Of all the villains Shakespeare created, Shylock, the money lender, is arguably the most notorious. Shylock was despised partly because he was a Jew, and more important, because he specialised in lending money to desperate people at exorbitant interest rates. His famous loan was to a noble merchant to whom the 'conditionality' attached to dishonouring the loan was a pound of his flesh. Yet, for all his exactness and utter ruthlessness, there is something charming about Shylock. His pragmatism in business, his capacity for resentment, his desire for revenge render him both modern and human.

Among emerging economies, the International Monetary Fund (IMF) is often seen as the Shylock of international finance. It is an institution that two-thirds of the world, or maybe more, 'loves to hate'. The role of the IMF is essentially to rescue countries faced with severe balance-of-payment problems. But in the past, it has been unwavering in its demand for its pound of flesh. Fortunately, extracting a pound of flesh from a country is not exactly the same as scooping it from the guts of a living human being. Indeed, countries never die, neither do they fade away; they simply move from bad to worse.

Re-entering a lending arrangement

On the question of Jamaica's re-entering a lending arrangement with the IMF, it is now no longer a matter of 'if' it will happen, but rather 'when'. Don Wehby, the junior finance minister, was being busy working on aspects of the agreement with his team in Kingston and his counterparts in Washington. In addition, last Wednesday, Prime Minister Bruce Golding, after explaining that the country would see a shortfall in earning of US$1.3 billion, proceeded to paint a dismal picture. "We would have to restrict the importation of oil, because that's a big chunk of our internal account; so that we would have to start rationing gas, and lights would have to be locked off at certain hours at nights. We would have to start restricting imports of virtually everything; the country would collapse."

Following on a growth rate of -0.6 per cent last year, the economy is projected to contract by four per cent this year. The effects of the global financial crisis and the slump in the world economy are hitting home hard. Furthermore, as the prime minister indicated, faced with the drying up of international credit, the Government really does not have any other serious option outside of the IMF.

The question that haunts some Jamaicans is whether a condition to the proposed US$1.2 billion IMF Standby Facility will require the extraction of a pound of flesh. This is understandable since the proposed $1.2 billion loan being sought represents approximately 430 per cent of the country's quota in the fund, which is almost identical to the ratio that existed when the country obtained a US$477.7 million loan from the IMF in the early 1980s. It is well known that this agreement was followed by massive cuts in Government's spending on education, health, and other social services.

Additionally, while many Jamaicans may not be able to recall the specific experience of other countries, the echoes of discontent over IMF conditionalities in other places may still linger in their subconscious. During the 1990s, there were anti-IMF riots in several countries - Nigeria, Indonesia, Venezuela and South Korea - inspired by the sheer hardship the conditionalities produced.

The ghost of Shylock, the inflexible money lender, the ruthless businessman insisting on the letter of the agreement, is difficult to exorcise. The image built up over the years of an institution rigidly insisting on tight budgets, monetary contraction, and exchange-rate revisions and wage restraint, is not one that goes away easily.

Nevertheless, to be fair to the IMF, the rigid conditionalities came as a reaction to the fact that on many occasions, governments in developing countries took loans and failed to carry out the reform they promised. Shylock might not have asked for a pound of flesh if, before he fell on hard times, the merchant had not abused him or spat on him.

Yet, despite the IMF's controversial past, there is reason for hope.

As recent as two months ago, Dominique Strauss-Kahn, the managing director of the institution, declared that fiscal stimulus is not only for rich economies, but for well-managed poor countries as well. In addition, the intellectual orientation among the IMF staff seems to be shifting towards greater flexibility and a wider range of policy tools. In a recent paper by IMF staff economists, they pointed out that "there is no one-size-fits-all prescription, and appropriate policy mix depends on the particular circumstances of each country".

Exchange-rate depreciation

As such, the prescription of exchange-rate depreciation and raising interest rates mercilessly imposed in the past may not be on. But it would be naïve to believe that there would not be conditions, for it would be nothing short of a glorious self-deception for Jamaicans to think that the afflictions of the economy were minor. Indeed, serious adjustments are necessary.

So, on the eve of this agreement, there are three things that should be borne in mind.

First, the IMF is an institution geared towards providing assistance in a crisis. Therefore, the proposed three-year facility should not be allowed to become a 28-year affair like the last series of borrowing arrangements which began in 1977.

Second, the only way out of this situation is to vigorously pursue income opportunities in order to ensure the standard-of-living increases even while the debt is being serviced. Third, the extent to which the economy is vulnerable to external shocks should be addressed as a matter of priority. The structure of the economy will not change overnight; now is the time to begin.

So, here is the deal: Jamaica may not be required to deliver a pound of flesh in the short run, but the very hearts and souls of every Jamaican are needed.

Cedric Wilson is an economist who specialises in market regulations. He may be contacted at conoswil@hotmail.com or columns@gleanerjm.com.