By Christian Lowe and Marcin Goclowski
WARSAW (Reuters) - For years, Poland has been a liberal economist's dream: a country where government made decisions based on market logic rather than the political imperatives that have often intruded elsewhere.
That changed this week.
Prime Minister Donald Tusk announced he was transferring a large chunk of assets from private pension funds to the state, freeing the government's hand to boost public spending in the run-up to a national election in 2015.
The reform does not change Poland's sound economic fundamentals: debt is still coming down, the cost of doing business is low, the government is fiscally prudent compared to its neighbours and rating agencies take a relaxed view.
But it will profoundly affect a more subtle measure of Poland's economic health: how foreign investors perceive it. After the reform, say some in the market, Poland's crown as the most business-friendly big economy in Europe is slipping.
Asked how he felt when he heard Tusk announce the pension changes on Wednesday, one investment banker who works in Warsaw for a foreign bank told Reuters: "I went weak at the knees."
The Warsaw stock-market tumbled in response to the changes, before recouping some of its losses on Friday.
Poland's government has argued that market jitters will be short-lived, and that far from undermining Polish economic stability, the reforms will strengthen it.
Finance Minister Jacek Rostowski has said that bringing some of the private funds' assets onto the state's balance sheet will cut public debt by around 8 percent of economic output.
Rostowski rejected comparisons with Hungary, where Prime Minister Viktor Orban has come under fire for pursuing policies that hurt investors, including a nationalisation of pensions.
"Our reform is balanced and very rational, much more moderate than what has happened in Hungary," he told a news conference on Friday.
Investors still view Poland much more favourably than Hungary, but any parallels are awkward for Polish officials. In private conversations, they are often condescending about what they see as Orban's populism.
Poland's reform has now left it exposed to accusations of political opportunism not before seen under Tusk's government. His party is under pressure, with its opinion poll rating having slipped behind the main opposition party.
"(Tusk) used to have a reputation for prizing stability above all else," said Nicholas Spiro, of Spiro Sovereign Strategy, a consultancy. "This is no longer the case."
The psychological impact of Poland's reform was already being felt this week. Middle-class Poles who embraced the free market after the fall of Communism questioned their assumptions about the sanctity of private property in the new Poland.
Some compared the change to the nationalisations when Communists took power in Poland after World War Two.
"This is my money," one angry businessman with savings in the private funds told colleagues after a gathering of the country's business elite in the spa resort of Krynica this week.
There is likely be a more tangible impact too.
Several industry insiders said they expected a dip in market debuts on the Warsaw bourse now that the private funds - previously active and deep-pocketed buyers of equity holdings - are to be marginalised.
The Warsaw-based investment banker, who spoke on condition of anonymity, said he was worried.
"How can I sell shares to OFE (the private pension funds) or to foreign investors in this situation? I'm afraid there will be a problem with placing share offers from Poland."
Market appetite for Polish equities will be tested when the government tries to sell its stakes in rail freight carrier PKP Cargo, and Energa, a power utility. The initial public offerings (IPOs) are scheduled for this year.
Artur Tomala, managing director for Goldman Sachs in Poland, said with the private pension funds less active, sellers will have to look for foreign buyers, and these may want bigger discounts than their Polish counterparts.
Questions had already been raised about Poland's commitment to fiscal responsibility last month, when the government widened this year's budget deficit and suspended a law which imposes penalties when public debt gets too high.
But any negative impact from that will now be mitigated. The government says that, thanks to the money freed up by the pension changes, it can make the debt thresholds even tougher.
(Additional reporting by Pawel Bernat and Pawel Sobczak; Editing by John Stonestreet)