Nineteen eightynine was a year of fundamental turning in Polish historx Our country returned to the . group of democratic countries and the construction from the base of market economy started. It was a path so far unknown. Never in the history . has a country made an experiment of changing from centrally controlled economy to free capitalist economy Poland has ' done it. what is mon* by the use ‘ of shock therapy, which, sc-/ curing quick and radical I changes was socially very ex-• pensive due to the increase of } unemployment decrease in . consumption and hyper infla-‘ lion.

' Our society has shown an i enormous sense of state in-• stinct and patience accepting i the heavy burden of necessary , changes.

» The changes that have taken * place were possible thanks to ‘ essential system and institu-, t tonal reforms in economy and S also changes in economic policy The systems of central planning and centralized investment decisions were abol-, ished. The monopoly of foreign • trade and rationing of foreign ' currency were no longer valid. ; The door was open for the inflow of foreign capital especially direct investment. Foreign in-- vestors were given the freedom . (practically with no limitations) to begin production operations . or services. The unconditioned right was given to compensate ‘ for nationalization and to repa-. triation of the capital and profits.

Tin- protection ol ownership and observing the agreements were secured There was a turn from the domineering stale ownership in economy to the quick privatization understood both as opening chances for the development of new private entrepreneurship and for the privatization of the already existing state enterprises

The already started intensive development of capital market that was to serve eagerness of domestic savings and what follows investment expansion and development of new entrepreneurship. The banking system has been modernized by creating two grade arrangement in which the central bank resigned from carrying out retail operations and limited itself to running monetary policy. It was secured real independence from government decisions Banks began to introduce modern financial instruments that made transactions and money saving easier.

The stock exchange' has been reactivated, being the crucial element of capital market. It existed before the Second World War but was liquidated in communist period. The Warsaw Stock Exchange Is based on most restricted rules in Europe and that is widely appreciated in the world. The number of associations listed on the basic and parallel markets increased to 135 and their capitalization in years 1991-1996 rose from 83 million USD to over 6 billion USD.

The system and Institutional hanges was accompanied by

transformations In state economic policy. From the beginning of 1990 the system of price creation has been changed almost completely, al present they depend on the demand and supply. The internal and In 1996 also external (as understood by IMF) convertibility of Polish currency was introduced. It liquidated the different money exchange rates. PLN became a strong currency.

The economy was opened to collaboration with foreign countries not only as a result of abolishment of state monopoly for foreign trade and foreign currency rationing hut also by drastic (according to some economists even too big) lowering of tariff duties in impoil The problem of a big debt of Poland towards foreign governments and banks and suspending its service in the eighties was solved by negotiations with Paris Club (government debt) and London Club (bank debts) and restructuring of foreign debts on easy terms. All that restored confidence for Poland at international capital market and allowed Polish government to successfully place Eurobonds opening the path also for the enterprises to use that market for financing their activities.

Fiscal and money policies of the government and central bank have been very cautious since the beginning of transformations. The budget deficit that in 1989 made 6% of gross national product (GNP) at present decreased to less than 3%

mm nit- eoxirnineni plans intend further decrease n less than hi I99S. This is nui an easy task because public expenses are still burdened b\ wry high costs of Insurance system and social security In the conditions of fast increase -the situation is similar in Western countries - of number of elderly people. Due to the existing Inflation pressure the central bank applies high nominal interest.

The government has consequently created conditions for competitiveness on the market. It lawurs privatisation, wide liberalization of the process of undertaking economic activities and access io domestic market but also activities m instim HonJ sphere such as (he rs tabhshing of Antimonopoly Of-llv lahi transformed into Ollier of Markel and C onsumers Protection.

The above mentioned sysirm and Institution transformations as well as changes in economic policy caused positive economic eflects. Due to liberalization steps taken In 1989/1990 the balance on the market was restored almost from one day to the next. The previous period of “empty shelves' and serious deficiency on the market of all kinds of goods (consumer, investment and intermediate) became a history. That caused the rise of interest of entrepreneurs In obtaining higher productivity and reac hing higher profits but also facilitated the activity of entrepreneurs.

The private sector began to extend rapidly, first in services and later also in industrial production. The share of that sector in creating national product increased from 28% in 1989 to 55% in 1995. and in employment even to G3%. it should

also he considered at that point tli.it the process of privatization m Poland, differently than in some other countries of middle and Eastern Europe is a rr.H process that actually and not apparently transfers the assets from public to private sector

Those transformations consist in the increase ol the role of service sector, which in < om-munist economy was pushed to the background. The share ol services in creating national product increased in years 1989-1995 from 34.8% to 53.1% nearing the level characteristic for the average economies of the Western countries. That happened at the expense of agriculture (fall from 12.9% to 7.6%) and industry and construction industry (from 52.3% to 39.9%), although (he role of those two sectors in creating GNP is still much higher than in the West.

The transformation brought considerable changes in economic relationship with abroad

The degree of openness of Polish economy increased (relation "I export to GNP went up from 16% to 20% and import from almost 13% to nearly 25%) and after 1989 there was a rapid change in the' exchange direction which so far had been directed by political decisions - at trade with the countries of for-mei RWPG (Council for Mutual Economic Assistance). Presently A of Poland's foreign exchange goes to Western countries including 2/3 to European Union countries. the trade with the East is slowly rebuilt The fact of such an orientation is a proof of International competitiveness of Polish economy, it allows considerable increase of turn over which Is also a result of liberalization of economic poland.