Transition and Economic Development in Southeast Europe Milica Uvalić published in Johanna Deimel and Wim van Meurs (eds) (2007), The Balkan Prism – A Retrospective by Policy-Makers and Analysts Munchen, Verlag Otto Sagner, pp. 233-250. 1.Introduction The transition in Southeast Europe (SEE), in its narrow definition of the Western Balkan states which at the time of writing comprised six countries - Albania, Bosnia and Herzegovina, Croatia, Former Yugoslav Republic (FYR) of Macedonia, Montenegro and Serbia, including Kosovo governed by the United Nations Mission in Kosovo (UNMIK) 1 - has been more difficult than in many other parts of Central and Eastern Europe. The high political instability caused by the numerous events of the 1990s – the disintegration of the Socialist Federal Republic (SFR) Yugoslavia, the pursue of nationalistic policies by the newly created states, slow progress with political reforms and democratisation, the multiple military conflicts including the 11-weeks NATO bombardments of FR Yugoslavia in 1999, the UN and EC sanctions against Serbia, the Greek embargo against FYR Macedonia - have all left profound and long-lasting economic and social consequences. The SEE countries are today relatively underdeveloped, most of them are highly dependent on inflows of foreign assistance to cover high current account deficits, the social costs of economic reforms undertaken so far have been extremely high, and the region has until recently attracted relatively limited Foreign Direct Investment. Although a lot of progress has been achieved regarding economic and institutional reforms, the situation is still unsatisfactory on many fronts. Many observers would therefore argue that the SEE region is still highly unstable, politically and economically, and that many tasks need to be fulfilled before these countries are ready to become members of the European Union (EU). The present article will try to offer a somewhat more optimistic vision of the SEE region, by drawing attention to some economic achievements. Taking a longer-term view and comparing the situation today with the one prevailing in the 1990s, it will be shown that substantial progress has been achieved in a relatively short period of time, even in countries that until recently were lagging behind. This will be illustrated by discussing recent macroeconomic performance (section 2), transition-related 1 The Federal Republic (FR) of Yugoslavia was constituted in April 1992 and consisted of Serbia with its two provinces, Voivodina and Kosovo, and Montenegro. The country changed its name into the State Union of Serbia and Montenegro on 4 February 2003. Following the May 2006 referendum on independence in Montenegro, Serbia and Montenegro became two independent states in mid-June 2006. According to the UN Security Council Resolution 1244 adopted in mid-1999 Kosovo officially remained part of Serbia, but has since then effectively been governed by UNMIK. All statistical data after 1999 on FR Yugoslavia/Serbia do not include Kosovo.