03 października 2011

Morgan Stanley: Poland: Election Preview – Poles to the Polls

Morgan Stanley o wyborach w Polsce, o ich oczekiwanym wyniku, reakcji rynku na wybraną koalicję czy progu 55%. Morgan Stanley: Poland: Election Preview – Poles to the Polls
Parliamentary elections in Poland will be held on Sunday, October 9: This is by far the most important political event in the country and will shape the economic policies implemented through the next four years. The parliament consists of two chambers, the Sejm (lower house) and the Senat (upper house). As the Senat's role is quite limited in general, it is the Sejm that really matters. 460 seats are distributed proportionally among the parties that have exceeded the threshold of 5% of national votes. The distribution method slightly favours the parties that have received the most votes, but without huge distortions to the proportionality principle. Timeline of the events after the elections: After the newly elected Sejm holds it first sitting, it will be the president's role to pick the new prime minister, usually the leader of the party that gained the most votes. The appointed prime minister has two weeks to propose the composition of the government, present his programme and seek the vote of confidence from the parliament. If the vote of confidence is granted, the government begins working. If not, it is the parliament's role to nominate the new prime minister. If this fails as well, then the president gets another chance to pick the prime minister, with only a simple rather than absolute majority required to grant the vote of confidence. If this fails as well, the new elections are held. See Exhibit 1 in the full report for a detailed timeline and rules of appointment of the new government. The polls point to the PO-PSL government staying in office, but uncertainties remain: As the main polls show, the support for the four main political parties present in the parliament has been broadly stable over recent months, with some downward tendency for the social democrats (SLD) and a recent uptick for the main opposition party, right-wing PiS. These results must be taken with a pinch of salt though, as polls have proved to be wrong several times in the past, most famously in 2005 when they pointed to a PO victory when, in fact, PiS won. The errors might be big due to a large share of undecided voters (about 20%) with highly volatile preferences in the run-up to the elections. Voters' turnout might also contribute to the polls being mistaken. In general, PiS supporters tend to be more committed than PO voters. The latter would therefore benefit from a higher turnout, as happened for example in 2007. At present, PO seems likely to emerge as the largest party, but is unlikely to be in a position to form the next government on its own, which we think would be the market's favourite scenario, as it would involve no painful compromises and increase the chances of reform. We look below at a few possible coalitions, each of them with our subjective probability attached: Market-friendly scenario: continuation of the ‘status quo' (PO/PSL coalition: 50% chance): PO has not been as brave on reforms as many of its supporters and the market would have hoped. Indeed, the party today depicts itself as centrist and gradualist in its approach to economic reform. That said, it is still widely seen as the safest pair of hands, having ruled over a difficult period and having by and large managed to contain the rise in the budget deficit. The PSL, its current junior coalition partner, is even less reform-minded. Even so, it has proven to be a reliable partner throughout the last four years, and will not hesitate to back PO again if this meant a few senior positions in the executive, we think. Market-neutral/slightly negative scenario (a wider, PO-led coalition: 25% chance): If more parties managed to cross the 5% threshold (including the newly formed Palikot party, a splinter PO group), a wider coalition may be needed to form a government. The leftist SLD may have to join PO (or PO-PSL), for instance. A coalition of this type would inevitably water down the reform effort further, as the SLD clearly has a different economic agenda than the PO. This does not mean that it cannot work, of course: we have seen version of ‘grand coalitions' in Europe before, with varying degrees of success. But such a coalition would likely make difficult and unpopular choices more difficult and could be prone to internal conflicts once formed. Market-negative (other coalition, PiS-led: 25%): If the Kaczynski-led PiS manages to snatch a last-minute victory like it did in 2005, it would likely be mandated to form the next government. Alternatively, it may be in the same position if PO wins but for some reason fails to gather a majority in the Sejm. A PiS-led government would rely on support from the PSL and potentially also the SLD, in a possible ‘government of experts'. Economic policy would not necessarily deteriorate overnight. After all, the last PiS-led government made a decision in 2007 (tax cut) which looked wrong at the time, and turned out to be the right thing to do, ex-post. That said, we think that markets could be rattled at the prospect of a Kaczynski-led executive, at least initially. What if no majority emerges? One of the most urgent and important tasks of the new government will be to push the 2012 budget through the parliament. As the draft is ready, it is only the approval process that remains to be done, although the new government might still want to amend it. If there were problems with a clear majority, or the process were seriously delayed, the new elections are likely - by law, if the budget is not approved within four months of the draft being sent to the parliament, the president has a right to dissolve the parliament and order new elections to be held. However, if the new budget is not approved on time, then, by law, the draft sent to parliament by the government is used. Therefore, the basic functioning of the state is secured. 55% debt/GDP threshold looms again as PLN weakens: As we have mentioned many times, Polish public finance law contains several automatic triggers if the end-of-the-year debt/GDP ratio exceeds some thresholds. The latest available data show that the ratio was at 53.7% at the end of 2Q. If it exceeded 55% at year-end, the government would be forced to impose several austerity measures. These include an automatic VAT hike already in June, a freeze on wages in the public sector and limited revaluation of pensions. Although the government started tightening fiscal policy already this year (we forecast the public finance deficit to fall to 5.6% of GDP this year from 7.9% in 2010), the rapidly weakening PLN exchange rate poses a serious threat that the threshold might still be breached. As about 28% of the total public debt in Poland is FX-denominated (mostly in EUR, some also in USD, JPY and CHF), we estimate that every 1% PLN depreciation increases the debt/GDP ratio by about 0.15pp. It is not difficult to imagine that, if the PLN weakness were to continue, the ratio could exceed the 55% threshold. On our estimates, assuming an unchanged stock of debt from end-August levels, the ratio would be breached if EURPLN went to 4.70. But of course, the Min Fin is likely to start worrying before that level. The Min Fin can continue to exchange the EUR it receives from the EU on the market, a policy which has had only mixed results so far. If PLN was still weak as the end of the year approaches, we think it is very likely that the MinFin would use the FX it has to push EURPLN lower in more aggressive fashion. At that stage, the NBP would also likely get involved, we think.

1 komentarz:

  1. Fajne podsumowanie rządów PO-PSL w wykresach:


Komentując anonimowo - podpisz się. Łatwiej prowadzi się dyskusję.