Growth downgrades and political stresses point to rougher times ahead for Asian economies that will make deep-seated restructuring more urgent than ever.
But although slower global growth has investors on alert for a fresh emerging-market crunch, economists are confident Asia's improved fundamentals will avert a repeat of the 1997 financial crisis that ravaged the region.
This year's sharp fall in Asian equities markets might appear to presage a hard economic landing if not an outright recession, according to economists at JP Morgan.
Yet with interest rates low, currencies undervalued and China revving up as an engine of growth for the region, the investment bank expects Asian growth to slow only modestly in 2001, to 5.9 percent from 7.4 percent this year.
"The recovery is still in an early stage, there remains room for domestic demand to catch up, and macro policy settings remain supportive," JP Morgan economists Bernhard Eschweiler and David Fernandez wrote in the bank's Asian Financial Markets quarterly.
Moreover, Asia is much less vulnerable on the external front than it was during the crisis, when an exodus of foreign money sent currencies tumbling and interest rates soaring.
Since mid-1998, non-Japan Asia has reduced its short-term foreign debt to $122 billion from $191 billion while foreign exchange reserves have grown to $454 billion from $338 billion, according to figures from Morgan Stanley Dean Witter (MSDW).
Indeed, it says every government in the region has enough reserves to pay off short-term foreign debts at least twice over.
Foreign investors have been heading for the exit in Asia - the region's stock markets have fallen for three consecutive quarters - but, with market memories short, officials fret about another destabilising build-up of impatient foreign capital.
William White, economics adviser at the Basle-based Bank for International Settlements, says the search for higher returns in an increasingly competitive financial industry makes risky emerging markets a natural magnet for international capital.
"There remain significant reasons to fear that internal governance constraints may prove inadequate to prevent future capital flows from discomforting emerging market economies," White wrote in a recent BIS Working Paper.
Seared by a cash crunch in 1997 that almost wiped out its foreign reserves, South Korea for one is aware of the risks.
"It is not wise to completely exclude the possibility of another currency crisis should foreign investors pull out their portfolio investments and retrieve short-term loans at the same time..." the Korea Centre for International Finance said in a July report that the finance ministry presented to parliament last month.
Against this background, officials and economists alike are impatient for Korea - and the rest of Asia - to push through the reforms that will give foreign investors no reason to bolt.
"Investors have wisened up and are looking for corporate sector restructuring," said Rob Subbaraman, a regional economist at Lehman Brothers in Tokyo. "A lot of capital is going to be allocated depending on how the reforms go."
Reform is all the more necessary now that the easy first stage of Asia's recovery, based on fiscal and monetary stimulus and booming technology exports, may well be over, economists at Barclays Capital argued.
"More corporate restructuring efforts will be needed next year in order to lure foreign direct investment and repair weak corporate balance sheets...as well as to increase return on capital in order to raise new funds on the local equity market," they wrote in their latest Asian strategy report.
ALL EYES ON KOREA
Korea is a barometer for many economists of Asia's appetite for reform and market opinion is split on whether the government has the will to take on the powerful owners of the country's many bloated, heavily indebted conglomerates, or chaebol.
Subbaraman at Lehman is fairly bullish, partly because he expects a slowdown in growth - to a year-on-year rate of just two percent this quarter from 9.8 percent in the second quarter - to provide the shock needed to revitalise the reform process.
Lehman expects reforms to be solidly back on track by the end of 2001, laying the foundation for six-seven percent annual growth over 2002-05.
Andy Xie at MSDW in Hong Kong is more sceptical.
He said investors were no longer prepared to overlook what he called "odious" malpractices by chaebol owners that have bilked their banks, snubbed their shareholders and now demand government bailouts.
Like Korea, Taiwan faces the challenge of cleaning up its national balance sheet, improving the allocation of capital and finding market niches where it will not get squeezed by restructuring giants Japan and China, Xie said.
"Korea and Taiwan have come a long way and can do even better in the future only if both realise the gravity of the current situation and start to act," he wrote in a note to clients.
Financial responsibility and transparency hold the key, and the stakes are high.
"Investors now hate cover-ups and will stay away from potential bottomless pits," Xie said. "If Korea and Taiwan waste a few more years on their balance sheet troubles or political squabbles, they could really become poor again."