of these. in all these deliberations, external debt policies were a crucial part. perhaps this is an ideal forum to describe these new dimensions briefly and narrate the indian position. the new dimensions relating to external debt policies can be analysed under five broad heads, viz. : level of reserves and external debt ; maturity pattern ; issues relating to short - term debt ; policies relating to transparency and standards ; and involving the private sector in forestalling a debt crisis. level of reserves and external debt there has always been a continuous but inconclusive discussion on the optimum level of reserves. traditionally, however, the adequacy of reserves has been mainly linked to import requirements. incidentally, recent experience has shown that countries which were holding large levels of reserves did not necessarily escape the crisis. this shows the importance of appropriate policies and avoidance of excessive comfort from level of reserves. nevertheless, the level of reserves continues to be an important source of comfort on matters relating to stability in the external sector, and consequently on the domestic economy. because of the importance of showing the real level of reserves in a transparent manner, there are increasing efforts to measure unencumbered reserves. the emphasis has also shifted from measuring the adequacy of reserves only in relation to imports to measuring in terms of short - term liabilities, in particular short - term debt. two notable suggestions in this regard have emanated – one from pablo guidotti, deputy finance minister of argentina, and the second from the bank for international settlements. mr pablo guidotti proposed a simple guideline for policy makers in emerging market economies. he suggested that countries should manage their external assets and liabilities in such a way that they are always able to live without new foreign borrowing for up to one year. in other words, usable foreign exchange reserves should exceed the scheduled amortisation of foreign currency debts ( assuming no rollovers ) during the following year. in terms of debt management, this implies a limit on the size of the debt, in particular short - term debt and debt that is falling due for repayment. the bis, in its latest annual report, recognises the importance of countries preparing themselves for the possibility of sudden outflows, and identifies ways in which reserves can be built up. one way of doing this is to run trade surpluses and what the bis terms as a less disruptive solution is the argentine proposal, namely to borrow reserves and arrange contingent lending facilities with the private sector

of crisis. it is important to recognise that the insurance embedded in long - term debt often outweighs the cost. these issues have direct relevance to corporates ’ access to external funds, both in terms of cost and the period of borrowing. the cost of borrowing may increase on account of longer maturities, but they will have the comfort of stable flows. in times of crisis, the costs of disruption on account of destabilising flows may far exceed the cost of raising longer - term debt. there are issues on how the policy makers could promote or ensure an optimal maturity structure. there can be several views on what an optimal maturity itself is. there is one influential view that the average maturity of a country ’ s external liabilities should exceed a certain threshold, say three years. in india, from 1992, emphasis has been laid not only on the cost and size of debt, but also on the maturity. the desired maturity profile is taken into account in policy articulation and clearance of individual cases. the average maturity of our ecb, as you may be aware, is five years. basically, considerations of the size, cost and maturity are embedded in the clearance mechanism for ecb. thus, the ecb policy, though it is being liberalised gradually, will ensure built - in measures towards an optimal maturity. the instruments by which this objective is achieved will continue to be refined from time to time, taking account of international developments also. short - term debt a major source of vulnerability in the asian crisis was the large stock of short - term liabilities of banks and corporates. in the short - term liabilities, debt constitutes a contractual obligation and is thus on a different footing. as mentioned, the link between short - term debt and reserves has come to the fore in these deliberations. there is a cost to building up reserves through large debt flows since the cost of debt would generally be higher than the return on reserves. however, not all short - term flows are bad and some short - term finance is essential to finance transactions. in fact, it is recognised that trade - related short - term credit is not as volatile as non - trade - related credit. overall, there appears to be a consensus now in favour of restraining the inflow of short - term capital until markets, institutions and regulatory frameworks have been sufficiently strengthened. there is, however, a growing debate on the means by which short - term flows can be controlled. major suggestions relate to effective