The global financial crisis and macroeconomic policy in Southeast Asia

The remarkable record of economic growth achieved by Singapore, Malaysia, Thailand, and Indonesia in the 1980s and early 1990s earned these countries the title of “miracle” economies in the famous World Bank study The East Asian Miracle (1993). This and other efforts to account for their success identified macroeconomic stability as a key feature promoting trade, investment growth, and relatively efficient resource allocation. In these four countries, stable nominal exchange rates relative to the US dollar – a key signal to investors, both domestic and foreign – were supported by domestic fiscal and monetary policies that eschewed large public sector deficits and inflation taxes, avoided excessive private sector credit creation relative to GDP growth, and maintained a flexible approach to external shocks that has been praised as “pragmatic orthodoxy” (Corden 1996).