The traditional CMEA system of trade and pay ments in Central and Eastern Europe was dis mantled in 1990, giving way to the establishing of market relations in mutual trade. While there seems to be a general consensus among economists and policy-makers that the switch to a market system will ultimately bring about substantial efficiency gains through a better allocation of resources, dis continuation of loss-making exchanges, and the establishment of mutually beneficial trade based on principles of comparative advantage, it is also recognized that the short-term costs of the transi tion are likely to be high, adversely affecting levels of trade, output, income, and employment in the CMEA countries. If not addressed in an adequate way, negative spill-over effects may lead to a serious deterioration in the economic situation in the region, and even put the whole transformation process in jeopardy.