Money For Nothing.(Business)

Byline: George Wehrfritz; With Jason Overdorf in New Delhi and Sonia Kolesnikov-Jessop in Singapore

Asians are once again battling massive cash flows, but unlike in 1997-98, the tide is coming in.

The New Year dawned in Hong Kong with the undeniable sting of sticker shock. A ride on the cityas iconic Star Ferry will soon cost 23 percent more. Bus fares, tunnel tolls and taxi rides are ticking up, too, as are hospital fees and the price of luxury travel. The proximate cause is the Hong Kong dollaras long-held peg to the U.S. greenback, which has plunged over the past year as the American economy has sputtered toward recession. Yet the ultimate problem is a flood of nearly free money that is beginning to have a host of pernicious effects. In Hong Kong, as in many other parts of Asia, inflation is chief among them.

Countries with so-called managed floats, including Singapore, Malaysia, Indonesia, India and China, allow currency valuations to fluctuate somewhat but hold them in check through central-bank interventions. Those that keep their currencies far below market valuealike Chinaainvite high inflation; those that allow the most appreciation undermine export competitiveness even when the local economy has less-than-stellar growth prospects, as in Thailand. Everywhere, too much money is a problem thatas likely to get much worse now that U.S. Federal Reserve chairman Ben Bernanke has announced an aggressive plan to cut interest rates.

Already, central banks of the United States, Europe and Japan have pumped billions into the global financial system to counteract the subprime-mortgage mess, putting downward pressure on interest rates. From Singapore to China and India, technocrats are struggling to keep the subsequent flows of cheap capital in check and prevent economic meltdowns.

Their options: aLet currencies appreciate, interest rates come down or a[bar] impose some capital controls,a says David Carbon, chief economist at DBS Bank Group Research in Singapore. aIn effect, what [some] Asian governments are saying to foreign investors is, aThanks very much for your interest in our economy, but we just canat absorb so much money, so donat give so mucha.a

Foreign reserves are piling up twice as fast as they did before the 1997-98 Asian financial crisis, and despite lower growth forecasts from groups like the Asian Development Bank and the IMF, most economists still expect that Asia will outperform the rest of the world in 2008, meaning that the tide of cheap money could ...