The political crisis in Indonesia has morphed into a late summer financial typhoon: After emerging in East Timor, it is wandering around the southern Pacific, threatening the nascent economic recovery of the region.

On Friday, markets in Southeast Asia were rocked over concerns that the Indonesian government would forbid foreign peacekeepers to enter the troubled province that has been engulfed in violence after its Aug. 30 referendum for independence. Regional currencies have fallen during this minicrisis. During the past two weeks, the Thai baht has fallen 3%, the Philippine peso more than 1%.

Indonesia's situation washed over the region again last weekend when the government changed course and agreed to a

United Nations

peacekeeper presence in the former Portuguese colony. Markets recovered, demonstrating how the stability of East Timor is now equated in the minds of investors with the stability of the region. Another burst of trouble there, and investors will be quick to turn tail in all of the region's markets.

Here's a radical suggestion for investors: Pay attention to what is happening in say, Thailand, Malaysia and the Philippines, rather than developments in Indonesia. Looking at the region and not the countries in this case is a sure recipe for a repeat of 1997's Asian contagion or last year's Russian bug.

The naysayers will point out that Indonesia has the fourth-largest population in the world. It is a critical economy in the region. Getting its political and economic houses in order is crucial for the long-term prospects for the entire Asia-Pacific region. That's the conventional wisdom.

They should remember that Indonesia has lagged behind the rest of the region on its road to recovery since the 1997 currency crisis. As the

International Monetary Fund's

recent annual report on the state of the global economy notes, political unrest and a failure to embrace economic reform seriously (or what the IMF calls "uncertainties about policy implementation") have had an impact on the rupiah and limited Indonesia's recovery. The outlook was a little better earlier this summer, but since the outbreak of violence in East Timor, the rupiah has plunged 10%.

While Indonesia has lagged, the rest of the region has been doing pretty well. South Korea, where growth is estimated to come in at 6.5% this year, leads the pack. Thailand has rebounded smartly. Money has begun to flow into the region again -- even in Malaysia, which has begun to attract investment again after lifting capital controls earlier this year. The Philippines has remained fairly healthy throughout the crisis. It's easy to understand the frustration of that nation's finance secretary, Edgardo Espiritu, who said last week, "the peso should not fall if you would look at the performance of the economy of the Philippines."

To be sure, these countries are, to some degree, at the mercy of factors beyond their control. Japan has to become an engine of growth for the region. It may have just recorded its second quarter of growth, but that is not enough. China has to refrain from devaluing the yuan -- or invading Taiwan. The U.S. has to continue to keep its markets open (always a worry when the trade deficit continues to widen as it did this week) so that the Asian nations can continue the exporting which is so critical to their economic health.

But most important, Asian countries have to continue to address in their own economies the structural problems that contributed to the crisis in the first place. And it is here that the luster wears off the Asian recovery. Thailand passed an important bankruptcy law but has been unable to implement it. In South Korea, the effort to sell

Seoulbank

, a key part of restructuring its banking sector, has stalled. It is time to be worried about complacency.

It's sort of ironic. Investors

should

be cautious in Asia now. Not because of East Timor, but because of what is happening elsewhere. Hopefully, the situation in East Timor will remind Asian leaders of what they need to do to ensure they weather the next crisis, wherever it is.

David Kurapka wrote speeches for Treasury Secretary Robert Rubin from 1996 until 1999. Before that, he was U.S. Trade Representative Mickey Kantor's speechwriter from 1993 to 1996. Kurapka writes from Oakland, Calif.