Much of Eastern Europe is demanding increasingly sophisticated services as the level of foreign investment and integration into the global economy proceeds apace. Poland and Romania are expected to be the main draws for investment

Bulgaria is attempting to ward off a second default on its foreign debt in seven years. Serbia's economy is still very fragile. Direct investment into Russia is still very limited. Hungary has been the focus of much recent investment banking activity.

Industrial and utility privatisations over the past two years brought more than $5bn in foreign investment into Hungary and kept investment banks busy. Some substantial deals are still in the wings, however, including an initial public offering by Matay.

NM Rothschild and Credit Suisse First Boston led the first two privatisation stages which left 67 per cent of Matay, the telecommunications company in the hands of Magyarcom, the Deutsche Telekom and Ameritech consortium. Merrill Lynch recently won the tender to prepare the third stage, an IPO through which Magycom will cut its stake in Matay to 51 per cent.

Thanks to the influx of foreign capital, technology and management Hungary's overall economic performance, and especially export competitiveness, has sharply improved. Credit Suisse First Boston's Janos Bartha notes that over the past few months Budapest has started to enjoy a virtuous circle of declining domestic and foreign debt, lower inflation and falling interest rates. As debt levels and interest rates fall, Hungary enjoys ever tighter terms on a foreign debt which once threatened asphyxiation.

With the Hungarian experience in mind Bulgaria's socialist government reluctantly launched itself on a similar path with a crash privatisation programme. Sofia hopes to raise $1.2bn this year, of which possibly up to $500m will come from the sale of a 25 per cent stake in the telecommunications company. Six leading investment banks, including Deutsche Morgan Grenfell, are competing for the mandate which is expected to be awarded in mid-February.

A great deal of forthcoming attention is likely to settle on Poland, Romania, Russia, and Ukraine.

Poland and Romania, with a democratic, reforming government, are expected to be the main draws for foreign investment over the rest of the decade.

Several big deals are in the offing in Warsaw. They include an offering which will mark the first stage in the privatisation of Bank Handlowy and a start to the privatisation of Polska Miedz, the copper and silver combine and Polska Telecom.

Poland's biggest bank, Bank Handlowy, is fighting to retain its leading role in foreign exchange and trade finance, fields which it used to monopolize. It is also developing its corporate finance and general banking business. It is also seeking an investor to strengthen its capital base and assist with competing in an increasingly competitive market. Stalexport, a leading Polish steel company, issuing the first London-listed convertible eurobond by a Polish company.

London-based banks were quick to spot Poland's potential while the big US houses initially preferred Prague, where rapid formal privatisation has not been followed by enterprise restructuring on the expected scale.