Identifier
Created
Classification
Origin
06WARSAW50
2006-01-12 13:40:00
UNCLASSIFIED
Embassy Warsaw
Cable title:  

POLAND: Scenesetter for CODEL Duncan Visit, January

Tags:  PREL EFIN ECON PL CVIS ETRD 
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UNCLAS SECTION 01 OF 03 WARSAW 000050 

SIPDIS

STATE FOR EUR/NCE/MSESSUMS
STATE PASS USTR FOR DONNELLY/ERRION
COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS

E.O. 12958: N/A
TAGS: PREL EFIN ECON PL CVIS ETRD
SUBJECT: POLAND: Scenesetter for CODEL Duncan Visit, January
19-21, 2006


Summary
-------

UNCLAS SECTION 01 OF 03 WARSAW 000050

SIPDIS

STATE FOR EUR/NCE/MSESSUMS
STATE PASS USTR FOR DONNELLY/ERRION
COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS

E.O. 12958: N/A
TAGS: PREL EFIN ECON PL CVIS ETRD
SUBJECT: POLAND: Scenesetter for CODEL Duncan Visit, January
19-21, 2006


Summary
--------------


1. (U) Poland with an area of 313,000 square kilometers is
about the size of New Mexico. Poland's population of 38.6
million (2004 est.) is 96 percent ethnically Polish and
almost entirely Roman Catholic. However, there are also
small German, Belarussian, Roma, Ukrainian, Jewish and
Russian minorities. Poland ranks eighth in Europe in
population, and sixth within the expanded European Union.
According to the most recent IMF data, the Poland's GDP
totaled $242 billion GDP in 2003, while per capita GDP was
$6300. Poland thus accounts for about 8 percent of the
EU25 population, but only 2 percent of EU25 GDP. Polish
public opinion, given close and long-standing ties to the
U.S. rooted in past Polish immigration (there may be 10
million Americans of Polish ancestry),generally supports
U.S. policies and American ideas about democracy and free
markets. Poland shares U.S. views on the importance of
human rights and remains an active supporter of the
international human rights agenda. Despite support among
elites for Polish engagement in Iraq, however, the Polish
public remains deeply skeptical, with large majorities
favoring withdrawal. Poland's media, while still evolving,
play a largely positive role in promoting lively political
debate, rooting out problems such as corruption, and
furthering the marketplace of ideas.

Political Overview
--------------


2. (U) Poland is one of our closest allies, and there is
much official and public support for a close relationship
with the United States as well as for strong trans-Atlantic
relations. The close political and strategic relations
Poland and the United States enjoy are often regarded in
terms of a "special relationship," of the sort that the
United States has with Great Britain and other key allies.
The Poles are intent on sustaining and even deepening this
relationship, which they view as strengthening Poland's
position within an expanded European Union.


3. (U) On September 25, center-right Law and Justice (PiS)
founded and led by identical twin brothers Jaroslaw and Lech

Kaczynski, won parliamentary elections in Poland with 26.99
percent of the popular vote. PiS was followed closely by the
centrist Civic Platform (PO),which won 24.14 percent of the
votes. For two years before the elections, these parties
planned to form a coalition. Coalition talks unexpectedly
failed in October after PiS candidate Lech Kaczynski edged
out PO's Donald Tusk in the Presidential run-off. (Note:
President Kaczynski assumes office on December 23). PiS
Prime Minister Kazimierz Marcinkiewicz instead formed a
minority government of 18 ministers: 10 PiS loyalists and 8
apolitical policy experts. Thus far, PiS has effectively
courted support from third place finisher Self Defense (SO),
headed by the controversial populist Andrzej Lepper, and
from the ultra conservative League of Polish Families (LPR),
headed by Roman Giertych. Given that the support of these
two extremist parties is tenuous, PiS leaders have indicated
they will seek early elections if they are not able to
achieve their legislative agenda. Should new elections be
held in the near future, current polls show PiS would
improve its standing in parliament, as would PO.


4. (U) The new GOP supports strong partnership with the
United States, and has publicly vowed to keep troops in Iraq
until July 2006. We expect a decision in the next ten days.
The Kaczynskis and their party are Euro-skeptic and during
last fall's campaign promised to be more forceful when
dealing with Russia and Germany. However, they realize that
Polish integration into the EU and NATO is crucial to
Poland's economic and political growth, and will continue
along the broad outlines of the Poland's existing foreign
policy.


