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World Reaction
Special> QE2: Helpful or Harmful?> World Reaction
UPDATED: November 19, 2010
Emerging Economies
Emerging economies expressed displeasure at the Fed's move

Policymakers from the world's new economic powerhouses in Latin America and Asia pledged yesterday to come up with fresh measures to curb capital inflows after the United States Federal Reserve said it would print billions of dollars to rescue its economy.

Emerging economies expressed displeasure at the Fed's move, making any substantive deal on global imbalances and currencies at Group of 20 summit in Seoul even less likely.

South Korea's Ministry of Finance and Strategy said it had sent "a message to the markets" and would "aggressively" consider controls on capital flows, while Brazil's Foreign Trade Secretary said the Fed's move could cause "retaliatory measures."

Economy Minister Ali Babacan of Turkey, where the central bank has been buying increasing amounts of foreign exchange in an effort to curb appreciation of the lira against the dollar, said the Fed's action might backfire.

"The Fed move was a measure taken in a desperate environment. It should be considered whether pumping this much money into the market can create more damage than benefit," he said.

Thailand raised the possibility of concerted action to combat the flood of investment dollars that are expected to wash into emerging markets.

"The central bank governor has confirmed discussions with central banks of neighboring countries, which are ready to impose measures together if needed to curb possible speculative money flowing into the region," Finance Minister Korn Chatikavanij told reporters.

Zeti Akhtar Aziz, head of Malaysia's central bank, also said Asian central banks were "willing to act collectively if the need arises to ensure stability in the region."

A senior Indian finance official, who spoke on condition of anonymity, said that while the U.S. had a right to stimulate its own economy, others would also serve their own interests and said that any deal on currencies in Seoul had to be a "win for both the blocs."

"And that begs a political solution and that's why we are all looking to Seoul," he said.

Xia Bin, an advisor to China's central bank, bluntly warned in the Financial News that the government would pursue its own interests, saying: "We must think 'what is good for us'."

Credit Suisse currency strategist Olivier Desbarres said, "It doesn't seem to me that this is the kind of environment in which any country will commit to targets."

In the wake of the Fed's move to buy $600 billion of U.S. bonds, South Korea's central bank was seen selling its won in a bid to cap gains after it hit six-month highs in the run-up to the Fed announcement.

Other high-yielding currencies also rose with the Australian dollar breaking through $1 to its highest levels since 1982 and Japan warned that it was ready again to use intervention to halt a rising yen that would hurt its huge exporters.

(Xinhua News Agency November 5, 2010)

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