Policy responses by way of foreign exchange intervention and managing capital flows in several emerging market have generated different appreciation pressures among countries. In the mean time, since keeping large stock of international reserves is deemed too costly, emerging markets tend to put their reserves in other emerging markets. This situation indeed entails a significant negative externality in the emerging markets region.
Hence, a policy coordination in the multilateral level is necessary to avoid negative externality of individual country policy response. 26. Third, challenges related to domestic demand and inflationary pressure. Global financial crisis 2008/2009 has deteriorated inter and intra-regional trade which prompted many countries to focus on promoting domestic demand.