The mood is still one of caution. Investors are whispering it softly. But financial markets believe that the Asian crisis may be over. Tokyo's share prices last week reached their highest level in 21 months, growth in South Korea has picked up and currencies have recovered some of the ground they lost as the financial contagion spread across the region in the second half of 1997.

Yet if the world has really stepped back from the brink of a global crisis, it has been a close thing. The Thai government's decision to devalue the baht on July 2, 1997, set off a financial panic which swept through the region.It took a year for the full extent of the crisis to unfold. Only when orthodox economic remedies had been discredited by repeated failure were alternatives to laissez-faire tried. In August 1998, Hong Kong bought up 10 percent of its stock market to fend off speculative attacks and the following month, Malaysia defied the orthodox economic line and slapped on exchange controls.

There are two big questions now. Is the Asian economy really recovering, or just in remission? And have the right lessons of the crisis been learned?

At the IMF, the hard money men say yes to both. Despite being widely vilified for the stringent conditions attached to its bailouts, the IMF said that tough love has paid off. In the great Asian slump of 1998, Indonesia contracted by 13.7 percent, Thailand by 8 percent, Malaysia by 6.7 percent and Hong Kong by 5.1 percent - recessions of a size not seen since the 1930s.

But unlike the Great Depression, which dragged on for most of the decade, recovery in Asia has been fast for every country except Hong Kong and Indonesia. The IMF is expecting growth to resume throughout the region this year, albeit not at the double-digit pace the region enjoyed before the crisis. Most of the affected currencies are back to 60 percent to 70 percent of their pre-crisis value, and a rebound on the foreign exchanges has allowed the authorities to ease interest rates.

Signs of recovery have been taken as vindication of the IMF's hard-line approach. But the fund's detractors say there was an alternative to tough love and that the Washington orthodox economic prescription was unnecessarily Draconian. The price of an IMF loan was to agree to a package of higher interest rates, squeezed government budgets and radical reform of the financial sector. Skyrocketing interest rates forced firms that had borrowed heavily out of business and widespread corporate bankruptcies led to bank insolvencies.

The social consequences were severe. Prior to the crisis there were 30 million people living on less than $1 a day in Indonesia, Malaysia, the Philippines and Thailand. By 2000 that number could easily double to 60 million.

At the time, the medicine seemed too bitter for some. Joseph Stiglitz, the World Bank chief economist, argued that rather than deflating the economy to restore confidence, the key to luring back investors was maintaining a strong economy.

''High interest rates were supposed to restore confidence in East Asia. Instead, they weakened the economies, causing even more-depreciated exchange rates and thus undermining confidence still further,'' he said.

Stiglitz and other distinguished economists such as Paul Krugman said that a better plan would have been looser monetary and fiscal policy. If that caused currencies to fall, then, Krugman said, countries should have imposed controls on capital movements. For orthodox economists, capital controls are about as popular as garlic is to vampires. But the experience of Malaysia, which refused to toe the orthodox line, suggests that controls can work.

Indeed, if there is a lesson to be drawn from the turbulence, it is that the authorities followed the textbook for the first year and watched as the dominos continued to tumble. Then, when the Russian debt default threatened a global depression, they changed tack. Faced with a crisis of laissez-faire, they fell back on the sort of Keynesian solutions that Stiglitz and Krugman had been demanding.

It was not just that Hong Kong stepped in to outwit the currency speculators or that Malaysia slapped on capital controls, but that the fund did a hasty about-face and stopped demanding self-defeating fiscal stringency.

In the West, policy makers also fell back on Keynesian solutions to the crisis of laissez-faire economics. Interest rates were cut in the United States and Britain as the G-7 warned that a lack of demand, rather than inflation, now posed the bigger threat to the world economy. Japan, too, has dusted off copies of Keynes' General Theory to justify its repeated fiscal packages to boost growth. Whether this has been enough to secure a lasting recovery - both for the world's second-biggest economy and for the region as a whole - remains to be seen.

A relapse in Japan, where unemployment is rising and consumer confidence is weak, is one of three possible clouds on the horizon.

China is a second cause for concern. Some economists say that there is a blatant disparity between official figures from Beijing showing growth at 8 percent and electricity production rising at 2 percent. The hunch is that China is hurting, with exports choked off by the government's refusal to devalue. At some point - probably after admission to the World Trade Organization - the currency will be allowed to fall, squeezing other Asian economies.

Finally, of course, there's the shadow of Wall Street. The U.S. boom has sucked in exports from Asia, helping growth in the affected economies. Alan Greenspan has shown that he wants the party to continue. If he fails, the mood of cautious optimism will be replaced by another bout of blind panic.