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Name That Country...

Not so far away, but led by very different policies and attitudes...

of global-investing trivia that I'll wager most folks would have a tough time answering, writes Martin Hutchinson at Money Morning.

One of the world's finance ministers has attacked the International Monetary Fund (IMF) for encouraging governments to engage in excessive "stimulus" in 2009, thus giving themselves horrible deficit and debt problems in 2010.

Name the country that finance minister hails from.

I'll even give you a hint: He's not from Germany, which avoided "stimulus" but tends to be polite about the IMF and had a fairly nasty recession itself.

Give up? Okay, he's from Poland.

Although it's a surprising answer, don't be too surprised. Poland is today the most capitalist country in Europe and has become one of the most capitalist economies in the world.

It's clearly Europe's best-kept secret.

The story of Poland's emergence is both interesting and instructive. And during a period of growing angst and uncertainty here at home, Poland represents an interesting place to put some investment capital.

Until 2005, Poland had a history fairly typical of Eastern Europe. It was liberated from Communism in early 1990, had a burst of very efficient "shock therapy" privatization under Leszek Balcerowicz in the early 1990s, then spent the next 15 years alternating between reformist and leftist governments, with the electorate's main motivation appearing to be to throw the last lot out.

Then came 2005...

Poland broke the miserable mold of spending half of its time under neo-Communist governments by producing two right-of-center parties: the nationalist Law and Justice party and the globalist free-market Civic Platform. Law and Justice won the 2005 election and the presidency, still held by Lech Kaczynski (whose brother Jaroslaw is party leader). Then, two years later, Civic Platform won the legislative election and leader Donald Tusk became prime minister.

Unlike the horrid Yushchenko/Tymoshenko feud in Ukraine, the parties have remained able to work together, and have provided the Polish electorate with two alternative governments, neither of them staffed with Communist re-treads. It helped that the current foreign minister, Radek Sikorski, was defense minister under the Law-and-Justice government of 2005-2007: As an Oxford graduate with several years as a resident fellow at the American Enterprise Institute, he's somewhat uninvolved in domestic party disputes.

Poland now has become so westernized that it has primaries for the party's choice for president. (Places like France don't do this; the candidate is still chosen by party bosses.) Sikorski is running for president against his party rival Bronislaw Komorowski, the speaker of parliament. I had lunch with Sikorski a couple of times while he was at American Enterprise Institute for Public Policy Research (AEI); he is a very sound free marketer with a good sense of humor (who is married to the US journalist Anne Applebaum).

From the point of view of my bragging rights, I hope Sikorski wins, but from Poland's point of view, I don't think it matters much – the country seems to have itself very well organized already. After all, Jacek Rostowski, the finance minister who denounced the IMF for its profligate advice, was just named European finance minister of the year by The Banker magazine, and he stays for now no matter who wins the presidency (because the parliamentary elections are not until October 2011).

The result has been a free-market success story. Poland's economy grew at roughly a 5% annual clip until 2008. That's when – instead of tying its currency to the euro – Poland allowed the zloty to depreciate when the financial crisis hit. As a result, the country enjoyed 3% growth in 2009, and is slated to do at least as well in 2010 and 2011.

The budget deficit is currently 2.5% of gross domestic product (GDP), mainly because – at 18% of GDP – central government spending is extraordinarily low by European standards. The payments deficit is less than 3% of GDP, inflation is below 3% and short-term interest rates are at a sensible level at just above 4%. Industry was privatized properly and without corruption under the Balcerowicz Plan in the early 1990s and the central bank is independent and not infested with Bernankeism – Balcerowicz, who was its chairman in 2000-2007 after his periods as finance minister, took a German-style, hard-money approach to the currency.

What's not to like? As Finance Minister Rostowski said in a Financial Times interview:

"All the new member states [of the EU from Eastern Europe] have proved to be much more resilient to the crisis than people previously thought."

That's because, unlike Greece, most of these member states were run by grownups – Poland foremost among them.

As for the Polish stock market, the Warsaw Stock Exchange WIG Index peaked at 70,000 in 2007, then dropped to 20,000 at the bottom. It has since recovered to 40,000, which suggests there are more gains to be had.

Of course, it's difficult for US investors to find anything in Poland to buy. There are no full American Depository Receipts (ADRs) from this region, so anything you buy would be on the "Pink Sheets", meaning its liquidity would be limited accordingly. However, many shares do trade actively on the Frankfurt stock exchange, as well as on other, local exchanges.

However, in November 2009, the Market Vectors Poland ETF was established on the New York Stock Exchange, which invests in the Market Vectors Poland index. It's currently too small to be entirely solid at only $17 million, a tiny float, but it certainly looks worth investigating.

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Now a contributing editor to both the Money Map Report and Money Morning, the much-respected free daily advisory service, Martin Hutchinson is an investment banker with more than 25 years’ experience. A graduate of Cambridge and Harvard universities, he moved from working on Wall Street and in the City, as well as in Spain and South Korea, to helping the governments of Bulgaria, Croatia and Macedonia establish their Treasury bond markets in the late '90s. Business and Economics Editor at United Press International from 2000-4, and a BreakingViews editor since 2006, Hutchinson is also author of the closely-followed Bear's Lair column at the Prudent Bear website.

See full archive of Martin Hutchinson.

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