In 1997, the five more advanced CEECs – the Czech Republic, Hungary, Poland, Slovakia, Slovenia – performed, on average, as well as in 1996. Hungary overcame the effects of its 1995 stabilization policy, recording quite high export-driven growth. The Czech Republic, until recently a paragon of successful transformation, was finally hit by a crisis arising from sustained appreciation under expanding current account deficits. Bulgaria and Romania suffered huge output declines following macroeconomic mismanagement in 1996. The long decline in Russia's GDP has come to a halt, but Ukraine still missed that target, though not as much as in earlier years. Strong improvements in industrial production and labor productivity continued in Poland and Hungary. In the remaining CEECs, the recent improvements were not impressive and may be indicative of growing problems that can possibly stall overall growth in the near future. Gross fixed investment data for the CEECs convey much the same message. Investment performance in Russia and Ukraine was again rather dismal. Moderate inflation in the more advanced CEECs turned out to be difficult to suppress further. Crisis developments in Romania and Bulgaria were reflected in high inflation rates. In Bulgaria, under the currency board arrangement, inflation fell precipitously, but was far from safe levels in Romania. Russia and Ukraine succeeded in reducing inflation to moderate levels. Disinflation in these two countries has been painful and produced serious tensions that may be hard to defuse without new price increases. In all CEECs, excepting Poland and Croatia, trade deficits were lower than in 1996. The better business climate in Western Europe was one factor behind this. The reverberations felt in Bulgaria, Romania and the Czech Republic, and the ensuing devaluation, had also played a role. In Slovakia the improvement was in part achieved administratively, while Hungary fared well because of its improved competitiveness. Despite continuing decline in output and investment, Ukraine's trade deficit rose further and output stabilization in Russia started to show in a diminishing trade surplus. Lower trade deficits contributed to healthier current account balances in most CEECs. External imbalances further increased in Croatia and Poland. Despite this, the current account deficit was still rather low in relation to the GDP in Poland, but rather too high in the Czech Republic, Slovakia, Romania and Croatia. The crisis in Southeast Asia, which may have some practical implications for the transition economies, also alerted the authorities to the dangers inherent in free movements of capital. One should expect a renewed trend towards fiscal austerity and an additional impetus for improved capital market regulations. The supply of government securities offering high yields is likely to be restricted, at least outside Russia. Too high real appreciation of the currencies will be viewed as possibly disturbing, and exchange rates are likely to become less predictable. The policy may also seek to lower interest rate levels. It will be much more difficult to upgrade, in the near future, the supervision and regulation of banks, and to restrict the scope for non-transparent dealings between banks, corporations and politicians. With more cautious policies, growth in 1998 and 1999 is likely to slow down in Poland and Slovakia. Hungary is unlikely to get carried away by its recent success. Slovenia and the Czech Republic will also aim at stability, at moderate rates of growth. Bulgaria may well achieve stability. There are still question marks about Romania and, particularly, Russia. Finally, the long overdue stabilization in Ukraine may now be in sight.