The anniversary is about the Wall, but it was central Europe that set the concrete tumbling.

Poland's Solidarity movement weakened the mortar in the early 1980s. Czech and Hungarian border openings in October 1989, which propelled desperate and determined East Germans into the West, further destabilized the structure. The Czech Republic's Velvet Revolution and Hungary's Handshake Transition inspired millions, demonstrating that dramatic change can come about through popular will rather than the power of the sword.

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Led by opposition heroes like Lech Walesa and Vaclav Havel, Poland, the Czech Republic and Hungary transformed into democracies, partnered with the West and were imbued with economic potential.

The results have been tremendous. The trio's collective per capita income growth rate is expected to range from 3 to 6 percentage points per year over the next few years, better than expectations for the far wealthier European Union.

Now, the three countries at the heart of Eastern Europe's transformation have received the trappings of their successful and near-complete transitions -- formal invitations to what were once the swankiest global clubs around. This summer, they became members of their former military foe, NATO. And all three are on track for accelerated EU membership, reflecting the fruits of their free-market economic development.

Poland, Czech Republic and Hungary

For all their progress and dreams, however, the most advanced of the transitional economies still wallow at output levels less than half those of the poorest EU states. Even their expected quick per capita GDP growth won't see them close in on the bottom-ranking EU members.

As they did for the rest of the former eastern bloc, the Russian crisis of last summer and this year's Kosovo war led to output recessions, trade deficits, currency declines and a drop in foreign investment.

The Czech Republic, in particular, has had a tough year. In 1998, the economy contracted, investment levels dropped and the government, perhaps taking a cue from the West, went into budget deficit. Once dubbed the "Paris of the '90s," the Czech Republic is now a drag on central Europe -- though it is faring much better than Slovakia, from which it separated in 1993. EU Commissioner Gunter Verheugen warned that another year of bad performance could push the Czech Republic out of the running for advanced candidacy and called for speedier privatizations, price liberalization and greater fiscal transparency.

Being kicked off the accelerated EU list would be a tremendous blow to the fragile Czech Republic and would dampen foreign investment, which will reach record levels this year. Privatizations are driving the foreign direct investment flows, which are expected to exceed 5% of GDP for 1999.

FDI inflows have grown in Poland, as well, driven by privatizations and greater exposure in the international markets. As if to prove that its turnaround from communism to capitalism is complete, a Polish company, telecom Netia Holdings ( NTIA), debuted on a U.S. stock exchange this summer. While the stock has lost 30% of its initial value, it is a symbol that Poland is now a player on the international investment stage.

Economic indicators show that Poland is likely to improve as an investment opportunity. The economy has grown consistently since 1992, inflation is expected to decline more than 3 percentage points this year to 7.5%, industrial output is rising and more privatizations, including of pension funds, are scheduled.

Poland has hinted that it may retire high-yield debt with receipts from its privatization program. This has caused a few investors to slightly underweight Poland's external debt. Still, most sovereign buyers tend to overweight Poland, citing the cheapness of the paper in light of last month's ratings upgrade by Moody's Investors Service to Baa1 from Baa3.

The rating change places Poland on level with Hungary, which received an unexpected upgrade in June to Baa1 from Baa2. In some ways, Hungary has been the tortoise in the transition race. Slow and steady with its reforms, Hungary is now the fastest-growing economy in the region, surging to an expected 5% to 6% increase in real GDP next year. However, inflation is rising and real interest rates remain low compared with those of its neighbors, making Hungarian debt less attractive than other securities in the region.

Overall, prospects for Hungary, Poland and the Czech Republic are improving as the Russian economic situation improves and EU demand is up, along with international investor confidence in the region.

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