ABSTRACT
The financial crisis that rocked emerging market economies in 1997 and 1998 has sounded alarms for transition economies like the Czech Republic, Hungary and Poland. Crises characterised by capital flight, currency depreciation, banking crises and economic recession began in East Asia in July 1997. Before the crisis hit East Asia, the Czech Republic experienced crisis in May 1997 (Figure 8.1), which Hungary survived relatively well, though the Hungarian forint temporarily moved towards the middle of its exchange rate band from a previously stable strong position. The Slovakian currency was also under attack a few days after the Czech crisis, but as Slovak capital markets are much less open, regulation is stricter, the banking system is more closely attached to the government, and also because the National Bank of Slovakia had been well prepared for the attack, they could defend their currency effectively. Poland's situation was similar to that of Hungary. This lack of contagion must be explained, as, contrary to this experience, both the Mexican crisis and the Thai crisis were followed by similar events intraregionally.
