Despite best efforts to allay the fears of Jamaicans and instil a sense that a calamitous fate does not await the country, the Jamaican economy will go through a period of testing times that will call on the resolve of the citizenry.

Prescriptions will have to be found and ways of stimulating a moribund economy will have to be sought. In short, CPR will have to be administered, and quickly.

Many of the banks and brokerage houses initially declared most vociferously that they had little or no exposure to the US financial institutions that fell or were bought out. Now that is proving to be far from the truth. There is now increased demand for foreign exchange to meet margin calls, which is helping to put pressure on the local dollar.

What is patently clear is that the escalation in the global financial crisis has led to a tightening of liquidity, which means many Jamaican finance houses will find it hard to meet their obligations.

One can see the need not to cause a panic but the question remains: Were local institutions being disingenuous or were they not fully aware of the magnitude of the crisis and its wider ramifications?

JMMB were forthright, adhering to principles of corporate governance and transparency. For its efforts a panic was caused, with the viability of the institution called into question although that was never the case. Other institutions did not come to JMMB's aid instead fearing that a similar fate would befall them and stuck to the line that the crisis would have no impact. Is the reaction to JMMB's stance a telling indictment of the Jamaican financial sector?

It subsequently transpired that the Bank of Jamaica created a US$300-million facility to alleviate pressures to satisfy margin calls and to meet maturing obligations in the context of withdrawal of credit lines by some overseas institutions. It is understood that both a commercial bank and other securities dealers have applied to access this loan facility in order to avoid losing credit facilities in respect of GOJ bonds. It has not been clear whether this Bank of Jamaica loan facility is coming from the Net International Reserves (NIR). What is clear is that the local dollar continues to lose ground against the greenback and that will continue to be the case during the Christmas season when there is high demand for US dollars.

This will have a deleterious effect on the wider economy and more particularly the balance of payments. However, there is an argument to be made that falling commodity prices will serve as a palliator.

The good news is that the country has not yet seen the widespread hoarding of US dollars and the Central Bank continues to take prudent measures to ensure that the local currency does not depreciate in an uncontrollable manner. Its aim is to remove excess liquidity and maintain a stable banking system.

Both the Minister of Finance, Audley Shaw, and the Governor of the Bank of Jamaica, Derick Latibeaudiere, maintain that the sector continues to meet liquidity requirements and is in a sound and healthy condition. Effective December 3, the cash reserve requirement on commercial banks, merchant banks and building societies will be increased to 11 per cent on Jamaican dollar liabilities. Also, the liquid asset requirement will rise to 25 per cent from 23 per cent. Those who baulk at this measure are reminded to recall a time when the cash reserve requirement was as high as 25 per cent!

Latibeaudiere continues to mount his trusty steed to fight the ogres of escalating inflation and an escalating Jamaican dollar. Inflation has been on the rise for the better part of this year due to rising oil and commodity prices. Earlier this summer oil hit an all-time high of US$147 a barrel. For the fiscal year, many expected inflation to come in above 20 per cent. Many forecasted rising prices to continue well into the September quarter.

This year has highlighted if anything the country's over-dependence on imports and the cost that incurs. With an income per capita of around US$3,500 a spike in inflation serves to detrimentally affect the cost of living for Jamaicans. Already basic staples and utilities are hard to pay for with little left over for savings or discretionary expenditure.

But there has been some respite from escalating inflation. Headline inflation for the September quarter was 4.7 per cent. This was lower than the inflation rate for the June quarter. According to the Bank of Jamaica, "Inflation in the September quarter was largely due to the lagged pass-through of increases in international energy and grains prices as well as some administrative price adjustments, and to a lesser extent, the impact of Tropical Storm Gustav on reducing domestic agricultural supplies.

"We are therefore anticipating that over the near-term consumer prices will continue to reflect the impact of the decline in international commodity prices. There could, however, be some countervailing movement arising from the recent depreciation in the exchange rate. Against this background, we are forecasting headline inflation in the range of 1.3 per cent to 2.3 per cent in the December quarter.

