Which short-term debt over reserve ratio works best?: Operationalising the Greenspan Guidotti rule
The East Asia crisis has highlighted the critical role of reserves. Countries at the core of the crisis-Thailand, Korea and Indonesia-had very limited reserves in relation to short-term debt. So did Russia a year later. Against the background of widespread emerging economy crises, and the role therein of reserves, Alan Greenspan, chair of the United States Federal Reserve, has advocated the use of reserves over short-term debt as a key indicator for assessing reserve adequacy (Greenspan 1999a and 1999b). In this he follows earlier ideas by Guidotti, then-deputy Finance Minister for Argentina, that countries should be able to go without foreign borrowing for at least a year. More specifically, Greenspan proposed that reserves should exceed scheduled amortisation of debt for the following year (that is, short-term debt by remaining maturity).