BEIJING: Last weekend's ASEM (Asia-Europe Meeting) summit in Beijing is evidence of how difficult reform of the world's financial system is going to be.

It is also evidence that high-sounding talk of "reform" can easily become a diversion from practical measures to halt the contraction in global demand.

The ASEM gathering of 43 diverse states (plus the EU Commission and Association of South East Asian Nations secretariat) was never going to be a starting point for global financial reform. The timing of this biennial meeting just happened to present an opportunity for the group to try to set an agenda.

President Nicolas Sarkozy, currently holding the EU presidency, and President Hu Jintao of China, succeeded in producing a statement calling for new rules governing international finance and an enhanced role for the International Monetary Fund.

But attaching some specifics to those goals when 20 leading nations meet for a financial summit in Washington on Nov. 15 will be extremely difficult.

The Bretton Woods financial system was designed not in a panic but very deliberately at a time when America's relative economic power was at its peak.

There is no more consensus now on the way ahead than there was in 1971. In that year, Bretton Woods was first undermined when President Nixon ended the convertibility of the dollar into gold.

Despite the Smithsonian Accord that followed that shock, it took time and much currency instability before the world adapted to the changed circumstances. The same is likely to hapen now.

It is all very well for Asia and Europe to agree on vague principles of reform, but as South Korea's president, Lee Myung Bak, pointed out, nothing can be achieved unless a trans-Atlantic consensus can be reached - and that looks very difficult.

Over the past few weeks, Europe may have surprised itself with the ability of countries inside and outside the euro zone to act together to bail out banks. But agreeing on changes, particularly on cross-border financial regulation, involving many countries with different systems will be far more difficult. A lame duck U.S. administration can do little more than react to events.

As for Asia, it has set a dismal example. For sure, the impact of the crisis in Asia is less than in the West - and that should remain the case. However, it should have been an opportunity for the major nations to show that the regional accords on currency stability and reserve-asset swaps agreed to in the wake of the Asian crisis of a decade ago meant a lot. But the two countries with the ability to lead have done almost nothing.

The South Korean won has fallen by 40 percent against the Japanese yen since early September, and every currency in Southeast Asia has suffered a bout of jitters. Yet there has been scant sign of neighborly support to offset the exodus of cash-strapped Western investors from these markets, banks and currencies.

In principle, the developing countries of Asia have the fiscal and foreign exchange positions that should enable them to sustain moderate economic growth, despite the collapse of Western demand.

But without the overt backing of Japan and China they are likely to follow very conservative policies, fearing currency instability more than the impact of lower growth.

China, Japan and Korea have agreed with the 10 Asean countries to establish an $80 billion liquidity fund. But this is small relative to their combined reserves of nearly $3 trillion and will not be established till mid-2009. India, meanwhile, faces big challenges on its own.

For ASEM to call for the IMF to play a more active role is all very well. Some quick disbursement of funds to the worst impacted nations will help. But its resources, at around $350 billion, are at present far too small for today's circumstances.

In the future, a new IMF-led liquidity creation system may well be needed as the U.S. current account deficit, the primary source of new global reserves, contracts. But, at best, that is a medium- term goal.

In the shorter term, China and Japan are the two countries best positioned to help sustain global growth through domestic demand stimulus (in China's case) and underwriting expansionist policies in the developing world.

This may seem riskier for than buying more U.S. Treasury bills, but is likely to have far greater long term returns, and will ensure that Asian demand growth helps their own exports and expand their global influence.

It is primarily up to the U.S. and Europe to mend their own financial systems and not to rely on Asians throwing more good money after bad.

But it is primarily up to the Asian powerhouses to stimulate economic activity in a developing world that mostly is neither overburdened with debt nor choked by aging population.