December 10, 2010 / 1:47 PM / 9 years ago

Inflows may pressure emerging markets: Stiglitz

The U.S. Federal Reserve Building is pictured in Washington, January 26, 2010. REUTERS/Jason Reed

SANTIAGO (Reuters) - Smaller developing countries should prepare measures to be able to cope with inflows of cash as investors look for bigger returns outside sluggish developed economies, Nobel Prize winning economist Joseph Stiglitz said on Friday.

Stiglitz told a conference in Chile that he expected the Europe and the United States recovery to be “very slow,” and that Washington should roll out a second round of stimulus.

He said there is a chance the euro could fail and that its sustainability would depend on a fiscal framework that helps struggling European nations like debt-stricken Ireland.

Given the relative vigor of some emerging market economies, their governments may have to resort to steps to curb an overdose of inward investment, he said.

Chile, which has refrained from capital controls, should be ready to intervene in the local peso that is trading at around 30-month highs. The currency is boosted by rising dollar inflows and soaring prices for No.1 export copper.

“They (Chile) should also be ready to intervene in the exchange rate,” said Stiglitz, who won a Nobel Prize in economics in 2001. “It depends on what is going elsewhere in the world, the magnitude of the (inflows) pressure.”

Chile’s central bank last intervened to counter peso strength in 2008, when it hit around 430 per dollar. The peso was trading at around 475.50 pesos a dollar in late Friday trade.

Writing by Simon Gardner. Editing by W. Simon

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