By ONOZURE DANIA
Emerging market countries should consider all possible means to prevent rapid and volatile capital inflows destabilizing their economies, according to the World Bank.

In its annual report on the global economy, Global Economic Prospects,  the Bank also argued that the world economy was already rebalancing faster than many had expected, thanks to rapid domestic demand growth in emerging market countries.

‘Our advice is to be as broad as possible in  countermeasures,’ said Hans Timmer, the Bank’s Director of the report.  Some countries such as South Africa have mainly used the exchange rate to reduce the inflationary impact of capital flows, but the approach of countries such as Brazil in trying to manage inflows more directly was also legitimate. It is not just a question of letting the exchange rate appreciate,’ Timmer said. Governments can try several measures at once, the report said.”

The Bank said emerging markets would contribute more to global growth, but expressed concern on food prices. The global economy will slow this year, with developing countries such as India and China providing a greater share of growth, the World Bank has predicted.

The Bank estimates that global GDP growth will be 3.3 percent this year against 3.9 percent in 2010, with emerging markets growing by 6 percent. But these rates would not be enough to reduce unemployment in the hardest-hit economies, it said. The Bank warned that ‘serious tensions and pitfalls’ persist.…” Bloomberg reports that “…capital inflows, a driving force of the recovery in emerging countries, now pose risks to global growth as they can trigger abrupt currency fluctuations that may do ‘lasting damage’ to some nations, the World Bank said.

The report said countries that attracted the most funds were middle-income ones ‘with well developed debt and equity markets,’ where large inflows ‘either have caused their currencies to appreciate by more than warranted by their fundamentals, or have forced them to take extraordinary measures to prevent a disruptive appreciation.’ Resisting such an appreciation comes with costs, and its success is not guaranteed, the Bank said.

For instance, inflation in countries from China to India is high or accelerating, and currencies from Brazil to Thailand still have appreciated more than 7 percent in real effective terms since the start of 2010, the World Bank said.