IMF head calls for exchange rate flexibility, tight fiscal policy in emerging economies

MANILA (AP) - Emerging economies should promote flexible exchange rates and, in some cases, tighten fiscal policy to guard against volatility in capital flows, the chief of the International Monetary Fund said Tuesday.

Emerging markets that have recently benefited from the steady inflow of portfolio capital should brace themselves for the fickle nature of the investments, Rodrigo de Rato told businessmen in Manila.

He suggested a twofold response to a possible abrupt reversal of substantial capital flows: sound macroeconomic management and financial sector deepening.