Wiesława Lewandowska talks with dr. Cezary Mech about weak points of supervision and dictate of big financial institutions, a cynical criticism of Open Pension Funds and Cyprus banks and Polish Credit Unions

WIESŁAWA LEWANDOWSKA: - For some time, we have been observing newer scenes of the financial crisis, especially a big tragedy of the euro zone. As a prominent specialist in supervision over finances – as a creator and participant of many Polish and European institutions and supervisory committees – could you say today that it is the supervision over financial markets which turned out to be a failure?

DR CEZARY MECH: - This is quite a complicated matter. Surely, the present crisis is just an evidence for the fact that the market of finances is not suitably regulated or supervised, and financial institutions are trying to be beneficiaries of these solutions which are to serve to realistic economy. They make decision too often, about multibillion-dollar engagement of capital, even if they have very little of it in fact. And, when their actions turn out to be a failure, they do not bear any responsibility for it.

– Who pays for this impunity?

– Generally, the so-called ordinary tax-payers inherit their debts (on the basis of guarantees granted to financial institutions by the state).In a situation when these debts are much higher than the gross domestic product of a particular country, then its citizens simply become the contemporary slaves.

– In the world of finances there was a lack of good regulations and good supervisors ? Why?

– The reason for all the tragedies today is the fact that more and more powerful financial institutions constitute rules themselves and choose their supervisors themselves. Hence there are sudden crisis of any type, in which it turns out that those who are the main investors, suddenly want – and they know well when to do it – withdraw their capitals…..And it also turns out that – like in Greece or in Cyprus – the so-called European help is intended for the foreign investors so that they could withdraw without any losses.

– And in this way the money of EU taxes save particular investors (mainly the Germans) ?

– Yes. But it has nothing in common with help for these countries, with the European solidarity, although it is presented so, especially in Polish media…

– Because in Poland, however, we still believe a lot in the European solidarity. And, in addition, we have even a zoological hatred towards any control institutions, even if their lack would lead us to self-destruction in the future…

– That’s true. Although I think that as far as the decision-makers are concerned, here we do not deal with this ordinary ill-considered hatred. Considering the today’s debate about the Open Pension Funds, I would suggest looking at the fate of the Supervision Office and Pension Funds. This supervision was quickly liquidated: established during the reigns of the Electoral Action ‘Solidarity’ in 1998, liquidated in 2002 by the Democratic Left Alliance! Over 100 expertly educated people in the field of functioning of the capital market (about 3 million dollars were spent on their education by the Americans!), went astray.

– What was the justification of the liquidation of this office?

– If there are suitable media, then everything can be justified in a simple and convincing way. Poles have been convinced for 20 years that everything can and should ‘go its own way’, that the state cannot intrude, that any regulations should be restricted. Certainly, I protested against the liquidation of this office – not only because I was its chairman – I had warned against probable consequences. I today can only say: ‘And didn’t I say?

– Could a suitable supervision prevent from the today’s trouble with the Open Pension Funds, which announce that they will pay only restricted pensions?

– Surely, yes. At the beginning of the year 2000, reports of our office were published which said what should be done, so that Poles had higher pensions in the future. There was a warning that if nothing was done then the pensions would be very low in the future. However, at that time one of ministers stated perversely that I say it only so that I can say one day: ‘And didn’t I say? The vice-minister at that time - how before the Electoral Action Solidarity had been a creator of the Democratic Left Alliance pension solutions, and at present he is a high civil servant, on recommendation of the Civil Platform – he stated straightforwardly that if he could, he would have fired me from work for scaring people with low pensions.

– And, finally, you were fired. But, today, you can say again: ‘And didn’t I say?’ because even the most optimistic government of the Third Polish Republic is slightly anxious…

– But it is only poor satisfaction. 10 years ago we were trying to save the situation somehow. After the liquidation of the Supervision Office of Pension Funds, we set up an Association of the Capital Market in a group of specialists, whose purpose was to take care of good legal regulations (among the others, by provoking seym debates). In the same group we also took part in creating an economic program of the Law and Justice party in 2006, which was intended for pursuing a pro-family policy and creating workplaces. This program was called ‘Development through employment’ and was intended for creating workplaces in Poland, not abroad…

– The law and justice party is constantly accused of an excessive tendency for controlling. Was it successful to strengthen the supervision on finances during two years of the government of the party?

– In 2006 it was successful to establish the Commission of Financial Supervision, just on the basis of these our earlier works. However, neither of these over 100 people from the Supervision Office of Pension Funds, was not employed in this institution….This fact illustrates very well how it is difficult to take control over the influences of interest groups and even despite generally favourable political conditions…Unfortunately, even the best specialists, who knew very well, what the effective supervision over financial institutions look like, as well as over the Open Pension Funds, had nothing to say…

– And isn’t it all about this hatred towards all control institutions, about liberal sense of freedom?

– The thing is more complicated and also very dangerous. The fact is that for a long time various providential civil servants, both on the left and the right party, proclaimed only righteous and correct advice. Now, looking at this turmoil around the Open Pension Funds, I only notice cynicism. I do not think that today we must stifle the Open Pension Funds in a populist way. It is so absurd that if one went to the doctor and have one’s painful finger removed. Repairing the situation is not amputating other institutions, but treating them. And I do not simply trust those who shout so suddenly and are outraged.

