separate debt offices as
it approaches adopting the Euro (expected by 2009 or 2010).
Kowalewski explained that potential buyers of Polish bonds
are looking for a clearer picture of Poland's overall debt
performance. Over the coming months, Finance will issue
updated statistics integrating domestic and foreign issues
to show its blended maturities and yields. Kowalewski
believes this will make Polish bonds more transparent for
markets, which in turn will help the ministry extend average
maturities. MOF is pleased that it has extended average
maturities beyond two years (currently, the average of
outstanding bonds is 2.4 years). The ministry hopes to
increase the average to 3 years by 2006, with an ultimate
goal of an average maturity of 4 years in the medium-term.
At the end of 2003, the GOP's total foreign debt was 128.5
billion Zloty ($35 billion at the then-current exchange
rate).

Munter


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2005WARSAW00966 - Classification: UNCLASSIFIED