International economic and financial conditions have deteriorated considerably in recent months as recession has deepened in many Asian emerging market economies, IMF said.

At the same time, it warned against any reversal of reforms in emerging economies in Asia as it would put the clock back on their growth and ability to attract foreign investments.

In its semi-annual world economic outlook (WEO) released here IMF said though effects of Asian crisis have been limited in America and Europe till now, the spillovers are presently being felt in the industry sector of these nations.

The Asian currency crisis which affected the economies of Japan and Russia have raised the spectre of default and a world growth of only two per centis projected during the current year, compared to three per cent anticipated earlier, the IMF said in its report.

Stating that Russia's unilateral debt restructuring and ensuing intensification of contagion, the WEO said that the crisis have extended to most of the emerging market economies and stock markets globally.

The WEO said the global economy would gradually recover only in the course of 1999 and return to trend growth by the year 2000.

However, it said, ``the risks of this projection are predominantly on the downslide.''

A worse outcome is clearly possible due to risks relating to a danger of prolonged retreat by foreign investors and banks from emerging markets, widespread financial difficulties, fresh threats to international payments and further decline in stock markets with attendant losses of financial wealth, it said.

WEO said in order to avoid such a crisis, ``confidence restoring policy adjustments'' to deal with the worsening global economic situation and prospects should beevolved.

Calling upon the Asian markets to address the weakness in policies that unmasked the currency crisis in these regions, the report said, they should restructure their financial and corporate sector at the earliest.

Commenting on Russian economy, it said, the country needs to re-establish its monetary discipline, achieve fiscal viability, restructure its banking system and restore relations with external creditors.

In order to bail out the economies reeling under crisis, the report said ``the international community needs to support strong policy action through multilateral and bilateral financial assistance.''

Cautioning against a reversal of liberalisation in the wake of financial crisis in number of countries it said, ``to turn the clock back, would be to forgo benefits of the countries' growing ability to attract foreign saving as well as the broader welfare gains from international portfolio diversification and risk sharing.''

Referring to the role of US and future Euro area, the WEOsaid, the time had come to consider a moderate easing of monetary policies to help counter effects of the deteriorating external environment on domestic activity.

It said, among the industrial countries, the benefits of liberalised capital movements are widely and correctly perceived to outweigh the costs.

``Prudent liberalisation means the need to take into account the possibility that market failures may lead to undesirable surges and excessive volatility of capital inflows especially, short-term flows,'' the WEO said.

Just as domestic financial deregulation needs to be accompanied by adoption of prudential rules, so does global liberalisation require taking up of measures that provide safeguards against excessive short-term currency exposure by banks, non-financial corporations and government entities, the report said.