Poland

Due to convulsive domestic politics, Poland's rate of reform - not to mention investment climate - have lagged much of Eastern Europe.

As a leader of labor- and Catholic-based resistance to Soviet rule, Poland's post-communist politics has always had much stronger religious and anti-communist overtones than the Czech Republic, Slovakia, Estonia and other more fully-liberalized Eastern European nations.

Poland still has not broken with its socialist past to nearly the extent of its more competitive neighbors. Despite initially successful "shock therapy" in the early 1990's, the rate of reform stalled through feckless prime ministers for most of the 1990's. Investors were optimistic that Poland's market of US$566 billion and 38 million people would undergo wrenching, but necessary, change after two right-wing parties crushed their socialist opponents in the 2006 parliamentary elections. Unfortunately, the Law and Justice Party (a hodgepodge of Catholic social conservatives), which otherwise would have been the junior patner in a coalition government with a libertarian party, made a Faustian bargain with socialist voters and made a hard-left economic turn, while staying true to its anticommunist cultural pledge. As a result, the Law and Justice party won the election and formed a majority coalition with two small, left-wing parties. The maverick twins Lech and Jaroslaw Kaczynski, who lead Law and Justice, became the first twin president and prime minister in world history.

Current investment outlook

The idiosyncratic Kaczynskis have continued to disappoint investors. They are not in favor of the European Union, and use Poland's EU veto to throw a monkey wrench in the EU's relations with Russia. Government spending remains at a stifling 50 percent of GDP. Economic growth appears to have re-accelerated to 6 percent of GDP in 2006, and is on track to exceed 7 percent of GDP in 2007. Poland remains saddled with chronic budget deficits, even though Poland's (overweight) agricultural sector receives heavy subsidies from the European Union. Poland has historically been a recipient of substantial foreign investment, but the government's share of spending is stifling growth potential. EU subsidies are giving the Kaczynski brothers the dubious privilege of postponing needed structural reforms.