For the fiscal year, the Bank of Jamaica is expecting inflation in the range of 14 to 16 per cent, thereby lowering its forecast range in light of the downward trend in the prices of international commodities and in expectation of an increase in domestic agricultural supplies.

Over the coming months it can only be hoped that the country does not experience a number of exogenous shocks, allowing it time to ride out this turbulence. That said, it is difficult to assess just how deep this present crisis is or whether it will lead to a depression.

No growth

Over the next year it is very likely that Jamaica will record zero growth given the fact that the Jamaican economy cannot grow when the rest of the world does not. If world demand is not increasing then people will have to understand that the Jamaican economy cannot grow.

The Government has come under pressure but this financial calamity was not of its making. It must not be forgotten that up to September of this year, it has met the fiscal targets. The challenge comes when it deviates from the targets. There are those who feel that the Ministry of Finance should be part of a more co-ordinated approach very much in keeping with what is taking place in the United States with the US Treasury Department and the Federal Reserve. On October 17, the Bank of Jamaica increased interest rates on the full spectrum of its open market instruments and some are dreading even further increases in the months to come. The reality is, if the Central Bank goes out there and tightens underlining liquidity conditions, then no one should be surprised if there is some movement in interest rates. We are now for all intents and purposes operating in a very serious international environment and things are not the same. Every Central Bank around the world is grappling with demand/supply imbalance. Every financial institution is cognisant of taking steps to ensure stability. Jamaica is no exception. Exchange market imbalance is a direct function of demand and supply being out of kilter.

"It is an illusion to think that an economy can grow when demand and supply are out of kilter. It cannot happen. You have to stabilise the system then you move on. The world is in a stabilisation mode and we are no different.

"You saw how people responded when the exchange rate was moving and you must understand it because the exchange rate feeds into prices and everything else. That is why we have to stabilise the system. No country in the world will experience notable growth until the world conditions settle, it's as simple as that!" said the governor of the Bank of Jamaica at his quarterly press Briefing held at Nethersole Place last week.

In answer to the question put to the Governor that there was no co-ordinated effort between the Ministry of Finance (who continues to trumpet that there is no cause for alarm) and the Central Bank which remains perhaps more sanguine, the governor said that he expects the Government to meet the prescribed targets that it has set itself.

"I still believe that the impact on the Jamaican financial sector relative to all that has happened is relatively mild when you look at it in the broader scheme of things. You are talking about a hit of less than US$170 million on Jamaican bonds. The Jamaican financial sector and system is stable and the ratios are intact and that's where we are essentially and that's where we want to be. Yes, we have seen people go long but that is to be expected in a liberalised sector," declared Latibeaudiere.

The situation in the United States is significantly different from what Jamaica has to contend with. In the United States the government can successfully intervene and sell their currency as hard currency. In Jamaica's case the issue is the availability of hard currency plus it has to bring the Jamaican dollar in sync with the demand for hard currency. The United States, economy is grappling right now with how to spur growth, so far unsuccessfully. Jamaica is grappling with how to bring demand and supply into sync. Jamaica's growth is utterly dependent on how quickly the United States recovers and grows.

There is no doubt that Jamaica will undergo turbulence. Already the country's leading hoteliers are citing falling occupancy figures and are calling on the government for assistance. They contend that the tourism sector is the highest earner of foreign exchange and one of the country's leading employers and so it would be remiss of the government not to come to its aid.

Many say there will be a significant fall-off in remittances as widespread unemployment grips the United States. That may be a little premature, as most Caribbean people who reside there work in the service industries, public transport, sanitation - jobs that most Americans will not do but are essential and so a fall-off may not be that deep.

But closer to home. The banana and sugar industries are practically dead and can no longer be considered economic drivers. The financial sector will contract and many white-collar jobs will disappear as a result. Finance houses will have to be leaner and meaner as competition intensifies. The manufacturing sector, already under pressure, may well face even more rising input costs and will find it increasingly difficult to compete with far better equipped economies. Just in the Caribbean alone, Trinidad, Barbados and the Eastern Caribbean are better performing economies and are looking to place their goods and services in Jamaica which serves as a substantial regional market.