Economic Overview
--------------


5. (U) Poland's economy continues to grow at a decent rate
after several years of sluggish growth at the beginning of
the decade. Although final data are not available for 2005,
most observers think GDP grew 3.5 percent in 2005. For the
second year in a row, one of the most important drivers
behind this growth is strong exports (up over 16 percent in
2005),particularly to EU markets. Based on this record of
growth, foreign companies, and at a slower pace, also
domestic companies have resumed investing. Industrial
production is up almost 8 percent in the last quarter of

2005.


6. (U) The rapid expansion of domestic demand in the latter
half of the 1990s, combined with the Russian financial
crisis of 1998, led to a worrisome deterioration in Poland's
external finances. The current account deficit peaked at
7.5 percent of GDP in 1999. Since then, significantly
slower import growth and a strong export performance have
cut the deficit, which fell from 4.2 percent in 2004 to 1.3
percent in 2005, despite significant real appreciation of
the zloty. The U.S. is a relatively small trading partner
for Poland, accounting for roughly two percent of its total
trade volume. In 2004, U.S. exports to Poland totaled
$929.2 million, while U.S. imports from Poland totaled
$1,821.5 million. In the first ten months of 2005 U.S.
exports reached $1.03 billion while imports from Poland
stood at $1.6 billion.


7. (U) Poland has attracted more than $85 billion of foreign
direct investment (FDI) since 1990, according to the Polish
Agency for Foreign Investment (PAIZ). U.S. companies have
invested a combined total of over $14 billion in Poland
since 1990. The PAIZ estimates that FDI inflows for 2005
exceeded $8 billion, close to the record level of $10
billion reached in 2000. Large-scale FDI and portfolio
inflows have allowed net official reserves to increase, from
$21.2 billion at the end of 1997 to over $40 billion at the
end of 2005.

EU Perspectives
--------------


8. (U) Poland's accession to the European Union in May 2004
and integration with the internal European market will
accelerate modernization and strengthen the competitive
position of Polish business. The entry into the EU of such
a close ally -- and one so clearly determined as Poland to
deepen bilateral relations with us further -- should serve
to strengthen the relationship of the U.S. and the European
Union and encourage greater European engagement in facing
global challenges. For the present, the Poles remain
concerned about continuing strains in the transatlantic
relationship over Iraq and other issues, and hope that their
new EU partners and the U.S. can resume their traditional
cooperation as quickly as possible. And while Poland is not
likely to be the U.S. "Trojan horse" that some in Brussels
have feared, accession raises to the forefront several
issues of particular importance to Poland that may give rise
to conflict with the Commission: agriculture, labor
mobility, and state aids for declining rustbelt industries.


9. (U) Agriculture: Approximately 16 percent of all working
Poles are employed in farming, the highest percentage in the
EU25. Nevertheless, the farm sector accounts for only 3
percent of GDP. Ironically, while Polish farmers were some
of the most vocal opponents of accession, they have also
been among the biggest early winners. Due mainly to
purchases of meat by buyers from the Netherlands and
Germany, some Polish farmers have seen farm-gate prices for
their livestock rise almost 60 percent since accession. Not
all Polish farmers have enjoyed this windfall, however, and
the main concern among them (and the Polish government) is
that EU agricultural subsidies be phased in as quickly as
possible and not be reduced.


10. (U) Labor Mobility: Poland's unemployment (17 percent
plus) is the highest in EU. The demographic bulge is now
reaching working age, and youth unemployment exceeds 35
percent. The UK, Ireland, Sweden, and the Netherlands have
opened their markets to Polish workers effective May 1,
2004, and more than 100,000 Poles have found jobs in these
countries over the past 20 months. Poland is rapidly
creating one of the best-educated labor forces in Europe.
In 2004, more than 1.80 million students were enrolled in
Poland's universities and schools of higher education, not
far behind the 2.3 million studying in Germany - a country
more than twice as large. Foreign investors consider the
large available pool of college graduates to be one of the
chief attractions of the Polish economy. In recent years,
dozens of U.S. and European firms have located outsourcing
and business processing operations to Poland to take
advantage of its highly educated labor force. Despite such
improvements, it will take some years before economic growth
is able to bring down the rate of employment to moderate
levels. To relieve labor market pressures, Polish policy-
makers continue to advocate removal of the remaining labor
market restrictions within the EU (especially in Germany,
France, and Austria) as rapidly as possible.

11. (U) State Aids: Infrastructure investment remains an
important issue for Poland, which rightly sees its miserable
road system as a brake on economic development. Poland
looks to the EU to provide funding which will accelerate the
removal of this bottleneck. The restructuring of declining
rust-belt industries (coal mining, steel, ship-building, and
railways) remains politically sensitive due to the difficult
labor market situation. Poland will be looking for EU
tolerance of continued subsidies to these sectors, including
exceptions from certain state aids restrictions.