Jill McGivering reports on Hong Kong's road to recovery

All across Asia, stock markets are up, currencies have strengthened, and the economic outlook has improved.

But differences between countries are still striking.

Since the Thai baht was devalued against the US dollar on 2 July 1997, a spiralling crisis engulfed currencies throughout the region. By December the Indonesian rupiah, the Philippine peso, and the Korean won had all fallen sharply against the dollar.

Companies and banks who had borrowed in dollars faced ruin, and the International Monetary Fund (IMF) poured more than $100bn (�60bn) into the region to restore economic health.

Although the outward signs of economic health are evident, there is fierce debate among economists about how real the recovery really is.

Stanley Fisher, Deputy Managing Director of the IMF, is positive.

"Is the recovery for real? Increasingly, that seems to be the case," he argues.

Others disagree. They believe the dramatic rise in the value of stocks, and to a lesser extent currencies, is not built on any fundamental changes in "crony capitalism".

"The Asian recovery is in many respects built on sand," says Desmond Supple, chief economist at Barclays Capital in Singapore.

The most noted critic is US economist Paul Krugman. He argues that Asia has not learned the lessons of the last crisis.

"None of the vulnerabilities that made the great Asian crisis of 1997-1998 possible have disappeared, and there is every reason to believe that Asia has emerged from the crisis with its long-term prospects far less promising than they had seemed only two years ago," he wrote recently.

The key questions relate to the restructuring of the banking system, whose excessive borrowing in foreign currencies caused the initial crisis, and whether the government is willing to expose the corporate sector to real competition.

Asia's strength: Savings and investment

One of the big strengths in the Asian economies has been their high rates of saving, especially compared to the United States. While households in the US currently have a negative savings rate, people in Korea increased their savings from 34% to 42% of their income.

In countries like Korea, the crisis caused social unrest

"We all loved Asia back before anyone had heard of the baht crisis, because of the high savings rate," said Graham Courtney of Warburg, Dillon and Read.

The high savings rate has enabled countries like Korea to make huge investments in new, modern factories.

It has not solved the problem of where that investment would be most efficiently made. In the pre-crisis days, governments directed a large portion into favoured industries.

Since the crisis, the power of world market forces has become evident even in a closed economy like South Korea.

Most countries have accepted the need to reform their regulatory framework governing companies and banks, making things more open and providing more assurances about future investment.

Two years on, the struggle to define an Asian version of capitalism continues.

As Paul Krugman puts it: "The crisis ... has tempered the dangerous belief that 'Asian values' somehow made the region's economies invulnerable."

But, he adds, it has also softened "free-market fundamentalism: countries are less likely to be pressured to throwing open their financial markets before they are ready."

Tarnished reputations

Malaysia's prime minister, Dr Mahathir Mohammed, blamed the IMF and Western investors for the crisis

Despite the seeming progress, the reputations of the IMF and World Bank also come out tarnished from the crisis, with a country's rate of recovery seemingly unrelated to how closely they conformed to IMF rescue packages.

And it has proved even more difficult to commit the private sector - the international banks - to participate in any future rescue package.

At the moment that is not needed, as confidence and investment returns to the region, and countries begin to rebuild their weakened financial structures.

But the heady days of the East Asian economic miracle, when double-digit economic growth seemed destined to continue forever, are clearly over.

If anything, the crisis has been a sobering reminder that there are no long-lasting miracles in economics.