of short term debt ( i. e., debt obligations with an original maturity up to one year ) to foreign exchange reserves has substantially declined form 147 per cent as at end - march 1991 to 8 per cent as at end - march 2001. the proportion of volatile capital flows defined to include cumulative portfolio inflows and short term debt to reserves has lowered from 147 per cent in 1991 to 58. 5 per cent as at end - march 2001. as part of sustainable external debt position, the short term debt component has decreased from 10 per cent as at end - march 1991 to 3 per cent as at end - march 2001. similarly, the size of debt service payments relative to current receipts has decreased from 35 per cent in 1991 to 16 per cent in 2001. management of international reserves in the recent years, for several reasons, increasing attention is being paid to management of international reserves. first, advent of the euro as an alternate currency to us dollar ; second, movement of many central banks out of gold ; third, changes in exchange rate regimes ; fourth, changing views on reserve adequacy and its role in crisis prevention ; and fifth, operational use of “ reserve targets ” in calculating financing gaps by imf. the attention to the subject is evidenced by increasing emphasis on transparency, accountability in various fora, and more recently, the issue of imf guidelines on the subject. operationally, reserve management is a process that ensures that adequate official public sector foreign assets are readily available to and controlled by the authorities for meeting a defined range of objectives for a country. a reserve management entity is normally made responsible for the management of reserves and associated risks. invariably, the reserve management entity is the central bank and hence the objectives of reserve management tend to be critical as they would encompass the objectives of the monetary authority and the objectives of a portfolio manager or the custodian of reserves. as a monetary authority, a central bank ’ s primary objective is to ensure macroeconomic financial stability in general and external stability in particular. as a custodian, the central bank ’ s main objectives are to ensure liquidity, safety and yield on deployment of reserves. in considering management of reserves, the benefits and costs of holding reserves are constantly assessed. on the benefits, recent international financial crises have shown that holding and managing sufficient reserves and disclosing adequate information to markets helps a country to prevent external crises, especially those stemming from the capital account. the growing appreciation of the role of reserves in crises prevention

firms. slight year - on - year falls in consumer prices are expected to continue for the time being, partly due to such factors as the effects of the reduction in electricity and telephone charges accompanying deregulation. the money market remains stable overall against the background of the bank ’ s provision of ample liquidity. the full removal of blanket deposit insurance is scheduled for april 1, 2005. concerns about the financial system have decreased significantly as financial institutions have made progress in regaining financial health. financial institutions have been more confident in raising funds in the money market and their liquidity demand has decreased, as implied by the fact that, in the bank ’ s funds - supplying operations, there were cases where bids fell short of the bank ’ s offers. in the capital markets, stock prices have been firm on the whole. long - term interest rates have been generally stable, although there was a temporary rise. the environment for corporate finance is becoming more accommodative on the whole. the lending attitude of financial institutions is becoming more accommodative, and their lending attitude as perceived by firms has also been improving. under these circumstances, the rate of decline in lending by private banks has been diminishing at a moderate pace. moreover, the fund - raising environment for firms in the capital markets through cp and corporate bonds remains favorable. ii. conduct of monetary policy the bank has been conducting the quantitative easing policy with the outstanding balance of current accounts held at the bank as the operating target. the bank has been providing ample liquidity to the money market in accordance with the current target range for the outstanding balance of “ around 30 to 35 trillion yen, ” which is far above the amount financial institutions are obliged to hold at the bank by law or arrangements with the bank. this has contributed to maintaining the accommodative environment for corporate finance through maintenance of the stability of financial markets. the bank has made a commitment to maintain the quantitative easing policy until the year - on - year rate of change in the consumer price index ( cpi ; excluding fresh food, on a nationwide basis ) registers zero percent or higher on a sustainable basis. this commitment has contributed to stabilizing market interest rates, and thus firms have been able to raise funds at low interest rates. the commitment ’ s positive effects through interest rates on the economy will strengthen as corporate profits increase with economic recovery. iii. the bank ’ s measures regarding the financial system after the full removal of the blanket guarantee of deposits as i mentioned