2 Poland's Quest for Economic Stabilization, 1988-1991: Interaction of Political Economy and Economics Branko Milanovic Poland's stabilization program of January 1990 has attracted wide- spread attention. 1 It is so far the boldest attempt to transform a socialist economy suffering from a high degree of instability (inflation, shortages) into a stable capitalist economy. It thus involves two separate components: macroeconomic stabilization and systemic reform. In this chapter we shall be concerned with the first component. This chapter is organized in four sections. In the first two sections we examine, respectively, the Price and Income Operation of February 1988 (the so- called second stage of reform) and the change in policy that ensued un- der the Rakowski government, including the removal of food subsidies in August 1989. The third section discusses the January 1990 Stabiliza- tion program. As we demonstrate, the 1990 Stabilization program, however impres- sive, cannot be considered in isolation. Prior to the January 1990 stabilization there were at least two years of intensive attempts at reform .. Reforms failed, either because no minimal social consensus could be achieved, or because they were badly designed. However, they hold lessons for other countries that may engage themselves along the same road as Poland. Their failure also paved the way for a much more ambitious project that took place in January 1990. 43 K. Z. Poznanski (ed.), Stabilization and Privatization in Poland © Kluwer Academic Publishers 1993