Financial Inflows to Poland, 1990–96

Foreign exchange flows in Poland in the 1990s, especially during 1994–96, resulted from two developments. First, there was a current account surplus, as growth revived due to efficiency improvements, while macroeconomic policy limited domestic demand. Second, Poland had rejoined international capital markets and regained favorable credit ratings, triggering investment inflows. We can classify the effects of these inflows into three groups: changes in the institutional framework; changes in the stabilization path; and changes in the real economy. The crawling band introduced in May 1995, rapid development of the money market, and improvement of the central bank's capacity to intervene on that market are in the first group. As to the second, relative currency appreciation and import competition, constraining domestic price increases, contributed to the strong disinflationary push which began in 1995. Under the third heading, foreign direct investment and portfolio inflows helped to maintain rapid growth of investment and output.