Indonesia announced foreign exchange controls last week, triggering the first round of restrictions or limits on foreign currency trading. Other nations are sure to follow as economic growth falls off a cliff this quarter compounded by plunging exports.

As the global financial crisis deepens and spreads to the real economy, more countries will resort to protectionist policies in the emerging markets, eventually imposing semi or hard foreign exchange controls.

The G-20 Summit last weekend in Washington saw a pledge by all members to keep trade flows free of protectionist sentiment; one of the main drags on the 1930s Great Depression was the introduction of the Smoot-Hawley Tariff Act of 1930, which raised imports tariffs on foreign goods and, in some cases, shuttered access to U.S. markets. In retrospect, Smoot-Hawley was a disaster, prolonging the Depression in the United States and elsewhere until World War II commenced in September 1939.

With countries like Russia now drowning amid a market meltdown and draining its reserves, I would not be surprised if Russia is next imposing foreign currency controls.

Just a few months ago, Russia was boasting its vast oil and gas reserves, asserting an aggressive foreign policy in the region and demanding more political muscle in the G-7. With oil prices crashing more than 60% since July and Moscow’s stock market literally in a freefall, the Russians have moderated their opposition.

Russia continues to bleed foreign currency reserves since September following a $250 billion dollar stimulus package. The rouble, however, has remained relatively strong compared to the euro; in 2008 the rouble has declined 12% versus the dollar but has risen 4% against the euro. Still, some sort of quasi-foreign exchange control is likely in Russia.

Other prospective countries on the FX control block include Ecuador, Bolivia, Kazakhstan, Ukraine, Turkey, South Africa and, possibly, South Korea, where the won has collapsed 55% this year.

Venezuela, a major oil exporter, has already absorbed big losses financing Ecuador, which is contemplating a bond default this week. Venezuela’s hard Bolivar, or Bolivar fuerte, is fixed by the central bank and the currency has been non-convertible for more than 15 years.

Extreme economic conditions usually result in severe policy responses by government – including major economies.

Starting in 1997, several Asian countries imposed foreign exchange controls or restrictions following a regional economic collapse. Many countries restricted foreign currency trading, conversion and some imposed outright controls, including Malaysia.

In the early 1970s, the United Kingdom, mired in economic turmoil, imposed foreign exchange controls. And in 1934, FDR confiscated gold.

It’s not unlikely that some major industrialized countries might do the same or, at the very least, implement the first stages of foreign asset restrictions or foreign property ownership.

The United States, Europe and Japan are getting hit hard over the last few months as economic growth contracts and even deepens in Q4. Gold confiscation, foreign exchange restrictions and new reporting rules for personal assets lie ahead as Big Brother delves deeper into our daily economic lives in a time of rapidly declining prosperity.