May 4 (Bloomberg) -- China, Japan and South Korea agreed to pool part of their foreign-exchange reserves to prevent a repeat of the crisis that depleted Asia's holdings ten years ago.

Japan's Koji Omi, China's Jin Renqing and South Korea's Kwon Okyu will join 10 finance ministers from Southeast Asia in Kyoto tomorrow to discuss combining some of region's $2.7 trillion in foreign reserves to help central banks shield their currencies from unwelcome outflows of money.

``Things are at a very early stage and details haven't been set'' such as the when and how the joint reserves of participating nations will be managed, Kwon told reporters after today's meeting. The current arrangement, introduced in 2000, only allows for country-to-country currency swaps.

Pooling the reserves would allow the region's governments, stung by conditions attached to loan packages by the International Monetary Fund during the 1997-98 financial crisis, to reduce reliance on the Washington-based agency.

``It'll take time'' for Asian nations to consolidate a regional financial system, said Robert Subbaraman, chief economist at Lehman Brothers Asia Ltd. in Hong Kong. ``You can't expect these things to explode overnight.''

The unsuccessful defense of their plunging exchange rates a decade ago depleted the reserves of Indonesia, Thailand and South Korea, and prompted them to turn to the IMF to shore up their finances.

IMF Critics

The IMF arranged over $100 billion of loans to the three Asian nations during the crisis after their currencies collapsed. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies.

Critics said the policies deepened the region's recession, as higher borrowing costs hurt businesses and crimped domestic consumption. The IMF, in a 1999 assessment of its handling of the crisis, said it ``badly misgauged'' the severity of the collapse and acknowledged its fiscal prescriptions for the three countries were too harsh.

The IMF's debtors couldn't wait to free themselves from the dictates as all three settled arrears years ahead of schedule. The fund prescribed Thailand the ``wrong medicine,'' former Prime Minister Thaksin Shinawatra said and asked citizens to fly the national flag on offices, homes and factories when it made the last of its payments in 2003.

`Economic Sovereignty'

After clearing loans from the fund in October, Indonesia's central bank governor Burhanuddin Abdullah said the country was ``no longer a sick member of the IMF.'' South Korea's last installment payment of $140 million in August 2001 was accompanied by comments from a government spokesman that it had ``retaken economic sovereignty'' and no longer needed prior consultations with the fund.

The region's holdings of foreign reserves have since swelled. China's foreign-currency holdings grew by $1 million a minute in the first quarter to $1.2 trillion, the most in the world. Japan's foreign exchange reserves have doubled since 2000 to $887.98 billion in March. South Korea's reserves are now the world's fifth-largest, surging to $244 billion from $7 billion in November 1997.

The three countries will also help aid the development of an Asian bond market, which would allow governments tap the region's $1.5 trillion of savings to find projects to build roads and power stations and improve sewage systems.

Bond Market

``We believe this collective work will facilitate the diversification of issuers and types of local currency- denominated bonds and this contribute to the deepening of local bond markets,'' today's statement said.

At present Asia's reserves are invested in the U.S. bond market with investors from Japan, China, Korea, Taiwan and Hong Kong owning a combined $1.2 trillion of Treasuries.

Japan's Omi said the three ministers meeting today on the sidelines of the annual gathering of the ADB also agreed that both Asian and global economies are solid now, but that they will watch out for potential risks to growth including the U.S. housing market and oil prices.

To contact the reporters on this story: Seyoon Kim in Seoul at skim7@bloomberg.netYanping Li in Beijing on yli16@bloomberg.net

Last Updated: May 4, 2007 06:13 EDT