ABSTRACT
The East Asian NIEs, except Hong Kong which has no central bank and does not possibly engage in active macroeconomic management, are often cited as examples of how consistent application of sensible macroeconomic policies can counterbalance adverse internal and external developments. The setting of a right macroeconomic environment is believed to be an important factor for the success of these economies. Singapore and Taiwan, despite their highly interventionist attitudes, have been very prudent in using traditional fiscal and monetary policies. In contrast to most developing countries and many industrial economies, the public sector in both Singapore and Taiwan has been persistently in surplus since the late 1960s. As a result, there has been no pressure for monetary expansion for deficit financing and beyond the needs of a growing economy. Even in Korea, which had overall budget deficits for most of the time, ‘[g]overnment policies have sustained relative financial stability by never allowing massive money financed deficits’ (Dornbusch and Park, 1987: 401).
