The prognosis for Asia’s financial sector in 2009 is relatively better compared to other emerging economies and also compared to the region’s own experience in 1997-98. Even so, further GDP contractions and asset market corrections are likely as the external environment continues to deteriorate and domestic demand falters.

Asian economies do have fewer mismatches in external debt, lower imbalances in the government, corporate and banking sector balance sheets than their counterparts in emerging Europe, and as a whole used less leverage. Fortunately, ample foreign exchange reserves held by most countries in the region - even before the introduction of Fed swap lines and the IMF’s short-term liquidity facility - fully cover short-term debt and minimize the threat of a financial crisis. Intra-Asia swap agreements are helping provide liquidity to Asian

As governments around the world fight rising unemployment, falling exports and bank credit crunch, and several central banks are facing liquidity traps, many are turning to restrictions that privilege national producers. These populist measures attempt to minimize growth impact, social unrest and pain from the credit crunch that poses a risk to several ruling governments, especially those facing elections soon. Furthermore, some officials hope that such restrictions will reduce the leakage of the scarce funds used in bank bailouts and fiscal stimulus to other countries.

But as history shows, the impacts of trade protectionism on exports and job creation if any are small in the short-term and instead may lead to global retaliation, and in the long-term result in inefficient allocation of labor and capital and trade distortions, affecting potential