Financial crisis in East Africa: A macroeconomic perspective

Abstract

The second half of 1997 witnessed a major financial crisis in several East Asian countries characterized by massive depreciation of their currencies and crash in the stock markets. The crisis occurred despite fairly impressive economic performance and prudent fiscal policies pursued by East Asian countries and came as a rude shock for many involved in international finance, multilateral institutions, policy-making and academics. An attempt has been made in this paper to provide a macroeconomic perspective on the East Asian crisis by analysing its background, underlying causes, its impact on the affected countries and its implications for Indian economy. The macroeconomic analysis presented in the paper is based on the experience of four countries, viz., Thailand, Indonesia, Malaysia and South Korea, where the severity of the crisis has been quite high.