WB Warns That Tapering Risks Still Remain

Nusa Dua, Bali, Sept 20 (Antara) - The World Bank (WB) has warned that tapering-related risks and uncertainty will remain even though the US central bank has decided to continue with its stimulus programme. "Now is the time for policy makers to use the momentum to settle domestic vulnerabilities and reduce exposure to external finance," said World Bank`s Executive Director Sri Mulyani Indrawati in her speech at the meeting of Asia Pacific Economic Cooperation (APEC) finance ministers on Friday. She viewed Fed`s recent decision to continue with its stimulus programme as an action with positive outcomes in the short run for the economies of both developing and high-earning countries. "We know that this decision has given a number of governments time `to breathe`," she said. Sri Mulyani added that if liquidity was held back and interest rate rose, withdrawal of quantitative easing policy in stages would lead to serious consequences in the APEC region. Therefore, she said, countries that have recovered from the economic crisis must adjust their macro-economic policies to prevent inflation, asset bubbles, and their current account deficit from widening. Countries that are easily affected by global capital flows, meanwhile, should continue to strengthen their balance sheets by reducing their dependence on short-term foreign debts, she explained. "Significant efforts in the region to develop local currency denominated bond market are clear signs that policy makers have understood and responded to the need," she said. The former Indonesian finance minister explained that when the quantitative easing policy is withdrawn later, interest rate will likely rise to increase the cost of debts and capital. On the other hand, she said it would signal further recovery in the US economy and depreciation of currencies in the developing countries would increase exports from those countries.