It is a great pleasure for me to welcome you to this conference, A Decade of Transition: Achievements and Challenges. This gathering brings together leading experts—policymakers, academics, and staff of international financial institutions—who have been working closely on transition issues. Their experiences bring a wide range of perspectives on the accomplishments to date, as well as on the challenges that lie ahead, and the policies needed to address them.

The Berlin Wall fell in November 1989. The wrenching transformation that followed in countries east of that dividing line has brought liberty to those countries and, in many places, prosperity, but it has also strained their economic, social, and political makeup. Recognizing the historic importance and the unparalleled difficulty of the transition, the IMF became involved very early in helping about 20 of those countries to establish Fund membership. Since then, in collaboration with the World Bank, it has been working closely with the countries in transition in formulating stabilization programs and structural reforms to develop market institutions. The Fund has, along with others, provided a vast array of technical assistance to strengthen the institutional capacity of the emerging market economies. It has supported those efforts through a new instrument specifically created for transition economies—the Systemic Transformation Facility—as well as through stand-by arrangements, extended arrangements, and the Enhanced Structural Adjustment Facility.

At the outset of transition, little was clear, except that there was no turning back. There was no master plan and scarce relevant experience to guide action. In the economic sphere, a host of proposals quickly filled the vacuum, jostling with the force of events and circumstance to determine what happened. In Central and Eastern Europe, German reunification defined the options for the German Democratic Republic; Poland and countries of the former Yugoslav Republic confronted outright hyperinflation. In these and other countries, national consensus for change sometimes proved elusive, and, in some cases, hostilities broke out. All the countries had to grapple with the collapse of the trading arrangements under the Council for Mutual Economic Assistance (CMEA), of key export markets, and of economic activity. The breakup of the Soviet Union in 1991–92 brought further issues into play: planning mechanisms were more deeply entrenched there; hyperinflation was rife; and a raft of new countries and currencies were established.

The essential components of the transition reform agenda, however, rapidly crystallized: fiscal consolidation, monetary and financial reform, price and trade liberalization, and privatization. As a result of courageous decisions by many leaders, progress has been dramatic. By the end of 1997, inflation was close to or in single digits in many of these countries. Since 1993, output has been growing in Central and Eastern Europe and since 1995 in many of the Baltics and countries of the former Soviet Union. Although much remains to be done, a number of countries have all but completed the structural reforms that comprise the transition agenda. Indeed, some have already embarked on reforms aimed at accession to the European Union. So, undoubtedly, the foundations for prosperity have been laid. Even to those with no more than a passing acquaintance with the region prior to 1990, the transformation is obvious. In just one short decade, centrally planned systems already seem like defunct and discredited relics of a distant past. What an exhausting job! And since many of you, in one capacity or another, have been actors in the transition, let me express the Fund’s admiration and pride in having been associated with those efforts. But, of course, not everything is rosy!

After the reversals in Albania, Bulgaria, and Romania in 1996 and 1997, and the events in Russia in 1998, surely no one still harbors the illusion that continued progress will be straightforward. These events remind us of important lessons: that the region is exposed to developments elsewhere in the world; that incomplete transition reform is hazardous; and that interlinkages in the region remain strong.

We are clearly far from the end of the road. But even where structural reforms have been incomplete, they have at least provided the preliminary foundations for private ownership, market pricing, and market discipline. Now, most of the countries can turn to the much more difficult and time-consuming task of implementing second generation reforms, even though some of those countries still have far to go in tackling the first generation of reforms.

I admit to taking an advance look at some of the conference papers. I was impressed that the paper on privatization, while admitting to problems and the need to rethink privatization, gives compelling reasons as to why the new thinking should be better privatization rather than less privatization. More generally, I will hazard a guess that a similar theme—that of sustaining and deepening reforms, rather than reversing the buildup of market institutions—will emerge in your discussions as key to the success of other essential elements of reform: creating a market-friendly environment, developing a sound financial sector, establishing effective government operations, and providing equitable social protection. These issues are surely the right ones to examine in this conference and should provide a basis for exploring the policy strategy—the road map—for the next stage of the transition journey.

Let me highlight one specific task of great importance for the future: enforcing the rule of law and fostering a culture that respects and, indeed, welcomes a framework of law, regulation, and codes of good practice. Within such a framework, governments, enterprises, financial institutions, and individuals should be able to deal with each other at arm’s length and in a transparent manner. An important ingredient is that the discipline of the market should be allowed to work. This will reduce restraints on the activity of enterprises, whether old or new, encouraging the initiatives of entrepreneurs, who are the source of productivity growth, new output, and more value added—in short, growth of GDP. Ultimately, that is what stabilization, structural reform, and transition are all about.

In conclusion, I would venture that much has been learned in the past 10 years about what works in transition, but many questions remain. I hope that the discussions in this conference will shed light on three issues that seem particularly important to me:

• For countries that have completed the bulk of the structural reform agenda for transition and have achieved moderate inflation, what are the key next steps to stimulate growth and strengthen their resilience to external shocks?

• For countries that still have some distance to go to complete their reform agenda, what should their priorities be?

• In assisting these two groups of countries, what key areas of reform should be the focus of the Bretton Woods institutions in the period ahead?

You have much to discuss, and we all have much to learn. I wish you well in your endeavors in the coming three days.