There are more grounds for scepticism about the Czech Republic, where the rapid deterioration of current accounts may have been a factor in last year's decline in foreign exchange reserves. In Romania, Bulgaria and Ukraine, the levels of foreign reserves are already dangerously low. None of these countries has been able to attract significant amounts of foreign capital, and they have thus felt compelled to limit their current account deficits, or as in the case of Bulgaria, to actually keep the account balanced. Forces underlying recent performance will continue to be at work in 1997 and 1998. GDP growth in more advanced CEE countries will continue to be moderate, and lower still in the less advanced economies.
Stabilization is at least a possibility in both Russia and Ukraine.
Ukraine, however, also faces an essential task of coping with growing imbalances in foreign trade and current account deficits. Assuming only marginal improvement in the West European business climate, there will be little opportunity to boost exports. For the countries that have made substantial investments in manufacturing technology in recent years, the payoff could be big, leading to improved export performance in 1997, even under conditions of strong appreciation. The advanced CEE countries will probably try to prevent excessive increases in imports, probably through additional devaluations, but short of the drastic, Hungarian-style restrictions on domestic consumption and investment that seem likely in Romania and Bulgaria. In Slovakia, import levels could be cooled by slowing down the pace of government investments in infrastructure.