Poland Defence and Security Report Q3 2008

Since securing victory at the October 2007 general election, the ruling Civic Platform (PO) party is showing signs that it is pushing forward with its electoral pledge that the privatisation agenda would be revived after the process was stalled under the previous government. Reform appears to be gathering momentum with the Ministry of the Treasury announcing plans in March for the privatisation of 740 state-controlled companies during 2008-2011, expected to draw in around US$14bn.

With economic growth set to slow during 2008-2010, coalition stability will prove vital for the economy to ride out the post-boom wave relatively unscathed. Indeed, should the coalition collapse, economic reform (particularly privatisation) may slow, which in turn could weigh on convergence and integration with the EU.

Having posted a substantial 6.6% rate of growth in 2007, we expect the Polish economy to cool over the course of 2008-2010 as it rides out the post-boom wave. That said, we affirm our view that Poland's macroeconomic fundamentals and attractive business environment remain supportive of an uptick in economic growth beyond 2011.

In common with many of it former Warsaw Pace neighbours Poland is facing challenges as it strives to affect a transition to a smaller (in terms of manpower), more professional (and less reliant on conscripts) force, modelled on other NATO forces in terms of organisation and equipment. Poland is also working hard to develop a counter-terrorism capability. This is an important (if not traditional) challenge for Poland, in the face of an increased the likelihood of it becoming a target for Islamic militants.

Aside from terrorism, post-Cold War Poland faces few security threats. Since March 2004, when seven of its Eastern European neighbours also joined the NATO alliance, the country has been surrounded by NATO members.

The biggest single issue at the moment for Poland is the US proposal to base 10 interceptor missiles in Poland as part of its eastern European defence shield its territory, despite fierce opposition from Russia.

Polish Prime Minister Donald Tusk recently rejected the latest proposal from the US. While the PO-led coalition government has remained receptive to the proposal over previous months, Tusk has been reluctant to accept a deal which does not involve substantial investment in Polish air forces. Indeed, the latest offer from the US to modernise the Polish air force was deemed insufficient, though the Polish government has stated that it remains open to further dialogue.

Since the end of the Soviet Union, defence production has fallen by over 80% and Polands defence/ aerospace industries have had to undergo enormous process of restructuring. On a positive note though, an examination of recent contracts shows that Polands defence-aerospace industries are globally competitive in particular niches such as aircraft components and radio systems.