The Polish economy grew rapidly in the mid-1990s, but growth has slowed considerably in recent years. Growth in the gross domestic product (GDP) accelerated to 3.8% in 2003; although final figures are not yet available, it was expected to increase another 5.5% in 2004. Faster growth has failed to significantly reduce unemployment, which stood at 19.7% in the middle of 2004. Tight monetary policy and dramatic productivity growth have helped temper inflation, which was steady at 0.7% in 2003. Likewise, Poland’s current account deficit, which grew rapidly in the late 1990s, fell to 2.0% of GDP in 2003. The budget deficit remains a source of concern though the accelerating economy helped to hold the deficit at an estimated 3.9% of GDP in 2003.

Throughout the 1990s, the United States and other Western countries supported the growth of a free enterprise economy by reducing Poland’s foreign debt burden, providing economic aid, and lowering trade barriers. Poland graduated from USAID assistance in 2000. Poland officially joined the EU on May 1, 2004.

Agriculture
Agriculture employs 28.7% of the work force but contributes only 3.4% to the gross domestic product (GDP), reflecting relatively low productivity. Unlike the industrial sector, Poland’s agricultural sector remained largely in private hands during the decades of communist rule. Most of the former state farms are now leased to farmer tenants. Lack of credit is hampering efforts to sell former state farmland. Currently, Poland’s 2 million private farms occupy 90% of all farmland and account for roughly the same percentage of total agricultural production. These farms are small–8 hectares (ha) on average–and often fragmented. Farms with an area exceeding 15 ha accounted for only 9% of the total number of farms but cover 45% of total agricultural area. Over half of all farming households in Poland produce only for their own needs with little, if any, commercial sales.

Poland is a net exporter of confectionery, processed fruit and vegetables, meat, and dairy products. Processors often rely on imports to supplement domestic supplies of wheat, feed grains, vegetable oil, and protein meals, which are generally insufficient to meet domestic demand. However, Poland is the leading producer in Europe of potatoes and rye and is one of the world’s largest producers of sugarbeets. Poland also is a significant producer of rapeseed, grains, hogs, and cattle. Attempts to increase domestic feed grain production are hampered by the short growing season, poor soil, and the small size of farms.

Pressure to restructure the agriculture sector intensified as Poland prepared to accede to the European Union, which is unwilling to subsidize the vast number of subsistence farms that do not produce for the market. The changes in agriculture are likely to strain Poland’s social fabric, tearing at the heart of the traditional, family-based small farm as the younger generation drifts toward the cities.

Industry
Before World War II, Poland’s industrial base was concentrated in the coal, textile, chemical, machinery, iron, and steel sectors. Today it extends to fertilizers, petrochemicals, machine tools, electrical machinery, electronics, and shipbuilding.

Poland’s industrial base suffered greatly during World War II, and many resources were directed toward reconstruction. The communist economic system imposed in the late 1940s created large and unwieldy economic structures operated under a tight central command. In part because of this systemic rigidity, the economy performed poorly even in comparison with other economies in central Europe.

In 1990, the Mazowiecki government began a comprehensive reform program to replace the centralized command economy with a market-oriented system. While the results overall have been impressive, many large state-owned industrial enterprises, particularly the railroad and the mining, steel, and defense sectors, have remained resistant to the change and downsizing required to survive in an open market economy.

Economic Reform Program
The economic reforms introduced in 1990 removed price controls, eliminated most subsidies to industry, opened markets to international competition, and imposed strict budgetary and monetary discipline. Poland was the first former centrally planned economy in central Europe to end its recession and return to growth in the early 1990s. Since 1992, the Polish economy has enjoyed an accelerated recovery, although growth has recently slowed. The private sector now accounts for over two-thirds of GDP.

As a result of Poland’s growth and investment-friendly climate, the country has received over $65 billion in direct foreign investment since 1990. However, the government continues to play a strong role in the economy, as seen in excessive red tape and the high level of politicization in many business decisions. Investors complain that state regulation is not transparent or predictable; the economy suffers from a lack of competition in many sectors, notably telecommunications. In early 2002, the government announced a new set of economic reforms, designed in many ways to complete the process launched in 1990. The package acknowledges the need to improve Poland’s investment climate, particularly the conditions for small and medium-sized enterprises, and better prepare the economy to compete as a European Union (EU) member. The government also aims to improve Poland’s public finances to prepare for eventual adoption of the euro.

Foreign Trade
With the collapse of the ruble-based COMECON trading bloc in 1990, Poland scrambled to reorient its trade. As early as 1996, 70% of its trade was with EU-15 members, and neighboring Germany today is Poland’s dominant trading partner. Most of Poland’s imports are capital goods needed for industrial retooling and for manufacturing inputs, rather than imports for consumption. Therefore, a deficit is expected and should even be regarded as positive at this point. Poland, a member of the World Trade Organization (WTO), has been steadily lowering tariffs in line with its WTO and EU commitments. Now that it is a member of the EU, Poland, applies the EU’s common external tariff to goods from other countries–including the U.S. Opportunities for trade and investment continue to exist across virtually all sectors. The American Chamber of Commerce in Poland, founded in 1991 with seven members, now has more than 300 members. Strong economic growth potential, a large domestic market, EU membership, and political stability are the top reasons U.S. and other foreign companies do business in Poland.

NATIONAL SECURITY
Poland’s top national security goal is to further integrate with the North Atlantic Treaty Organization (NATO) and other west European defense, economic, and political institutions via a modernization and reorganization of its military. Polish military doctrine reflects the same defense nature as its NATO partners.

Poland maintains a sizable armed force currently numbering about 175,343 troops divided among an army of 96,733, an air and defense force of 39,649, and a navy of 15,980. The Ministry of Defense has announced that the armed forces of Poland will number 150,000 by 2006. Poland relies on military conscription for the majority of its personnel strength. All males (with some exceptions) are subject to a 12-month term of military service. The Polish military continues to restructure and to modernize its equipment. The Polish Defense Ministry General Staff and the Land Forces staff have recently reorganized the latter into a NATO-compatible J/G-1 through J/G-6 structure. Budget constraints hamper such priority defense acquisitions as a multi-role fighter, improved communications systems, and an attack helicopter.

Poland continues to be a regional leader in support and participation in the NATO Partnership for Peace Program and has actively engaged most of its neighbors and other regional actors to build stable foundations for future European security arrangements. Poland continues its long record of strong support for UN Peacekeeping Operations by maintaining a unit in Southern Lebanon, a battalion in NATO’s Kosovo Force (KFOR), and by providing and actually deploying the KFOR strategic reserve to Kosovo. Polish military forces have served in both Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom.

Poland assumed command of a multinational division of stabilization forces in Iraq (MDN-CS) on September 3, 2003, contributing 2,400 troops.