The bad debt crisis and its impact on the banking reform in Poland

Meer over het boek

The painful economic transition in Poland over the past decade began with the end of central planning and a radical liberalization of price setting and market entry. The success of these reforms hinged on widespread institutional changes, including establishing a new legal order to protect contracts, privatizing much of the economy to enhance corporate governance, and creating a new capital allocation mechanism. However, significant obstacles arose, particularly in transforming the financial system, which faced the greatest challenges. The surge in bad debts raised concerns about banks' ability to allocate credit efficiently, threatening the stability of the banking sector. A collapse could have destroyed the credit allocation function and jeopardized the entire transition process. Thus, addressing the bad debt crisis is crucial for the economic development of transition countries. This study examines how Polish authorities tackled this issue, investigating whether the government and the Central Bank successfully developed and implemented a comprehensive reform program capable of mitigating potential moral hazards within the banking system.