The Wall Street Journal reports "recent efforts by emerging markets such as Brazil, India and Turkey to stem investor flight from their economies are just “stopgap measures” that need to be followed by heftier policy actions, the Federal Reserve said Tuesday in its semiannual monetary policy report to Congress.
"Finance officials in some of the hardest-hit countries have raised interest rates and tweaked rules on cross-border investments to help tame the capital exodus, blaming the Fed’s wind down of its easy money policies as a primary cause of recent equity, bond and currency sell-offs in their countries".
"But the Fed suggested emerging market leaders need to do more to tame inflation, cut their government debt levels and boost competitiveness in their economies to reassure investors.
In a chart showing exchange rate appreciation and economic vulnerability of emerging markets, the Fed highlighted Turkey, Brazil, India, Indonesia and South Africa as the most exposed to further problems. The Fed’s “vulnerability index” is based on six indicators, including how much countries have to borrow from abroad to finance their trade deficits, public and private indebtedness, inflation, and the size of their emergency cash stockpiles".
