1. After three consecutive years of negative growth, the Czech economy seems finally to be recovering just in time to ensure a more cheerful reception for the many guests who will come from all over the world to attend the IMF/World Bank Annual Meeting in Prague. Nearly every scrap of new data indicates that the recovery is strengthening, but the Czech authorities agree with the staff that the fundamentals must be consolidated to ensure that the strengthening continues until it becomes self-sustaining. There are still many challenges to be surmounted, the most serious involving fiscal adjustment and the restructuring of the banking and corporate sectors. An incipient recovery is not a reason to relax adjustment efforts; it is rather a signal to intensify such efforts because it proves that measures that are difficult and even painful will pay off by bringing stronger economic growth.