Three years after the exchange rate crisis: recapitulation of events and their connections

The article describes economic and political events that preceded and followed the exchange rate crisis in May 1997 and analyses the main causes and consequences. Years 1994 - 1995 are viewed as a period of high economic growth and rate of investments combined with growing external disequilibrium which manifested itself in deteriorating balance of trade. Maintaining fixed exchange rate and liberalization of capital flows helped to create a speculative "bubble" which finally led to speculative attack on crown.
The role of monetary policy is discussed in context of the government "packages" in spring 1997 which were aimed at maintaining the balanced government budget. The exchange rate crisis is viewed as a dramatic episode which showed how easy it is for speculators to shatter the fragile equilibrium of an economy in transition. The restrictionary policy of central bank is criticized as the main cause of the economic recession which followed.

Keywords: economic transformation, exchange rate crisis, monetary restriction, external disequilibrium, speculative bubble