– Do you think that this today’s complaint of the government about the Open Pension Funds is insincere?

– Yes. And it seems that it is all about causing another ‘miracle’ of public finances, because if the state takes all saved pensions– that is, realistic money in the Open Pension Funds – if it transforms it into the rights in the Social Insurance Company, it will suddenly turn out that the problem of the social debt or deficit will disappear….And it does not matter that the Social Insurance Company has already got the debt of 2 billion! Because thanks to this operation, Poland may get into the euro zone, which is not needed at all! And the fact that we will be in debts and will not get pensions – is not the subject of anxiety for the government.

– Would it be possible to save the Open Pension Funds under palm-trees?

– I must quote my sentence here again: ‘And didn’t I say?’. At the beginning of the year 2000 in the Supervision Office of Pension Funds, we said that increasing the profitability of the Open Pension Funds by 1 per cent annually will give pension benefits higher by 20 per cent. We were rebuking that the Open Pension Funds must be under a special supervision; especially that their transactions must be under supervision in the capital market, so that shares which are not needed at all, would not be bought, but only as between friends, or they would not be sold at a decreased value for similar reasons. We used to pay attention to all this and on an nauseam, presenting special reports, about what regulations are necessary, so that in Poland pension protection would really be equitable. However, we needed these reports only to say after 10 years: ‘And didn’t we say…’

– Poles are afraid today not only about their future pensions, but also – when they are looking, for example, at the Cyprian troubles – they are afraid about the safety of their bank deposits. Isn’t there any reason for anxiety, as the government assures?

– The value of bank deposits has been reflected in assets so far. It is worth noting that the Cyprian crisis – about which I wrote last year –did not appear suddenly. It was visible last year that everything was going wrong, because the state started taking over the liabilities of o financial institutions, which are a few times bigger than Domestic Gross Product of this country. This kind of a State should not take over these liabilities!

– Is Poland a safer island?

– A safer but not happier. Our situation is different from the one in Cyprus, because the crisis in Cyprus was caused by a refusal to provide fluidity by the European Central Bank. So, as long as we have our own currency, the Domestic Gross Product can provide fluidity to our banks. Certainly, these institutions should be much better regulated and supervised, first of all, so that it would be beneficial to invest and work in Poland. What seems scandalous is the fact that for 20 years, despite changing executive boards, there is a strange consent to maintain increased interest rates, which cause more debts of Poland abroad, unprofitability of investments in Poland. And preventing the inflation through increasing import, and, what’s worse, on credit, simply pushes our native production abroad. Financial institutions in Poland do not support or promote the Polish entrepreneurship, Polish ideas.

– Why is the bank cooperation (credit unions and cash credit unions of Stefczyk) facing troubles in Poland, despite a quite successful resurgence?

– It is all about issues of suitable regulation. In Poland big financial institutions are preferred definitely, and these ones have enormous influences on establishing regulations convenient for them. Therefore, caring about the welfare of the country and citizens, it is necessary to support any Polish entrepreneurs and institutions. And just the credit unions are such institutions which can be connected with a small group of citizens and enter the market easily, when they see some niches for their activity.

– They were adapted in the market very well, but they seem not to be liked by everybody…

– It is difficult to understand why these institutions of fully Polish roots do not find political clout today in Poland. Hostile political action are taken against them, which are completely unjustified economically…So, there are attempt to subordinate small credit unions to the same regulations which are obliging for big financial institutions. It must lead to their liquidation.

– There is an accusation that credit unions want to escape from the control and restrictions…

– That’s not true! It is not about cherishing them completely and protecting them against control. In 2006 while establishing the Commission of Financial Supervision I thought that credit unions should also be in the area of supervision of the commission. However, we imagined that it would be a slightly mild form of supervision, and, in fact that it would be a form of help for these cooperative institutions so that they would develop in a right way.

– Why didn’t it happen so?

– It is really difficult to understand, why in that time – as it seems to be the most favourable for this kind of actions – this regulation was not carried out… Now there is a significant acceleration of regulatory actions, which are very unfriendly towards the credit unions.

– Were the credit unions subordinated to quite an unpleasant supervision in 2012?

– The main problem is based on the fact that enforced transferring of these small institutions (cash credit unions) into big bank institutions, uniformity lose their sense – the ordinary idea of their purpose is getting lost. So, when regulations are favourable only for big institutions, then no new financial institutions will appear in Poland anymore. Only these big ones will remain, which dictate indivisible prices of their services.

– Isn’t it just a purpose?

– Big bank institutions are trying to set up rules of a game today and supervision over one another and others. They are trying to be beneficiaries of all occasions and trends. They are trying to create the market in a way which is useful for them. It is natural. But they definitely neglect the public interest. So, they do not find the credit unions convenient, which are developing very dynamically. And they are serving to people well.


"Niedziela" 18/2013

Editor: Tygodnik Katolicki "Niedziela", ul. 3 Maja 12, 42-200 Czestochowa, Polska
Editor-in-chief: Fr Jaroslaw Grabowski • E-mail: redakcja@niedziela.pl