Tapering is a very popular term in the global financial market that was coined by the US Federal Reserve Chairman Ben Bernanke during his testimony before US congress which means taper of monthly bond buying program worth $85 billion. US central bank in its recent Federal Open Market Committee meeting announced to continue with the monthly bond buying program citing the condition in the US job market and possibilities of slowdown in the world’s largest economy.

In these circumstances, emerging market is another major set of economies which is directly affected by the decision of Fed’s reluctance of tapering. Emerging markets likes India, Indonesia, Brazil, South Africa and Turkey have been experiencing the inflow of cheap fund from US mainly due to US bond buying program also known as Quantitative Easing. In the past years, emerging markets has been experiencing huge inflow of cheap money from the US. However, in the summer when US long term interest rate started to rise some of the emerging market like Indian and Indonesian currencies started to decline as these countries also holds huge external deficits. Therefore, these countries are highly vulnerable to any of the Federal Reserve decision in near future.

This is the high time emerging market should gear up themselves to take advantage of Federal Reserve decision of continuing bond buying program as its matter of time before Fed taper the bond buying ending historically loose monetary policies. Here, the emerging market with worsening current account, decreasing foreign reserve, higher interest rate among others needs to be more cautious as they have relatively lesser option to tackle the situation if US discontinue bond buying program which would also trigger rise in interest rate of long term debt.

Therefore, emerging economies focused should be on improving the economic fundamental as it’s the only ways to stay tough in the upcoming circumstances. The emerging countries need to improve the trade deficits which are at quite high level for country like India and Indonesia. These countries along with other emerging economies have more or less relied upon the foreign investment in order to pay the current account deficits, interest payment for foreign loan which surely is the sign of danger and should be addressed promptly. India and Indonesia have already saw some glimpse of economic uncertainty this summer when the international investors started to withdraw investment on back of rising US long term debt and weaker economical fundamental.

For the time being, Federal Reserve continuation of bond buying program seems to delay the crisis of emerging market but that may not last long as US economy is improving steadily and time will come when investors would move back to the world’s largest economy leaving the emerging economy in disarray. Therefore, it’s the perfect time to come up with some policy changes by the emerging market focusing on steady growth with the help of reforms in their economy.