It is entirely logical that Audley Shaw, the minister to whom financial markets look for guidance, would have said what he did: that any meltdown of Olint and the other unregulated financial organisations would have no effect on the banking system or the wider economy.

To say anything else would be to engender panic and create a self-fulfilling prophecy. And perhaps the minister's analysis is mostly true, especially relating to the banking system.

Jamaican banks, after their distress in the late 1990s, are decently regulated and relatively sound, with good capital adequacy. So, the collapse of Olint, if that is what is happening to David Smith's organisation, preceded by the demise of Cash Plus, would not be the basis for contagion in the formal financial system.

We are not so sure, however, about the minister's analysis of the potential for their impact on the wider economy. The damage may be broader and deeper than Mr Shaw, and the Government generally, may have calculated. Or, perhaps there is a difference between the statements for public consumption and what the authorities articulate in private. In which regard, they may be assiduously at work on measures to contain any fallout.

The larger effect from the meltdown of the so-called alternative schemes, and particularly of Olint, is psychological and difficult to measure, but crucial.

With their guaranteed, even if logically unsustainable high interest rates, they made people feel wealthy, thereby driving consumption and economic activity.

While many of the assumptions investors made of these schemes may have been impractical and illogical, they were not built on small change. People risked a lot of real money.

Genuine player

Indeed, in a report in January, the think tank, Caribbean Policy Research Institute (CaPRI) estimated that Jamaicans had "invested" up to $200 billion, minus imputed interest. This is 62 per cent of the value of deposits they held in commercial banks at the end of March, or more than three-and-a-half times the deposits in building societies.

Using another measure, $200 billion is nearly 40 per cent of the combined assets of the commercial banking sector. It would be an awful lot of money for people to lose.

Even if some investors harboured suspicions about the true nature of the alternative schemes, Olint was, by and large, considered to be different, a genuine, albeit unregulated, player.

In that regard, we would not be surprised if the recent collapse in consumer confidence, as reported by the Jamaica Conference Board, had more to do with people's fears about the state of their investments in these schemes than concerns over government policy.

Weakening of confidence

With Olint under siege, the weakening of confidence is likely to worsen.

All this is happening at a time of the steep, and rising, price of oil and other commodities, which is fuelling inflation globally.

The mortgage crisis that is threatening the US global financial system, and the weakening of the British and US economies add to Jamaica's troubles. Fewer jobs in those economies will lessen the amount of cash Jamaicans have to remit and weaken the market for tourism and other Jamaican exports.

This situation will demand significant fiscal discipline on the part of the Bruce Golding administration to ensure it operates within its means and keeps to its targeted public-sector deficit, if Jamaica is to avoid a deep crisis.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.