A YEAR ago, when the financial storm clouds were descending on Thailand, most governments and economists were convinced that a combination of open financial markets, freedom from exchange controls, free trade and unimpeded flow of capital were the panacea for all the world's economic ills. Now, with its experience in Indonesia and South Korea under its belt, even the International Monetary Fund is beginning to act with greater caution. The world is starting to acknowledge that countries with relatively sound fundamentals may be vulnerable. Open markets have not automatically restored economic health. The IMF medicine, concocted primarily for profligate Latin American regimes, may not be as universally beneficial as its bureaucrats believed. With the lacklustre economy in Japan, turmoil in Indonesia and questions about the real depth of reform in Korea, the prospects of Asian recovery look increasingly long term. The US and Europe are more attractive destinations for freely moving capital while companies like Motorola are cutting back as a direct result of the situation in Asia, and others are counting the cost of investments that have turned sour. The fear now is that an open, global market may mean a two-tier international situation for several years for those nations which are fully integrated into the great end-of-century economic game. In those Asian countries on the lower rung, especially Indonesia, that would mean huge social and political tensions as well as the cost of giving up the industrial and technological dreams of only a year ago. But then there is the example of China, which has not yet abolished its control over its currency. Beijing's insistence that it will not contemplate devaluation has rightly earned great international praise, given the destructive effects which such a step would have. But Chinese policy is facilitated by controls which would be under fire from international financial bodies were everybody not so anxious that cheaper exports from the mainland should not jolt recovery in nations undergoing the IMF treatment . China's controls have earned it time to adjust to the market realities which have gripped the rest of Asia since last summer. That has afforded it some protection from the instability on the market - and, indirectly, helped to protect Hong Kong's vital currency peg from serious attack. Beijing is involved in the greatest economic experiment in the world today, and there is very little that other countries can do to influence the course of events being directed by Zhu Rongji. If the Prime Minister decides to modify his policies, it will be, in part, because of the strains caused by the very reforms which have been so widely praised internationally in recent years. But, by then, will the prevailing wisdom have changed in ways that might preserve both China and Hong Kong from the worst effects of the economic orthodoxies recently in vogue? In Hong Kong, there is a growing understanding of the need to inject new life into the economy with counter-cyclical measures. The basis of our economic management will not change; nor should it. Small government, financial prudence and the defence of the reserves will rightly remain the order of the day. But here, as elsewhere in Asia, governments are being asked what they are going to do to foster growth which was once regarded as being as natural as the region's resources and cheap labour. In the SAR, we have seen a recognition of the value of bringing forward planned infrastructure projects, lifting controls originally introduced to curb property speculation and attempting some job-creation. To the despair of some, this is happening in part for political reasons. The conjunction of legislative elections and negative growth figures may have been a matter of chance, but it has had its effect - and faces the administration with the job of preserving its basic economic approach while responding to populist pressure. Not surprisingly, the idea of a more tailored response to Asia's problems is gaining ground. International and regional institutions need to adapt their approaches to meet each national case. Some ingredients may be indisputable, such as the need for effective regulation and transparency, for reform of the banking system and for the fight against corruption. Blunt-edged, generalised recipes that sound good in Western capitals may not fit the situation in very different Asian nations. The foreign banks' deal with Indonesia last week, which should ease the burden of debt repayment, is a good start. Meanwhile the World Bank and other agencies should be helping Asia develop new engines of sustainable growth, not further punishing the poor to cushion the blow for oligarchies with too much at stake to reform. Asia needs to be helped to avoid a second wave of crisis in a more subtle way than was apparent in its first year of turmoil.