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Macroeconomic and financial stability: transition and East Asian “contagion”
The contagion effects emanating from the recent East Asian turmoil provide an
interesting test of the strength of the foundations for macroeconomic and
financial stability laid by the post-communist transition and how this
strength varies across central and eastern Europe and the CIS. The analysis
reveals considerable variation across the region with respect to both
macroeconomic fundamentals and the ability to withstand shifts in the
portfolio allocations of investors. This variation, moreover, has been
reflected in the impact of events in East Asia on money and securities markets
across the region, although the post-communist countries as a whole have
withstood these effects fairly well. The relative stability of the region
leaves no room for complacency, however. There remain significant
macroeconomic imbalances and vulnerabilities. And many of the structural
weaknesses observed in East Asia, particularly in its financial sectors and
patterns of corporate finance, can be found in the transition economies,
albeit on a smaller scale because of the time that has been required to expand
finance in the transition.
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