In Poland, Fed more worrisome than future of finance minister

(c) 2013, Bloomberg News.

WARSAW — Polish bondholders are more concerned about the Federal Reserve's planned stimulus tapering than the future of their finance minister.

Prime Minister Donald Tusk denied on his Twitter account Tuesday that Finance Minister Jacek Rostowski had tendered his resignation. Earlier in the day, the premier declined to comment on such "rumors" after radio RMF FM first reported on Aug. 9 he was considering dismissing the finance chief. Rostowski had to revise this year's budget after economic growth slowed more than he predicted and is trying to overhaul the pension system to reduce public debt.

"Everybody is more concerned about what the Fed will do in September rather than what will happen with Poland's finance minister," Jakub Taborowicz, who helps manage 17 billion zloty ($5.4 billion) in debt at mutual fund PZU TFI SA in Warsaw, said by email Tuesday. "The market wouldn't be overly emotional" should Rostowski lose his job, he said.

Polish bonds have lost 3.5 percent since May 21, a day before Fed Chairman Ben Bernanke first said the U.S. central bank may reduce stimulus if there are indications of sustained economic growth, triggering a sell-off in emerging-market assets. That compares with a 2.1 percent decline on euro-area government notes in the period, data compiled by Bloomberg and the European Federation of Financial Analyst Societies show.

Rostowski's dismissal would be "a done deal" if Tusk had a good candidate to replace him, RMF said in its report, without saying where it got the information.

The finance minister may be replaced in the coming months as part of wider cabinet changes, Reuters reported on Aug. 16, citing a senior government source it didn't name.

Whether Rostowski stays in government "will be decided in November at the earliest," Janusz Piechocinski, deputy prime minister and economy minister, was quoted as saying on Aug. 19 by news agency IAR.

"If I were to comment on all rumors concerning Minister Rostowski, Minister Piechocinski or myself, we would spend hours exchanging the most absurd ideas," Tusk said yesterday when asked about the Rostowski reports.

After Tusk didn't reject the reports outright, the Polish edition of Newsweek cited two people familiar with the situation as saying that Rostowski tendered his resignation yesterday. This triggered Tusk's denial on Twitter and a text-messaged statement that the newspaper's information was "untrue," signed by the Finance Ministry's press office.

"It's not good that such speculation wasn't killed off by the prime minister," Michal Dybula, chief economist at BNP Paribas SA in Warsaw, said by phone Wednesday. "Thank goodness that it's the holiday season and markets aren't fully in swing."

Under Rostowski, 62, Poland narrowed its budget deficit from a record 7.9 percent of gross domestic product in 2010 to 3.9 percent last year. The country is the only one in the European Union to have avoided recession since the start of the global financial crisis in 2008.

"The market likes stability, so any unexpected change is a risk," Viktor Szabo, who helps oversee $10 billion of emerging- market assets as a portfolio manager at Aberdeen Asset Management, said by email Tuesday. "It all depends on how the potential cabinet reshuffle is done, and how known and credible the new people are."

Fed officials will begin to reduce the $85 billion pace of monthly bond purchases next month, according to 65 percent of economists surveyed by Bloomberg on Aug. 9-13. The Federal Open Market Committee holds its next meeting on Sept. 17-18.

Rostowski's potential dismissal is "not an issue at this point," Jens Thellesen, who helps manage $1.5 billion in emerging-market debt at Jyske Bank A/S in Silkeborg, Denmark, said in an email Wednesday.

Such a move may "get lost in overall volatility" of the Fed's stimulus reduction, Peter Attard Montalto, an emerging- markets economist at Nomura International Plc in London, said by email Tuesday. "Still, if Europe were to blow up or Fed taper makes a mess, it's Rostowski I'd want at the Finance Ministry."

_ With assistance from Piotr Skolimowski in Warsaw.

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