Hong Kong: Nobel prize-winning economist Joseph Stiglitz has warned that India may be setting itself up for an attack of 'hot money' inflows as the US Fed's quantitative easing unleashes a flood of cash. He also warned that India was more open to such an attack than either China or Brazil.
Stiglitz pointed out that China and Brazil had, in recent weeks, tightened the screws on investors looking to push easy money in and out of their countries. By contrast, India had adopted a hands-off approach to the problem of what it calls capital controls.
Desisting from intervening much in currency markets India has allowed the rupee to rise about 5% this year against the dollar. Such an approach, Stiglitz said, would only set up India as a target for investors looking to make a quick buck.
''I do worry about countries like India where they are debating how much intervention in the market they should have,'' he said Thursday in Hong Kong. ''The free capital can go to fewer and fewer places, and India's one of those,'' he said.
He also pointed out that, ''Strong economies that don't yet have those capital controls become the focal point for all this lose money and they will be the countries under a lot of stress.''
Hot money tends to disappear at the about the same speed with which it arrives, leaving financial markets in the lurch. The sinking of the Asian ''Tiger Economies'' in the 1990s was a direct result of this phenomenon.
Stiglitz was speaking at the Mipim Asia real estate conference.