"The economic crisis may affect the pace of modernization of defense capabilities in the region," Downer told a security conference grouping countries from the Association of South East Asian Nations (ASEAN) and their main allies.
The financial turmoil gripping most Asian countries would slow growth for up to three years, hitting recent regional efforts to build military power, Downer said.
"The outlook in particular countries depends on the speed with which governments implement economic reforms," he told meeting of more than 100 senior foreign affairs and defense officials from the ASEAN Regional Forum.
"Nonetheless, it is clear that significant stresses in East Asia are going to continue over the short to medium term.
"The stresses will have an impact on the political and social developments across the region, with potential flow-on effects in the short term at least for stability and security, depending on events in particular countries."
The three-day security meeting, which ends on Friday, was called before the recent Asian financial crisis to discuss ways of boosting stability in a region marked by rival territorial claims, ethnic tensions and an increasingly powerful China.
A senior Australian foreign affairs official said the security fallout from the Asian econimc crisis was not officially on the agenda, but would be discussed.
March 5, 1998.