The demand for bauxite and alumina will diminish as world demand falls. Already the Russian company Rusal has asked its government for a bailout and AccelorMittal is making drastic cutbacks.

Jamaica's propensity for crime may rise even further given these bleak economic circumstances and this may serve to scare off potential investors at a time when the country needs Foreign Direct Investment more than ever.

Despite the grim outlook it must be borne in mind that Jamaica is resilient. It constantly faces Herculean challenges. Over the 15 months the country has been faced with a bitter general election resulting in a change of government after 18 years, the fall of the unregulated investment schemes, the threat of Hurricane Gustav being a Category 4 hurricane with Jamaica directly in its path, oil prices of US$147 a barrel, a spike in inflation and utilities costs, heinous crimes and now a global financial meltdown, and yet it has remained unbowed.

Opportunity

Out of this crisis and unrelenting challenges comes an opportunity - an opportunity to seriously change the direction of Jamaica. The country can no longer be overly dependent on imports. It must strictly adhere to a policy of eating what it grows, and a greater onus has to be now placed on the agricultural sector. Fortunately at this time the sector has a bright, capable champion in the minister of agriculture, Christopher Tufton.

Rather than concentrate on overseas markets, manufacturing would do well to look to its home market first with the emphasis placed on quality and competitive pricing. Boss Furniture is a prime example of what can be done. The Government here must play its part acting expeditiously and not just pay lip service: Give the productive sector much- needed assistance.

Napoleon Bonaparte once described Great Britain as "a nation of shopkeepers". Everything should be done to encourage small businesses because a great country - as Great Britain was over the last three centuries "nothing more than a multitude of businesses and as they prosper so too does the country," to borrow a phrase from the publisher of this newspaper. Jamaicans can no longer rely on a job for life but they should be given every opportunity to create a job for themselves and to adequately support their families.

Encourage Foreign Direct Investment and truly make Jamaica open for business. Reduce corporate tax and truly mean what you say when you declare it's about jobs, jobs, jobs. Do not seek to protect bloated incompetent state companies; instead subject them to a fat-trimming workout by introducing competition and subscribing to free market economics. It is the only way for small island states.

Inculcate a work ethic that the citizenry can buy into. People need to see that they can make progress through their own endeavours and that Jamaica is truly a country where hard work and initiative truly do pay off. The ingenuity of the Jamaican people has never really been appreciated or tapped into. Too many Jamaican youngsters look up to entertainers and sport stars as the only ones that make it. Why? Because they are well aware that in Jamaica the best years of your life are likely to be ones of drudgery, subjugation and unfulfilment. For too long Jamaican noses have been pressed up against the glass of class, colour, residence and what once held sway during colonialism. Jamaica has to become an egalitarian society.

The president of the Private Sector Organisation of Jamaica, Chris Zacca, mooted the idea of reducing tax across the board to just 10 per cent, thus helping to foster growth and prosperity and putting greater emphasis on compliance. This would help give a boost to consumer spending, a fillip to businesses and foster greater bonhomie in the country.

It is a good idea which needs greater examination before execution. Zacca is onto something here and should not be reticent in championing it further. This should not go the way of the Matalon Report.

Jamaica has produced some world-class business leaders and they should be employed as global ambassadors of business, helping to bring reputable firms into the country. The likes of Maurice Facey, Richard Byles, Michael Lee Chin, John Issa, Oliver Clarke Gordon 'Butch' Stewart, Douglas Orane, Karl Hendrickson and Chris Blackwell have all exhibited an innate talent for business and their achievements bear testament to that. The government should not be ambivalent in consulting these oracles, their experience and wisdom are indeed national treasures. There is little doubt that they are eager to participate in nation building - if asked to.

Once and for all the unsightly ogre of crime must be forced back into its dark carvenous lair not for hibernation but for entombment. This has to number among the Government's top priorities. Crime should not account for five per cent of GDP in an ailing economy with a debt to GDP ratio of around 125 per cent.

The Chinese word for crisis is a compound of danger and opportunity. Jamaica should not countenance danger but should be fully engaged in opportunity. Let's make it so.

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