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 postcommunist 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.