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Hints that the Fed might start to scale back the $85 billion in bonds it buys each month as soon as September rocked developing countries' financial markets and weakened their currencies over the summer as foreign investors started pulling funds out on the expectation of higher returns back home. The Fed has delayed its "tapering" of the stimulus, but with advanced economies' growth finally picking up, the end of cheap money is inevitable. Hofman said the delay gives countries "a second opportunity" to prepare for rising global interest rates, falling currencies and possible foreign investment outflow. He urged countries to reduce reliance on short-term foreign currency denominated debt and to enact structural reforms such as improving infrastructure and investment climate to lure back investors once the U.S. stimulus incentive dries up. "This is a good time to clean house," Hofman said of governments and banking systems. "In a way, the talk of tapering in July and August was sort of a very nice general rehearsal for the actual thing."
[Associated
Press;
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