HONG KONG: Asian markets have been so transfixed by the bailout saga in Washington that the issue of what regional governments can do jointly and severally to help themselves has been mostly neglected. Stock markets in Asia have fallen faster than in the West, despite relatively good economic conditions, and currencies have fallen despite strong external balances.

In short, Asia badly needs to gain some self-confidence and stop staring motionless like a rabbit caught in America's headlights.

The $700 billion package should alleviate short-term conditions in financial markets, but the long-term impact for the United States now seems likely to resemble the long, drawn out Japanese recovery from its asset price bust in the early 1990s than the very dramatic but quite short downturn that most of East Asia experienced in 1997-99. Back then, depositors were protected but public money bailouts for equity investors and bankers were scarce.

America's $700 billion bailout may simply be pushing a drowning man into shallower water. Or it may just be a swap of private debt for U.S. public debt. Either way, the U.S. situation presents an open, trade-dependent Asia with challenges that will test its ability to cooperate in providing the same sort of counter to current Western weakness that Western strength provided to the global economy at the time of the Asian crisis.

But Asia needs to beware of confusing economic liberalism with the kind of casino gambling indulged in by U.S. investment banks such as Goldman Sachs under Henry Paulson's leadership. In the West there is already a rising tide of opinion that fails to distinguish between anything-goes financial activity and sound liberal economics based on free trade and private ownership.

Because the United States, both in trade talks and through its once powerful financial companies, pushed the two without much distinction, there is now a danger of reaction against both.

A decade ago, Asia accomplished a return to financial sector discipline after the excesses that led to the crisis without turning its back on freer trade and generally light regulation of capital flows.

However, it might now turn against global free trade if policies prove inadequate to offset the sharp and perhaps prolonged falls in demand from the United States that are inevitable as consumption and asset values fall after years of excess.

The present crisis in the United States has been long in the making, so Asians must think in terms of years as they adapt to U.S. re-balancing. That means those countries with large current account surpluses - China, Japan, Malaysia and Taiwan - as well as those with large reserves and an ability to borrow - South Korea, Thailand and others - need to stimulate their domestic economies.

Asia must discard the mindset created by the Asian crisis - the obsession with trade surpluses and ever-increasing reserves of dollars.

Since that crisis, regional central banks have established cooperative swap arrangements to defend their currencies against speculative attack. Those now need to be seen not as a defensive weapon but a way to encourage economic growth by mutual acceptance of one anothers' local currency government bonds. That could help both offset the decline in global liquidity growth that will follow from falling U.S. demand, and encourage the smaller countries in particular to follow less-restrictive fiscal policies.

Claims of East Asian cooperation should be treated as empty rhetoric if, faced with the sudden ending of the U.S. import bonanza, Asean plus China, Japan and Korea do not even try to take coordinated steps to stimulate regional demand.

These countries, all with large reserves, should also use this opportunity to demand a bigger say at the IMF in preparation for the day in the not-too-distant future when there will be a shortage of global liquidity, as measured by foreign exchange reserves, rather than the excess created by U.S. deficits in recent years.

Asians should show also show more forceful backing for revival of the Doha Round of World Trade Organization talks. Asia can be sure that neither the United States nor the European Union will be carrying the global free trade banner in the immediate future. Asia, which has benefited so much from liberal trade, should seize it.

Yet there is a real danger that the WTO will be neglected and Asia will focus on bilateral agreements that at best are meaningless and at worst create complex preferential systems which are new barriers to trade.

In short, though the financial sector disaster in the United States has large and immediate global impact, it need not be fatal for liberal economic policies. Asia may well hold the key to whether this is merely the correction of an over-extended Western-based financial sector, or a turning point away from globalization in general.